**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





**x  ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the fiscal year ended** **December
      31, 2007**





**o  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the transition period from ________________** **.**





**Commission
      File No.: 0-13117**





**Clacendix,
      Inc.**


(Name
      of
      Small Business Issuer in Its Charter)




**Delaware**(State
                  or Other Jurisdiction of
              
              **22-2413505**Incorporation
                  or Organization)
              
              (IRS
                  Employer Identification
                  Number)




**2001
                  Route 46 Parsippany,**
              **NJ07054**(Address
                  of Principal Executive Offices)
              (Zip
                  code)




Issuer's
      telephone number **** **(973)
      402-4251**





**Securities
      registered under Section 12(b) of the Exchange Act:**




Name
                  of Each ExchangeTitle
                  of Each Class
              
              On
                  Which Registered**None**
              
              **None**


**Securities
      registered under Section 12(g) of the Exchange Act** :





**Common
      Stock, $.001 par value**


(Title
      of
      Class)





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





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. **** Yes x   No 
      o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB.  o





Indicate
      by checkmark if the Registrant is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act)


Yes x   No
o





The
      issuer's revenues for the year ended December 31, 2007 totaled $
      3,314,503.





The
      aggregate market value of voting stock held by non-affiliates, based on the
      closing price of the Common Stock, par value $ 0.001
      (the "Common Stock") on February 4, 2008 of $0.04, as reported on the OTC
      Bulletin Board was $1,321,886 .
      Shares
      of Common Stock held by each officer and director and by each person who owns 5 %
      or more
      of the outstanding Common Stock have been excluded in that such persons may
      be
      deemed to be affiliates. This determination of affiliate status is not
      necessarily a conclusive
      determination for any other purpose.





There were
      33,047,161 shares of Common Stock outstanding as of March 31, 2008 .





**DOCUMENTS
      INCORPORATED BY REFERENCE: None**





**Transitional
      Small Business Disclosure Format (check one):**





Yes 
      o   No 
      x







Information
      Regarding Forward-Looking Statements





References
      in this document to "we," "our," "us," and "the Company" refer to Clacendix,
      Inc .





A
      number
      of statements contained in this report are forward-looking statements within
      the
      meaning of the Private Securities Litigation Reform Act of 1995 that involve
      risks and uncertainties that could cause actual results to differ materially
      from those expressed or implied in the applicable statements. You can identify
      forward-looking statements by our use of words such as "may", "will", "should",
      "could", "expects", "plans", "intends", "anticipates", "believes", "estimates",
      "predicts", "potential", or "continue" or the negative or other variations
      of
      these words, or other comparable words or phrases. These statements include,
      but
      are not limited to, statements regarding  our
      ability to complete our business objectives. These
      risks and uncertainties include, but are not limited to,





·
            our
                ability to complete a combination with one or more target businesses;


·
            our
                success in retaining or recruiting, or changes required in, our officers
                or directors following a business combination;


·
            our
                potential inability to obtain additional financing to complete a
                business
                combination;


·
            a
                limited pool of prospective target businesses;


·
            a
                potential change in control if we acquire one or more target businesses
                for stock;


·
            our
                public securities’ limited liquidity and trading;
                or


·
            our
                ongoing financial performance.





Unless
      otherwise required by applicable securities laws, the Company assumes no
      obligation to update any such forward-looking statements, or to update the
      reasons why actual results could differ from those projected in the
      forward-looking statements.




**PART
      I**





**Item
      1: Description of Business**





*Sale
      of Substantially* *all* *of* *our* *Operating Assets* ******




On
      December 31, 2007, Clacendix,
      Inc. sold substantially all of its operating assets to Cryptek, Inc. (“Cryptek”), a privately
      held Delaware corporation
      (the “Transaction”). Stockholder approval was required, and obtained ,
      with
      respect to such sale .




The
      closing of the Transaction occurred immediately upon the conclusion of the
      Annual Meeting of Shareholders held on December 31, 2007.  Pursuant to the
      Asset Purchase Agreement, the Company sold to Cryptek. substantially all of
      the
      operating assets of the Company in exchange for the total consideration of
      $3,771,040, made up as follows: (i) $3,200,000 in cash, (ii) $338,187 in
      receivables which will flow to the Company, and (iii) $232,853 in certain
      assumed liabilities.  At the closing of the Transaction, $320,000 was
      deducted from the total cash delivered to the Company and deposited in an escrow
      account to provide for any claims against the Company’s transferred Intellectual
      Property which may arise within one year of the closing date. This escrow amount
      has been classified as restricted cash as of December 31, 2007.




The
      Company realized a gain of $1,453,113 on the sale of substantially all of the
      operating assets of the Company.  The Company incurred $215,731 in
      expenses related to the transaction comprised of legal and accounting fees
      of
      $169,672, shareholder meeting related expenses of $30,327 and other fees of
      $15,732. A
      detailed summary of the assets and liabilities sold as part of the Transaction
      is provided below in Item 6.




*Historical
      Overview*




Clacendix,
      Inc. (formerly ION Networks, Inc.) is a
      Delaware corporation founded in 1999 through the combination of two companies,
      MicroFrame, Inc. (originally founded in 1982), a New Jersey corporation and
      SolCom Systems Limited (originally founded in 1994), a Scottish corporation
      located in Livingston, Scotland.  The
      Scottish corporation was dissolved in 2003. On
      December 31, 2007, the Company changed its name from ION Networks, Inc. to
      Clacendix, Inc. Our principal executive offices are located at 2001 Route
      46, Parsippany, New Jersey 07054, and our telephone number is (973)
      402-4251.




Prior
      to
      completion of the Transaction, the Company provided remote
      services delivery and secure access technology. The
      Company’s suite of tools enabled service
      providers, government and military agencies, and corporate IT departments to
      remotely manage, monitor, and secure critical devices on voice and data
      networks. The
      Company's principal business prior to completion of the Transaction was to
      address the need for security and network management and monitoring solutions,
      primarily for the PBX-based telecommunications market, resulting in a
      significant portion of revenues
      being generated from sales to various telecommunications companies. In 1999,
      the
      Company expanded through the purchase of certain assets of LeeMAH DataCom
      Security Corporation. The
      Company now plans to seek a target company with which to merge or to complete
      a
      business combination and use
      the value of the public shell, cash on hand and the limited Net Operating Loss
      carry forwards, to secure an equity position in the newly merged or combined
      corporate entity . 
      In any transaction, it is expected that the Company would be the surviving
      legal
      entity and the shareholders of the Company would retain a percentage ownership
      interest in the post-transaction company.  The Company does not plan to
      restrict its search to any specific business, industry or geographic location,
      and it may participate in a business venture of virtually any kind or
      nature.




2




The
      Company may seek a business opportunity with entities which have recently
      commenced operations, or that desire to utilize the public marketplace in order
      to raise additional capital in order to expand into new products or markets,
      to
      develop a new product or service, or for other corporate purposes.  The
      Company may acquire assets and establish wholly owned subsidiaries in various
      businesses or acquire existing businesses as subsidiaries. The Company can
      give
      no assurance that any such a transaction will occur, or that if such a
      transaction were to occur, it would enhance the Company’s future operations or
      financial results, or specifically that the Company would become and remain
      profitable as a result of such transaction. . If we do
      not complete a transaction within a reasonable time frame, we may liquidate.




*Employees*





As
      of
      December 31, 2007, the Company had 2 full-time employees.




