| 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)          |

----

----

----

----

----

|                      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 |
|--------|-------------------|

----

----

|   | Item 8A.   Controls      and Procedures. |
|--------|----------------------------------------------------|

----

Item8B.  Other information

----

Item 10. ExecutiveCompensation.

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

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS ANDMANAGEMENT

|                                                         | Common      Stock                                       | Preferred      Stock                                        |
|--------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Name and Address of Beneficial      Owner (1)                | Shares                                                                                                                                                      | Percentage                                                                                                                                                                                                                                                     | Shares                   | Percentage |
| 5%      Shareholders:                                        |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                           |   |   |
|                                                         |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                           |   |   |
| Ridgemont      Investment Group, LLC (2)                     | 3,160,000                                                                                                                                                                                                                                             | 8.5                                                                                                                                                                                                                                                            |   |   |
| Victoria      & Eagle Strategic Fund, Ltd. (3)           | 2,120,000                                                                                                                                                                                                                                             | 5.7                                                                                                                                                                                                                                                            | 195,351 | 100% |
| Directors      and Executive Officers: (4)                   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                           |   |   |
| Collier      Sparks                                          | 1,185,000                                                                                                                                                                                                                                             | 3.2                                                                                                                                                                                                                                                            | -- | -- |
| Richard      Larsen                                          | 718,500                                                                                                                                                                                                                                               | 1.9                                                                                                                                                                                                                                                            | -- | -- |
| Michael      Sweet                                           | 500,000                                                                                                                                                                                                                                               | 1.3                                                                                                                                                                                                                                                            | -- | -- |
| Carlo      Loi                                               | 512,500                                                                                                                                                                                                                                               | 1.4                                                                                                                                                                                                                                                            | -- | -- |
| James      Power                                             | 380,000                                                                                                                                                                                                                                               | 1.0                                                                                                                                                                                                                                                            | -- | -- |
| Peter      Knepper                                           | 225,000                                                                                                                                                                                                                                               | *                                                                                                                                                                                                                                                              | -- | -- |
| Executive      Officers and directors as a group (6 persons) | 3,521,000                                                                                                                                                                                                                                             | 9.5                                                                                                                                                                                                                                                            | -- | -- |

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

| (1) | Unless      otherwise noted, all addresses are c/o MDI, Inc., 10226 San Pedro Avenue,      Suite 200, San Antonio, Texas78216. |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      information provided is as of December 31, 2007. As of the date of this      filing, Ridgemont Investment Group, LLC owns 2,335,000 shares of the      Company’s common stock. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (4) | The      table includes shares of Common Stock that can be acquired through the      exercise of options within 60 days of April 21, 2008 (June 28, 2008) as      follows: Mr. Sparks — 1,010,000, Mr. Larsen — 606,000,  Mr.      Sweet — 425,000, Mr. Loi — 512,500, Mr. Power — 380,000, Mr. Knepper —      225,000, and all named executive officers and directors as a group      —3,158,500. The percent of the class owned by each person has been      computed assuming the exercise of all options deemed to be beneficially      owned by that person, and assuming that no options held by any other      person have been exercised. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item 13. Exhibits.

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

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

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

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

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

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

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

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

|   | 99.3 | Form      of Executive Officer Employment Agreement.(*) |
|--------|------|---------------------------------------------------------|

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

----

| /s/ James Power                             | Chairman      of the Board                                           | Dated:      August 29, 2008                                                 |
|---------------------------------------------|----------------------------------------------------------------------|-----------------------------------------------------------------------------|
| James      Power                            |                                                                 |                                                                        |
|                                        |                                                                 |                                                                        |
| /s/ J. Collier SparksJ.      Collier Sparks | Chief      Executive Officer(Principal      Executive Officer)  |         Dated:      August 29, 2008 |
| /s/ Carlo Loi                               | Vice      Chairman of the Board                                      | Dated:      August 29, 2008                                                 |
| Carlo      Loi                              |                                                                 |                                                                        |
| /s/ Peter Knepper                           | Director                                                             | Dated:      August 29, 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                                                                                                                                                                                                                                                                      | $                       23,515                            |   | $                 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                      | $                   (5,241)            | $            (6,407) |
| Net      loss allocable to common stockholders | $                   (5,262)            | $            (6,408) |
| Income      per share:                         |                                                                                                                                  |   |
| Basic                                          | $                     (0.15) | $             (0.22) |
| Diluted                                        | $                     (0.15) | $             (0.22) |

----

----

|                          |               | 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)      |

----