*Risk
      Factors*





*We
      have no operating history with respect to our new business objective and,
      accordingly, you have no basis on which to evaluate our ability to achieve
      it.*





We
      recently sold substantially all of our operating assets. Because we lack an
      operating history with respect to our new business objective of completing
      a
      business combination with one or more target businesses, you have no basis
      on
      which to evaluate our ability to achieve such objective. We are currently in
      the
      process of evaluating and identifying prospective target businesses concerning
      a
      business combination but may be unable to complete a business combination.
      We
      will not generate any future revenues until, at the earliest, after the
      consummation of a business combination. If we do not complete a transaction
      within a reasonable time frame, we may liquidate.





*We
      may issue shares of our capital stock or debt securities to complete a business
      combination, which would reduce the equity interest of our stockholders and
      likely cause a change in control of our ownership.*





Our
      amended and restated certificate of incorporation authorizes
      the issuance of up to 50,000,000 shares of common stock, par value $.001 per
      share, and 1,000,000 shares of preferred stock, par value $.001 per share.
      On December
      31, 2007, our stockholders
      approved the increase in the number of authorized shares of common
      stock to
      750,000,000 shares, but as of the filing of this annual report, this charter
      amendment has not been filed. Shares of Common Stock or Preferred Stock that
      are
      redeemed, purchased or otherwise acquired by the Company may be reissued except
      as otherwise provided by law .
      At March
      31, 2008, there were 7,497,922 authorized but unissued shares of our common
      stock available for issuance (after reservation for the issuance of 6,360,760 shares issuable pursuant to currently exercisable options, 1,538,587
      shares issuable pursuant to currently exercisable warrants and 1,555,570 shares
      issuable pursuant to currently convertible preferred stock )
      and
      844,443 shares of preferred stock available for issuance. Although we have
      no
      commitment as of the date of this report, we may issue a substantial number
      of
      additional shares of our common or preferred stock, or a combination of common
      and preferred stock, to complete a business combination. The issuance of
      additional shares of our common stock or any number of shares of our preferred
      stock:





·
            may
                significantly reduce the equity interest of investors;




·
            may
                subordinate further the rights of holders of common stock if we issue
                additional preferred stock with rights senior to those afforded to
                our
                common stock;




·
            may
                cause a change in control if a substantial number of our shares of
                common
                stock are issued; and




·
            may
                adversely affect prevailing market prices for our common stock.




Similarly,
      if we issue debt securities, such debt could result in:




·
            default
                and foreclosure on our assets if our operating revenues after a business
                combination are insufficient to repay our debt obligations;




3




·
            acceleration
                of our obligations to repay the indebtedness even if we make all
                principal
                and interest payments when due if we breach any covenants that require
                the
                maintenance of certain financial ratios or reserves without a waiver
                or
                renegotiation of that covenant;




·
            our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security is payable on demand; and




·
            our
                inability to obtain necessary additional financing if the debt security
                contains covenants restricting our ability to obtain such financing
                while
                the debt security is outstanding.




*We
      may be restricted from issuing new equity securities.*




In
      September 2002, we issued shares of Series A Preferred Stock to several
      investors. Under the terms of the preferred stock, any issuances of equity
      securities or securities convertible into or exercisable for equity securities
      require the prior approval of the holders of a majority of the outstanding
      shares of Series A Preferred Stock. While two of our directors currently own
      a
      significant portion (48.8%), they do not own a majority of the preferred stock.
      While the Company has been successful in obtaining the consent of a majority
      of
      the Series A Preferred Stock when the Board of Directors has requested, there
      can be no assurance that the Company will continue to be able to obtain such
      consent. If the Company is unable to obtain this approval, the Company would
      be
      prevented from issuing equity securities which would preclude the Company from
      raising equity financing, utilizing equity based compensation plans and from
      other actions requiring the issuance of equity securities. In addition, the
      consent of certain of our existing investors (which consent may not be
      unreasonably withheld or delayed) is required in connection with certain
      financings involving (subject to certain exclusions) the issuance of securities
      in which the purchase price, number of securities, exercise price or conversion
      rate are subject to future adjustments. Failure to obtain such consent could
      restrict the Company's ability to avail itself of the benefits of such
      financings.





*We
      are dependent upon Mr. Corn and Mr. Delaney and the loss of either of them
      could
      adversely affect our ability to operate.*





Our
      operations are dependent upon two people, Mr. Corn and Mr. Delaney, our only
      employees. We believe that our success depends on the continued service of
      Mr.
      Corn and Mr. Delaney, at least until we have consummated a business combination.
      Although each has agreed to stay with the Company until June 30, 2008, we cannot
      assure you that such individuals will remain with us for a longer period of
      time. In addition, we cannot assure you that they will be successful in
      allocating management time among various business activities, including
      identifying potential business combinations and monitoring the related due
      diligence. In addition, Mr. Corn and Mr. Delaney are permitted to engage in
      other activities that are not in conflict with their responsibilities to the
      Company affairs, which could create difficulties when allocating their time
      between our operations and their other commitments. The unexpected loss of
      the
      services of either of these individuals could have a detrimental effect on
      us.




*Since
      we have not yet selected a particular industry, geography, or target business
      with which to complete a business combination, we are unable to currently
      ascertain the merits or risks of the industry or business in which we may
      ultimately operate.*





We
      may
      consummate a business combination with a company in any industry we choose
      and
      are not limited to any particular industry, geography, or type of business.
      Accordingly, there is no current basis for you to evaluate the possible merits
      or risks of the particular industry in which we may ultimately operate or the
      target business that we may ultimately acquire. Your only opportunity to
      evaluate and affect the investment decision regarding a potential business
      combination will be limited to voting for or against the business combination,
      if submitted to our stockholders for approval. To the extent we complete a
      business combination with a financially unstable company or an entity in its
      development stage, we may be affected by numerous risks inherent in the business
      operations of those entities. If we complete a business combination with an
      entity in an industry characterized by a high level of risk, we may be affected
      by the currently unascertainable risks of that industry. Although our management
      will endeavor to evaluate the risks inherent in a particular industry,
      geography, or target business, we cannot assure you that we will properly
      ascertain or assess all of the significant risk factors. We also cannot assure
      you that an investment in our securities will not ultimately prove to be less
      favorable to investors than a direct investment, if an opportunity were
      available, in a target business.





*Because
      there are numerous companies with a business plan similar to ours seeking to
      effectuate a business combination, it may be more difficult for us to do so.*





There
      are
      numerous shell and “blank check” companies that are seeking to carry out a
      business plan similar to our current business plan. Furthermore, there are
      offerings for blank check companies that are still in the registration process
      but have not completed initial public offerings, and there are likely to be
      more
      blank check companies filing registration statements for initial public
      offerings prior to our completion of a business combination. While some of
      those
      companies must complete a business combination in specific industries, a number
      of them may consummate a business combination in any industry they choose.
      Therefore, we may be subject to competition from these and other companies
      seeking to execute a business plan similar to ours. Because of this competition,
      we cannot assure you that we will be able to effectuate a business combination.




4




*Compliance
      with the Sarbanes-Oxley Act of 2002 will require substantial financial and
      management resources and may increase the time and costs of completing an
      acquisition.*





Section
      404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report
      on
      our system of internal controls beginning with this Annual Report on Form 10-KSB
      for the year ending December 31, 2007. If we fail to maintain the adequacy
      of
      our internal controls, we could be subject to regulatory scrutiny, civil or
      criminal penalties, and stockholder litigation. Any inability to provide
      reliable financial reports could harm our business.





Section
      404 of the Sarbanes-Oxley Act also requires that our independent registered
      public accounting firm issue an attestation report on its evaluation of our
      system of internal controls with respect to the year ended December 31, 2008.
      A
      target company may not be in compliance with the provisions of the
      Sarbanes-Oxley Act regarding adequacy of their internal controls. The
      development of the internal controls of any such entity to achieve compliance
      with the Sarbanes-Oxley Act may increase the time and costs necessary to
      complete any such acquisition. Furthermore, any failure to implement required
      new or improved controls, or difficulties encountered in the implementation
      of
      adequate controls over our financial processes and reporting in the future,
      could harm our operating results or cause us to fail to meet our reporting
      obligations. Inferior internal controls could also cause investors to lose
      confidence in our reported financial information, which could have a negative
      effect on the trading price of our stock.




5


**Item
      2: Description of Property**





Until
      the
      completion of the sale of substantially all of its operating assets to Cryptek
      on December 31, 2007, the Company leased approximately 7,000 square feet at
      120
      Corporate Blvd., South Plainfield, New Jersey. This lease was assumed by Cryptek
      in the Transaction. The Company now leases space in an executive suite located
      at 2001 Route 46, Parsippany, New Jersey 07054, through a month-to-month lease
      at a rate of $225 per month. The Company is entitled to use this space two
      days
      per month, without incurring additional expense. We believe our facilities
      are
      adequate and suitable for our current level of operations. Our management
      believes that the leased property is adequately covered by
      insurance.





**Item
      3: Legal Proceedings**





None





**Item
      4: Submission of Matters to a Vote of Security Holders**





On
      December 31, 2007, the Company held its 2007 Annual Meeting of Stockholders
      (the
“2007 Meeting”).





At
      the
      2007 Meeting, the Company’s stockholders (i) elected four directors to serve
      until the 2008 Annual Meeting of Stockholders and until their successors are
      elected and qualified; (ii) approved the sale of substantially all the assets
      of
      the Company to Cryptek, Inc.; (iii) approved an amendment to the Company’s
      certificate of incorporation to increase the number of authorized shares of
      Common Stock from 50,000,000 to 750,000,000; and (iv) approved an amendment
      to
      the Company’s certificate of incorporation to change the name of the Company
      from ION Networks, Inc. to Clacendix, Inc. The directors elected at the 2007
      Meeting constitute the entire Board of Directors .





The
      vote
      with respect to the election of directors was as follows:




Name
              
              For
              
              Authority
                  Withheld(a)
                  Stephen M. Deixler
              
              
              29,173,620
              
              
              1,854,837(b)
                  Frank S. Russo
              
              
              29,173,870
              
              
              1,854,587(c)
                  Philip Levine
              
              
              29,173,630
              
              
              1,854,827(d)
                  Norman E. Corn
              
              
              29,173,630
              
              
              1,854,827




The
      vote
      with respect to the sale of substantially all the assets of the Company to
      Cryptek, Inc. was as follows:




For
              
              Against
              
              Abstain
              
              Broker
                  Non-Vote17,488,379
              
              
              1,035,527
              
              
              13,910
              
              
              12,490,641




The
      vote
      with respect to the amendment of Article FOURTH of the Company’s certificate of
      incorporation to increase the number of authorized shares of Common Stock from
      50,000,000 to 750,000,000 was as follows:




For
              
              Against
              
              Abstain
              
              Broker
                  Non-Vote28,260,575
              
              
              2,577,911
              
              
              189,970
              
              
              0





The
      vote
      with respect to the amendment of Article FOURTH of the Company’s certificate of
      incorporation to change the name of the Company from ION Networks, Inc. to
      Clacendix, Inc. was as follows:




For
              
              Against
              
              Abstain
              
              Broker
                  Non-Vote29,011,927
              
              
              1,828,239
              
              
              188,289
              
              
              0


6


PART
      II





**Item
      5: Market For Common Equity and Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities**





*Market
      Information*





The
      Company's common stock, par value $.001 per share (the "Common Stock"), is
      currently quoted on the OTC Bulletin Board under the symbol "IONN.OB". The
      following table sets forth the high ask and low bid prices of the Common Stock
      for the periods indicated as quoted on the OTC Bulletin Board. The quotations
      reflect inter-dealer prices, without retail mark-up, markdown or commission,
      and
      may not represent actual transactions.




Year
                  Ended December 31, 2007, Quarter Ended
              
              HIGH
              
              LOWMarch
                  31, 2007
              
              $
              0.12
              
              $
              0.08June
                  30, 2007
              
              
              0.10
              
              
              0.04September
                  30, 2007
              
              
              0.06
              
              
              0.03December
                  31, 2007
              
              
              0.12
              
              
              0.02




Year
                  Ended December 31, 2006, Quarter Ended
              
              HIGH
              
              LOWMarch
                  31, 2006
              
              $
              0.25
              
              $
              0.15June
                  30, 2006
              
              
              0.22
              
              
              0.09September
                  30, 2006
              
              
              0.16
              
              
              0.07December
                  30, 2006
              
              
              0.11
              
              
              0.07




*Small
      Business Issuer Purchases of Equity Securities*





The
      Company did not purchase any of its equity securities during the fourth
      quarter ended December 31, 2007.





*Security
      Holders*





As
      of
      March 31, 2008 there were 385 holders of record of the Company’s Common Stock.





*Dividends*





The
      Company has not paid any cash dividends on its Common Stock during the years
      ended December 31, 2007 and December 31, 2006. The Company at the present time
      does not intend to pay any cash dividends in the foreseeable future.





**Item
      6: Management's Discussion and Analysis or Plan of Operation**





*Management's
      Discussion and Analysis*





*Overview*





This
      discussion and analysis should be read in conjunction with our consolidated
      financial statements and accompanying notes included elsewhere in this Annual
      Report. This discussion includes forward-looking statements that involve risk
      and uncertainties. The following financial information for the years ended
      December 31, 2007 and December 31, 2006 should be considered in
      light
      of the completion
      of the sale
      of substantially all of the operating assets of the Company on December
      31,  2007
      and
      currently has no operations other than to seek a target company with which
      to
      merge or to complete a business combination, as described above in Item 1. The
      Company can give no assurance that any such a transaction will occur, or that
      if
      such a transaction were to occur, it would enhance the Company’s future
      operations or financial results, or specifically that the Company would become
      and remain profitable as a result of such transaction. The
      Company will not generate any future revenues until, at the earliest, after
      the
      consummation of a business combination. If we do not complete a transaction
      within a reasonable time frame, we may liquidate.




On
      December 31, 2007, Clacendix,
      Inc. sold substantially all of its operating assets  to
      Cryptek, Inc., a privately
      held Delaware corporation.
      Stockholder approval was required, and obtained ,
      with
      respect to such sale .




7




A
                summary of the assets sold and liabilities assumed as part of the
                Transaction are as follows:





Accounts
                receivable, net
            
            $
            378,656Inventories,
                net
            
            
            267,256Prepaid
                expenses
            
            
            43,950Property,
                plant and equipment
            
            
            16,005Capitalized
                software
            
            
            1,383,417Other
                assets
            
            
            12,912Total
                assets sold
            
            $
            2,102,196Accounts
                payable
            
            $
            16,799Accrued
                expenses
            
            
            70,522Deferred
                maintenance
            
            
            145,532Total
                liabilities assumed
            
            $
            232,853




The
      Company realized a gain of $1,453,113 on the sale of substantially all of the
      operating assets of the Company.  The Company incurred $215,731 in
      expenses related to the transaction comprised of legal and accounting fees
      of
      $169,672, shareholder meeting related expenses of $30,327 and other fees of
      $15,732 *.*





*Results
      of Operations*





*2007
      Compared to 2006*





The
      Company had net income of $93,492 in 2007 compared to a net loss of $753,072
      in
      2006, for a change of $846,564. The increase was due primarily to a $1,453,113
      gain on the sale of assets and an increase of general and administrative
      expenses of $662,744.





Revenues
      for 2007 were $3,314,503 as compared to $3,380,346 for 2006, a decrease of
      approximately 2% or $65,843 less in sales. The slight decrease in total sales
      for the year 2007 compared to 2006 was primarily due to Software Sales declining
      by $128,087 offset in part by increases in Professional Services and Maintenance
      Revenue of $47,070 and $28,599, respectively.





Cost
      of
      sales for the year ended December 31, 2007 was $1,518,067 compared to $1,384,641
      for the same period in 2006. Cost of sales as a percentage of net sales for
      the
      year ended December 31, 2007 increased to 45.8% from 40.9% for the same period
      in 2006, resulting in gross margins decreasing to 54.2% from 59.1% as compared
      to the prior year. Amortization expense related to capitalized software costs
      increased from $245,577 for the year ended December 31, 2006 to $364,296 for
      the
      same period in 2007, while net sales declined by $65,843.





Research
      and development expenses decreased to $328,797 for 2007 from $666,069 for 2006,
      an decrease of 51% or $337,272. The decrease in R&D expenses was due
      primarily to decreased payroll related expenses for salaries, benefits and
      incentive compensation of $355,831 and reduced professional fees of $55,021
      offset in part by a reduction in capitalized software of $74,468. The decline
      in
      payroll related expenses is primarily due to the movement of two headcounts
      reassignment of one to the Executive department and one to Manufacturing,
      additionally, one headcount left the Company and was not replaced, resulting
      in
      R&D going from 9 employees in 2006 to 6 employees in 2007.




8




Selling,
      general and administrative (“SG&A”) expenses increased 25.9% from $2,558,523
      in 2006 to $3,221,267 in 2007. The increase in SG&A expenses was due
      primarily to severance expense of $834,986 in 2007.





Depreciation
      was $21,887 for 2007 compared to $16,086 for 2006, an increase of $5,801,
      primarily due to depreciation related to new computer equipment.





During
      2006, the Company recognized benefits from restructuring and other credits
      in
      the amount of $81,000. The Company released $81,000 consisting of $60,000 of
      professional services and $21,000 of shareholder relation related expenses
      from
      disputed accruals during the year ended December 31, 2006.





The
      Company acquired a corporation business tax benefit certificate pursuant to
      New
      Jersey law, which relates to the surrendering of unused New Jersey net operating
      losses. During the years ended December 31 2007 and 2006, the Company received
      cash proceeds of approximately $492,000 and $465,000, respectively. Two of
      the
      requirements of the program are maintaining a company’s headquarters in New
      Jersey for
      at
      least twelve calendar monthsand having at least 75% of the company’s
      employees working in New Jersey, based on the Company’s current business
      activities it is unlikely it will receive these monies during 2008.





*Financial
      Condition and Capital Resources*





The
      Company's working capital balance as of December 31, 2007 was $1,841,846
      compared to $289,877 at December 31, 2006. The increase of $1,551,969 was due
      primarily to the sale of substantially all the operating assets of the Company.
      We presently anticipate that cash requirements during the next twelve months
      will relate to maintaining the corporate entity, complying with the periodic
      reporting requirements of the Securities and Exchange Commission, evaluating
      and
      reviewing possible business ventures and acquisition opportunities and
      potentially negotiating and consummating any such transactions.  The
      Company believes that it has sufficient cash on hand to meet these cash
      requirements during the next year.





On
      December 31, 2007, in connection with the sale of substantially all the
      operating assets of the Company, the Company’s line of credit with Bridge Bank,
      N.A. was terminated and all outstanding amounts, totaling $351,427 were
      repaid.




The
      Company received proceeds from the sale of its New Jersey Net Operating Losses
      in both 2007 and 2006.  In December of 2007, the Company received
      approximately $492,068 compared to $465,000 in December of 2006.




Cash
      flow
      used by operating activities was $147,290 for the year ended December 31, 2007,
      which included net income of $93,492 which was offset by the following items:
      gain on the sale of assets of $1,453,113, increased other receivables of
      $397,868 and a decrease in accrued expenses of $199,115. Cash from operating
      activities was increased by accrued payroll and related liability expenses
      of
      $815,732, depreciation and amortization $386,183, reduced inventories of
      $309,428, non-cash stock based compensation of $144,328, accounts payable of
      $89,231 and reduced accounts receivable of $70,172.  Cash flows used by
      operating activities were $81,668 for the year ended December 31, 2006 which
      included net loss of $753,072 offset by decreased in accounts receivable of
      $575,086 and amortization and depreciation of $261,663. ****




Cash
      provided by investing activities for the year ended December 31, 2007 was
      $2,662,782, which consisted primarily of cash received from the sale of
      substantially all the assets of the Company of $2,880,00 offset in part by
      investing activities in capitalized software expenditures of $535,839.Net cash
      used in investing activities for the year ended December 31, 2006 was $592,504
      which was due primarily to reflect investing activities in capitalized software
      expenditures of $565,775.




Net
      cash
      provided by financing activities for the year ended December 31, 2007 was
      $64,213. Net borrowings from revolving credit facility of $52,503 and proceeds
      from the exercise of stock options of $15,696. Net cash provided by financing
      activities for the year ended December 31, 2006 was $743,766 which was due
      primarily to borrowings from credit facility of $565,000 and proceeds from
      exercise of warrants, net of $468,201 offset in part by payments under the
      credit facility of $279,216.




*Off-Balance
      Sheet Arrangements*




As
      of
      March 31, 2008, we did not have any off-balance sheet debt nor did we have
      any
      transactions, arrangements, obligations (including contingent obligations)
      or
      other relationships with any unconsolidated entities or other persons that
      may
      have a material current or future effect on financial conditions, changes in
      financial conditions, result of operations, liquidity, capital expenditures,
      capital resources, or significant components of revenue or
      expenses.





*Critical
      Accounting Policies*





Use
      of
      Estimates




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




9




The
      significant estimates include the allowance for doubtful accounts, allowance
      for
      inventory obsolescence, capitalized software including estimates of future
      gross
      revenues, and the related amortization lives, deferred tax asset valuation
      allowance and depreciation and amortization lives.





*Research
      and Development Costs*





Prior
      to
      the sale of substantially all the operating assets of the Company, the Company
      charged all costs incurred to establish the technological feasibility or
      enhancement of a product to research and development expense in the period
      incurred.





*Revenue
      Recognition*





Prior
      to
      the sale of substantially all the operating assets of the Company, the Company
      recognized revenue from product sales of hardware and software to end-users,
      value added resellers (VARs) and original equipment manufacturers (OEMs) upon
      shipment and passage of title if no significant vendor obligations exist and
      collectibility is probable. The Company did not offer customers the right to
      return products, however the Company records warranty costs at the time revenue
      is recognized. Management estimated the anticipated warranty costs but actual
      results could differ from those estimates.





In
      addition, the Company sold internally developed stand-alone finished software
      packages (“PRIISMS Software”), which permit end-users to monitor, secure and
      administer voice and data communications networks. The software packages permit
      the customer to utilize the PRIISMS software pursuant to the terms of the
      license. Other than during an initial ninety-day warranty period from the date
      of shipment, the purchaser is not entitled to upgrades/enhancements or services
      that can be attributable to a multi-element arrangement. In addition, the
      customer did not have any rights to exchange or return the software. Since
      the
      software package sale did not require significant production, modification
      or
      customization, the Company recognized revenue at such time the product was
      shipped and title passes and collectibility was probable in accordance with
      the
      accounting guidance under Statement Position 97-2, “Software Revenue
      Recognition.”





The
      Company sold separate customer maintenance contracts and maintenance revenue
      was
      recognized on a straight-line basis over the period the service was provided,
      generally one year. On some occasions, maintenance was provided on a time and
      material basis in which case revenue was recognized upon shipment of the
      repaired item.





*Income
      Taxes*





Deferred
      income tax assets and liabilities are computed annually based on enacted tax
      laws and rates for temporary differences between the financial accounting and
      income tax bases of assets and liabilities.  A valuation allowance is
      established, when necessary, to reduce deferred income tax assets to the amount
      that is more likely than not to be realized.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
      measurement attribute for the financial statement recognition and measurement
      of
      tax positions taken or expected to be taken in a tax return. For those benefits
      to be recognized, a tax position must be more likely than not to be sustained
      upon examination by taxing authorities. Differences between tax positions taken
      or expected to be taken in a tax return and the benefit recognized and measured
      pursuant to the interpretation are referred to as “unrecognized benefits”. A
      liability is recognized (or amount of net operating loss carry forward or amount
      of tax refundable is reduced) for an unrecognized tax benefit because it
      represents an enterprise’s potential future obligation to the taxing authority
      for a tax position that was not recognized as a result of applying the
      provisions of FIN 48.




In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as “Interest
      expense” in the consolidated statements of operations. Penalties would be
      recognized as a component of “Selling, general and administrative
      expenses.”




In
      many
      cases the Company’s tax positions are related to tax years that remain
      subject to examination by relevant tax authorities. The Company files income
      tax
      returns in the United States (federal) and in various state and local
      jurisdictions. In most instances, the Company is no longer subject to federal,
      state and local income tax examinations by tax authorities for years prior
      to
      2004.




The
      adoption of the provisions of FIN 48 did not have a material impact on
      the Company’s consolidated financial position and results of operations. As
      of December 31, 2007, no liability for unrecognized tax benefits was required
      to
      be recorded.




10




As
      of
      December 31, 2007, the Company has a deferred tax asset of $15,593,183,
      primarily relating to federal net operating loss carry forwards of approximately
      $43,950,000 available to offset future taxable income through 2026.The ultimate
      realization of deferred tax assets is dependent upon the generation of future
      taxable income during the periods in which those temporary differences become
      deductible. The Company considers projected future taxable income and tax
      planning strategies in making this assessment. At present, the Company does
      not
      have a sufficient history of income to conclude that it is more likely than
      not
      that the Company will be able to realize all of its tax benefits in the near
      future and therefore a valuation allowance was established in the full value
      of
      the deferred tax asset.




A
      valuation allowance will be maintained until sufficient positive evidence exists
      to support the reversal of any portion or all of the valuation allowance net
      of
      appropriate reserves. Should the Company continue to be profitable in future
      periods with supportable trends, the valuation allowance will be reversed
      accordingly.





Stock-Based
      Compensation




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of “Share Based Payment” (“FAS 123R”), using the modified prospective
      transition method and therefore has not restated prior periods' results. Under
      this transition method, stock-based compensation expense for the year ended
      December 31, 2006 included compensation expense for stock-based compensation
      awards granted prior to, but not yet fully vested as of January 1, 2006
      based on the grant date fair value estimated in accordance with the original
      provisions of FAS 123. Stock-based compensation expense for all share-based
      payment awards granted after January 1, 2006 is based on the grant-date
      fair value estimated in accordance with the provisions of FAS 123R. The
      Company recognizes these compensation costs over the requisite service period
      of
      the award, which is generally the option vesting term. The Company had
      stock-based compensation expense in the amount of $162,028 for the year ended
      December 31, 2007.




As
      a
      result of adopting FAS 123R, the impact to the consolidated financial
      statements for the year ended December 31, 2007 on net loss was to record an
      expense of $162,028, rather than not recognize any expense had the Company
      continued to account for stock-based compensation under APB 25. There is no
      impact on both basic and diluted net loss per share for the year ended December
      31, 2007. As of December 31, 2007, the unvested options totaled $42,644 of
      potential future expenses of which $1,166 relates to options granted prior
      to
      January 1, 2006 and $41,478 relates to options granted after January 1,
      2006.




The
      fair
      value of share-based payment awards was estimated using the Black-Scholes option
      pricing model with the certain assumptions. The determination of the fair value
      of stock-based awards on the date of grant is affected by the Company’s stock
      price as well as assumptions regarding a number of complex and subjective
      variables. These variables include the price of the underlying stock, the
      Company’s expected stock price volatility over the expected term of the awards,
      actual and projected employee stock option exercise behaviors, risk-free
      interest rate and the expected annual dividend yield on the underlying
      shares.




The
      Company uses historical information to estimate expected life and forfeitures
      within the valuation model. The risk-free rate for periods within the expected
      life of the award is based on the U.S. Treasury yield curve in effect at the
      time of grant. Expected volatility is based on historical volatility of the
      price of our common stock over the calculated expected life. The Company does
      not anticipate paying cash dividends in the future and therefore uses an
      expected dividend yield of 0.0%.




Developing
      these assumptions requires significant judgment on the part of the Company
      and,
      generally, may involve analyzing available historical data, considering whether
      historical data is relevant to predicting future behavior, making appropriate
      adjustments to historical data for future expectations, supplementing or
      replacing Company-specific historical data with data from other supportable
      sources and appropriately weighting each of the inputs. These assumptions are
      evaluated at each grant date. If factors change and the Company employs
      different assumptions for estimating share-based compensation expense in future
      periods or if the Company decides to use a different valuation model, the future
      periods may differ significantly from what the Company has recorded in the
      current period and could materially affect operating income, net income/(loss)
      and net income/(loss) per share. Option
      valuation models require the input of highly subjective assumptions including
      the expected life of the option. Because the Company's employee stock options
      have characteristics significantly different from those of traded options,
      and
      because changes in the subjective input assumptions can materially affect the
      fair value estimate, in management's opinion, the existing models do not
      necessarily provide a reliable single measure of the fair value of its employee
      stock options. Consequently, there is a significant risk that the Company’s estimates of the
      fair values of stock-based compensation awards on the grant dates may not
      reflect the actual values realized upon the vesting, exercise, expiration,
      early
      termination or forfeiture of those stock-based payments in the
      future.




If
      actual
      results differ significantly from these estimates or different key assumptions
      were used, there could be a material effect on the Company’s financial
      statements. The future impact of the cost of stock-based compensation on our
      results of operations, including net income/(loss) and earnings/(loss) per
      diluted share, will depend on, among other factors, the level of equity awards
      as well as the market price of the Company’s common stock at the time of the
      award as well as various other assumptions used in valuing such awards. The
      Company will periodically evaluate these estimates.




11




**Item
      7: Financial Statements**





The
      financial statements required hereby are located on pages 29 through 48.





**Item
      8: Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None





**Item
      8A: Controls and Procedures**





***Disclosure
      Controls and Procedures***




Prior
      to
      the filing date of this annual report, the Company's management, under the
      supervision and with the participation of the Company's Chief Executive Officer
      and Chief Financial Officer, performed an evaluation of the effectiveness of
      the
      design and operation of the Company's disclosure controls and procedures as
      of
      the end of the period covered by this report. Based on that evaluation, the
      Company's Chief Executive Officer and Chief Financial Officer concluded that
      the
      Company's disclosure controls and procedures are effective to ensure that
      information required to be disclosed by the Company in the reports filed by
      it
      under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms, and include controls and procedures designed to
      ensure that information required to be disclosed by the Company in such reports
      is accumulated and communicated to the Company’s management, including the Chief
      Executive Officer and Chief Financial Officer of the Company, as appropriate
      to
      allow timely decisions regarding required disclosure.




*Internal
      Control Over Financial Reporting*




The
      management of the Company is responsible for establishing and maintaining
      adequate internal control over financial reporting. The internal control process
      has been designed under our supervision to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of the
      Company’s financial statements for external reporting purposes in accordance
      with accounting principles generally accepted in the United States of
      America.




Management
      conducted an assessment of the effectiveness of the
      Company ' ’ s
      internal control over financial reporting as
      of
      December 31, 2007, utilizing the framework established in Internal Control
      -
      Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO). Based on this assessment, management has determined
      that the Company’s internal control over financial reporting as of December 31,
      2007 is effective.




Our internal
      control over financial reporting .  includes
      policies and procedures that pertain to the maintenance of records that
      accurately and fairly reflect, in reasonable detail, transactions and
      dispositions of assets; and provide reasonable assurances that: (1) transactions
      are recorded as necessary to permit preparation of financial statements in
      accordance with accounting principles generally accepted in the United States;
      (2) receipts and expenditures are being made only in accordance with
      authorizations of management and the directors of the Company; and (3)
      unauthorized acquisitions, use, or disposition of the Company’s assets that
      could have a material affect on the Company’s financial statements are prevented
      or timely detected.




All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective can
      provide only reasonable assurance with respect to financial statement
      preparations and presentations. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




*Changes
      to Internal Control Over Financial Reporting*




There
      were no changes in the Company’s internal control over financial reporting
      during the three months ended December 31, 2007 that have materially affected,
      or are reasonable likely
      to materially affect, the Company’s internal
      control over financial reporting . However,
      as the Company sold substantially all of its operating assets on December 31,
      2007 it has continued to utilize the accounting system, which was sold in the
      transaction as well as certain Cryptek employees through mutual agreement for
      a
      period of time. During the fiscal year 2008, the Company will evaluate
      continuing this relationship.




12




**Item
      8B: Other Information**





None




13


**Part
      III**





**Item
      9: Directors, Executive Officers, Promoters, Control Persons and Corporate
      Governance; Compliance with Section 16(a) of the Exchange
      Act**





The
      directors and executive officers of the Company as of March 31, 2008 are as
      follows:





Name
              
              Age
              
              Position
                  Held with the CompanyNorman
                  E. Corn
              
              61
              
              Chief
                  Executive Officer and DirectorPatrick
                  E. Delaney
              
              54
              
              Chief
                  Financial OfficerStephen
                  M. Deixler
              
              72
              
              Chairman
                  of the Board of DirectorsPhilip
                  Levine
              
              60
              
              DirectorFrank
                  S. Russo
              
              65
              
              Director




NORMAN
      E.
      CORN has been a director of the Company since November 2005 and has served
      as
      Chief Executive Officer since August 2003. Prior to joining the Company, from
      2000 until 2003, Mr. Corn was Executive Vice President of Liquent, Inc., a
      Pennsylvania-based software company that provides electronic publishing
      solutions, focused on the life sciences industry. Mr. Corn also served from
      1994
      to 2000 as CEO of TCG Software, Inc., an offshore software services organization
      providing custom development to large corporate enterprises in the US. Mr.
      Corn
      has led other companies, including Axiom Systems Group, The Cobre Group, Inc.,
      The Office Works, Inc. and Longview Results, Inc., having spent the early part
      of his career in sales, marketing and executive positions at AT&T and IBM.





PATRICK
      E. DELANEY has served as Chief Financial Officer since September 2003. Prior
      to
      joining the Company, from 2000 until 2003, Mr. Delaney was the President of
      Taracon, Inc. a privately owned independent consulting firm that provides
      management consulting for early and mid-stage technology and financial services
      companies. Mr. Delaney also served as Chief Financial Officer for two publicly
      traded telecommunications providers, Pointe Communications Corporation from
      1993
      to 2000 and Advanced Telecommunications Corporation from 1986 to 1993. Mr.
      Delaney has served other companies in executive capacities including RealCom
      Communications, Argo Communications and ACF Industries.





STEPHEN
      M. DEIXLER has been Chairman of the Board of Directors since May 1982 and served
      as Chief Executive Officer of the Company from April 1996 to May 1997. He was
      President of the Company from May 1982 to June 1985 and served as Treasurer
      of
      the Company from its formation in 1982 until September 1993. During the period
      from March 2003 to September 2003, Mr. Deixler served as the interim Chief
      Financial Officer of the Company. He also serves as Chairman of the Board of
      Trilogy Leasing Co., LLC and President of Resource Planning Inc. Mr. Deixler
      was
      the Chairman of Princeton Credit Corporation until April 1995.





PHILIP
      LEVINE has served as a director of the Company since June 2006, and Chairman
      of
      the Audit Committee. He has more than twenty-five years of senior management
      experience, he has managed all accounting, SEC reporting, finance, human
      resources, legal and administrative functions. He most recently served as Chief
      Financial Officer and General Counsel of Teldata, which later became Control
      Point Solutions. Prior positions included: Vice President with the American
      Arbitration Association; Chief Financial Officer, Treasurer, and Corporate
      Secretary of both Computron Software and Numerax. Mr. Levine is a Certified
      Public Accountant and an Attorney and currently teaches Business Law Auditing
      at
      Kean University. He previously taught Small Business
      Management at Kean, as well as Business Law and Principals of Accounting at
      County College of Morris. He received his JD from Rutgers Law School, an MBA
      from Baruch Graduate School of the City University of New York, and a BS from
      Brooklyn College, also CUNY. He is an arbitrator with National Association
      of
      Securities Dealers (NASD) and Conflict, Prevention and Resolution (CPR), and
      is
      a trained mediator.





FRANK
      S.
      RUSSO has served as a director of the Company since November 2000. Mr. Russo
      was
      with AT&T Corporation from September 1980 to September 2000 and most
      recently served as its Corporate Strategy and Business Development Vice
      President. While at AT&T, Mr. Russo held a number of other management
      positions including that of General Manager, Network Management Services
      from which he helped architect and launch AT&T's entry into the global
      network outsourcing and professional services business. Mr. Russo retired from
      AT&T in 2000. Prior to joining AT&T, Mr. Russo was employed by IBM
      Corporation in a variety of system engineering, sales and sales management
      positions. Mr. Russo served on the Board of Directors of Oak Industries, Inc.,
      a
      manufacturer of highly engineered components, from January 1999 to February
      2000, and currently serves on the Board of Directors of Retail Solutions, a
      private e-commerce company headquartered in Waltham, Massachusetts.




14




Audit
      Committee Financial Expert





The
      Company ’s
      Audit
      Committee currently consists of Messrs. Stephen M. Deixler, Frank S. Russo
      and
      Philip Levine. The Board of
      Directors has determined ,
      based
      on information provided to it by Mr. Levine, that Mr. Levine qualifies as a
      “ audit
      committee financial
      expert as
      defined by Item 407(d)(5) of Regulation S-B. In addition, the Board of Directors
      has determined that Mr. Levine is “independent” within the meaning of Nasdaq
      Rule 4200(a)(15).





Section
      16(a) Beneficial Ownership Reporting Compliance.





Section
      16(a) of the Exchange Act, requires the Company's directors, executive officers
      and persons who own more than 10% of the Company's Common Stock (collectively,
      "Reporting Persons") to file reports of ownership and changes in ownership
      of
      the Company's Common Stock with the Securities and Exchange Commission. Copies
      of these reports are also required to be delivered to the Company.





Each
      of
      the Reporting Persons Mess. Deixler, Russo and Levine have not filed a total
      of
      four Form 4s in connection with the granting of a total of 9,000 options granted
      on November 6, 2007 of 3,000 options, December 6, 2007 of 3,000 options,
      December 7, 2007 of 1,500, December 19, 2007 of 1,500.




Code
      of
      Ethics




The
      Company has a Code of Ethics in place for all of its employees. A copy of the
      Company's Code of Ethics will be provided free of charge, upon written request
      to Clacendix, Inc., 2001 Route 46, Parsippany, NJ 07054.




*Stockholder
      Recommendations of Board Nominees*




There
      have been no material changes to the procedures by which our stockholders may
      recommend nominees to our Board of Directors since our last proxy statement
      filed with the SEC.




15


**Item
      10: Executive Compensation**





**SUMMARY
      COMPENSATION TABLE**





The
      following table sets forth the compensation earned, whether paid or deferred,
      by
      the Company's Chief Executive Officer and its other three most highly
      compensated executive officers during the years ended December 31, 2007 and
      2006
      (the "Named Executive Officers") for services rendered in all capacities to
      the
      Company.





Name
                and Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Option
                Awards ($)(8)
            
            All
                Other Compensation ($)
            
            Total
                ($)Norman
                E. Corn/
            
            
            2007
            
            
            235,000
            
            
            0
            
            
            0
            
            
            369,730(1
            )
            
            604,730Chief
                Executive Officer
            
            
            2006
            
            
            235,000
            
            
            42,000
            
            
            3,286
            
            
            17,881(5
            )
            
            298,167Patrick
                E. Delaney/ Chief Financial Officer
            
            
            2007
            
            
            200,000
            
            
            0
            
            
            0
            
            
            305,700(2
            )
            
            505,7002006
            
            
            200,000
            
            
            13,000
            
            
            3,286
            
            
            7,200(6
            )
            
            223,486William
                Whitney/
            
            
            2007
            
            
            155,000
            
            
            0
            
            
            0
            
            
            77,500(3
            )
            
            232,500Vice
                President & Chief Technology Officer
            
            
            2006
            
            
            155,000
            
            
            9,500
            
            
            23,195
            
            
            -
            
            
            190,695Henry
                A. Hill/Chief Operating Officer
            
            
            2007
            
            
            160,000
            
            
            0
            
            
            0
            
            
            102,783(4
            )
            
            262,7832006
            
            
            154,167
            
            
            9,500
            
            
            3,286
            
            
            7,200
                (7
            )
            
            174,153







(1)
      Includes auto allowance life insurance and disability insurance premiums paid
      by
      the Company and a
      severance amount of $352,500.




(2)
      Includes auto allowance and medical benefit premiums paid by the Company. Also
      includes severance amount of $300,000.




(3)
      Includes severance amount of $77,500.




(4)
      Includes auto allowance, commission and a severance amount of $80,000.




(5)
      Includes 10,800 in auto allowance. Includes life insurance and disability
      insurance premiums paid by the Company.




(6)
      Includes auto allowance and medical benefit premiums paid by the
      Company.




(7)
      Consists of auto allowance.




(8)
      The
      amounts in the “Option Awards” column reflect the dollar amounts recognized as
      compensation expense for financial statement reporting purposes for stock
      options for the fiscal year ended December 31, 2007 in accordance with
      SFAS123(R). The assumptions we used to calculate these amounts are discussed
      in
      Note 2 to our consolidated financial statements included in this Form 10-KSB
      for
      the year ended December 31, 2007.





*Narrative
      Disclosure to Summary Compensation Table*





We
      are
      party to an employment agreement with Norman E. Corn dated August 15, 2003,
      as
      amended effective November 10, 2004 and December 19, 2007, which has no specific
      stated termination date. Pursuant to the agreement Mr. Corn serves as our Chief
      Executive Officer at will at an annual base salary of $235,000. In addition,
      he
      receives reimbursement for life and disability insurance. On January
      28,  2004,
      we
      awarded Mr. Corn 800,000 fully vested incentive stock options to purchase common
      stock at $0.115 per share and 750,000 fully vested non-qualified stock options
      to purchase common stock at $0.06 per share. On January 23, 2006, the Company
      awarded Mr. Corn 250,000 stock options to purchase common stock at $0.18 per
      share which vest on a pro-rata basis over a three year period from grant date
      and any unvested shares would vest upon a change of control as defined in the
      2006 Stock Option Plan. In connection with the consummation of the sale of
      substantially all the operating assets of the Company and
      Mr.
      Corn’s agreement to remain with the Company through June 30, 2008 in order to
      facilitate either a business combination with a third party or the liquidation
      of the Company, the Company agreed to pay Mr. Corn a total of $352,500, payable
      50% following completion of the sale and 50% on June 30, 2008 or the earlier
      termination of Mr. Corn’s employment. This amount is the equivalent of the 18
      months of salary severance amount that would be due and payable to Mr. Corn
      under the agreement if terminated as a result of a change of control of the
      Company for any reason other than cause. **** On
      January 15, 2008, $176,250 of such amount was paid to Mr. Corn.





We
      are
      party to an employment agreement with Patrick E. Delaney dated September 15,
      2003, as amended effective November 10, 2004
      and
      December 19, 2007, which
      has no specific stated termination date.  Pursuant
      to the agreement ,
      Mr.  Delaney
      serves as our Chief Financial Officer at will ,
      at
      an annual
      base salary of $200,000.  In
      addition, he receives reimbursement for medical benefits and life and disability
      insurance **.**  On
      January 28 , 2004,
      we
      awarded Mr. Delaney 800,000 fully vested incentive stock options to purchase
      common stock at $0.115 per share and 250,000 fully vested non-qualified stock
      options to purchase common stock at $0.045 per share  On
      January 23, 2006, the Company awarded Mr. Delaney 250,000 stock options to
      purchase common stock at $0.18 per share which vest on a pro-rata basis over
      a
      three year period from grant date and any unvested shares would vest upon a
      change of control as defined in the 2006 Stock Option Plan. In
      connection with the
      consummation of the sale of substantially all the operating assets of the
      Company and
      Mr.
      Delaney’s agreement to remain with the Company through June 30, 2008 in order to
      facilitate either a business combination with a third party or the liquidation
      of the Company, the Company agreed to pay Mr. Delaney a total of $300,000,
      payable 50% following completion of the sale and 50% on June 30, 2008 or the
      earlier termination of Mr.
      Delaney’s employment .
      This
      amount is the equivalent of the 18 months of salary severance amount that would
      be due and payable to Mr.
      Delaney under
      the agreement if terminated as a result of a change of control of the Company
      for any reason other than cause .
      On
      January 15, 2008, $150,000 of
      such
      amount was
      paid to
      Mr.
      Delaney.




16




Until
      December 31, 2007, we were a party to an employment agreement with William
      Whitney dated March 11, 2002, which had no specific stated termination date.
      Pursuant to the agreement, Mr. Whitney received a base salary of $155,000 per
      year during 2007. Pursuant to the agreement, Mr. Whitney was granted incentive
      stock options at the time the agreement was entered into, entitling him to
      purchase 100,000 shares of our Common Stock at $0.70 per share, and he was
      made
      eligible to participate thereafter in our stock option plans. The initial
      options granted pursuant to the agreement vested as follows: 34,000 on March
      11,
      2003 and 8,250 at the end of each three month period thereafter, with the last
      options having vested on March 11, 2005. As of December 31, 2007, following
      the
      consummation of the sale of substantially all the operating assets of the
      Company Mr. Whitney’s employment terminated, and on January 15, 2008, $77,500 in
      severance was paid to Mr. Whitney under the agreement. Effective March 30,
      2008,
      in accordance with the terms of the option agreements all options were
      expired.





Until
      December 31, 2007, we were a party to an employment agreement with Henry A.
      Hill
      dated August 31, 2004, which had no specific stated termination date. Mr. Hill’s
      annual base salary during 2007 was $160,000. Pursuant to the agreement, Mr.
      Hill
      was granted incentive stock options to purchase 500,000 shares of our Common
      Stock at $0.16 per share. These options vested
      as
      follows: 170,000 on August 30, 2005 and 41,250 at the end of each three month
      period thereafter, with the last options having vested on August 30, 2007.
      Effective January 1, 2006, Mr. Hill received a monthly car allowance of $600.
      Effective during 2007, Mr. Hill received a sales commission on certain revenue.
      As of December 31, 2007, following the consummation of the sale of substantially
      all the operating assets of the Company, Mr. Hill’s employment terminated, and
      on January 15, 2008, $80,000 in severance was paid to Mr. Hill under the
      agreement. Effective March 30, 2008, in accordance with the terms of the option
      agreements all options were expired.





Outstanding
      Equity Awards at Fiscal Year-End:




The
      following table sets forth the number and value of options held by each of
      the
      Named Executive Officers as of December 31, 2007.




Option
                AwardsName
            
            Number
                of Securities Underlying Unexercised Options (#)
                Exercisable
            
            Number
                of Securities Underlying Unexercised Options (#)
                UnExercisable
            
            Option
                Exercise Price ($)
            
            Option
                Expiration Date(2)Norman
                E. Corn
            
            
            800,000
            
            
            -
            
            
            0.115
            
            
            1/29/09Norman
                E. Corn
            
            
            488,404
            
            
            -
            
            
            0.060
            
            
            1/29/09Norman
                E. Corn/(1)
            
            
            146,876
            
            
            103,124
            
            
            0.180
            
            
            1/23/11Patrick
                E. Delaney
            
            
            800,000
            
            
            -
            
            
            0.115
            
            
            1/29/09Patrick
                E. Delaney/(1)
            
            
            146,876
            
            
            103,124
            
            
            0.180
            
            
            1/23/11William
                H. Whitney
            
            
            100,000
            
            
            -
            
            
            0.070
            
            
            3/11/07William
                H. Whitney/(1)
            
            
            200,000
            
            
            -
            
            
            0.115
            
            
            1/29/12William
                H. Whitney/(1)
            
            
            200,000
            
            
            -
            
            
            0.350
            
            
            11/2/12William
                H. Whitney/(1)
            
            
            146,876
            
            
            103,124
            
            
            0.180
            
            
            1/23/11Henry
                A. Hill/(1)
            
            
            500,000
            
            
            -
            
            
            0.160
            
            
            8/31/12Henry
                A. Hill/(1)
            
            
            146,876
            
            
            103,124
            
            
            0.180
            
            
            1/23/11





(1)Alloptions
      vest as follows: 34% of the total number of shares subject to each option vest
      and become exercisable 12 months from date of grant, and options to purchase
      the
      remaining 66% of the number of shares subject to each option vest and become
      exercisable in 8 equal installments of 8.25% of the number of shares subject
      to
      each option, at the end of every three month period following the 12 month
      anniversary of the grant date.Outstanding un-vested options will vest upon
      change of control as defined in the 2006 Stock Option Plan.




*(2)
      All options have a 5 year life.*




17




*Director
      Compensation*




The
      following table shows director compensation for all directors who are not Named
      Executive Officers earned for the year ended December 31, 2007.




Name
            
            Option
                Awards($)(4)
            
            Total
                ($)Stephen
                M. Deixler/(1)
            
            
            821
            
            
            821Frank
                S Russo/(2)
            
            
            747
            
            
            747Philip
                Levine/(3)
            
            
            821
            
            
            821







*(1)
      Mr. Deixler has 107,000 options outstanding*  *as
      of
      December 31, 2007.*




*(2)
      Mr. Russo has 80,500 options outstanding*  *as
      of
      December 31, 2007.*




*(3)
      Mr. Levine has 89,500 options outstanding*  *as
      of
      December 31, 2007.*




*(4)* The
      amounts in the “Option Awards” column reflect the dollar amounts recognized as
      compensation expense for financial statement reporting purposes for stock
      options for the fiscal year ended December 31, 2007 in accordance with
      SFAS123(R). The assumptions we used to calculate these amounts are discussed
      in
      Note 2 to our consolidated financial statements included in this Form 10-KSB
      for
      the year ended December 31, 2007.





*Narrative
      Disclosure to Director Compensation*




Each
      year, our Directors who are not also employees receive fully vested options
      to
      purchase 10,000 shares of our Common Stock for each of the following
      memberships: board of directors and audit, compensation and nominating
      committees. These Directors are also granted fully vested options to purchase
      an
      additional 1,500 shares of our Common Stock for each Board meeting they attend.
      Options are granted at exercise prices per share equal to the fair market value
      of common stock on the date of the grant. In addition, we reimburse all such
      Directors who travel more than fifty miles to a meeting of the Board of
      Directors for all reasonable travel expenses.





**Item
      11: Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





Equity
      Compensation Plan Information


As
      of
      December 31, 2007




(a)
                  Number of securities to be issued upon exercise of outstanding
                  options, warrants, and rights
              
              (b)Weighted-average
                  exercise price of outstanding options, warrants, and
                  rights
              
              (c)Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))Plan
                  CategoryEquity
                  compensation plans approved by security holders/(1)/
              
              
              5,872,356
              
              
              0.27
              
              
              2,782,144Equity
                  compensation plans not approved by security holders/(2)/
              
              
              2,026,991
              
              
              0.10
              
              
              -Total
              
              
              7,899,347
              
              
              0.23
              
              
              2,782,144




(1)
                Shareholder
                    Approved Plans





On
      January 23, 2006, the Company adopted its 2006 Stock Option Plan (the "2006
      Plan"). The aggregate number of shares of common stock for which options may
      be
      granted under the 2006 Plan is 4,000,000. The maximum number of options which
      may be granted to an employee during any calendar year under the 2006 Plan
      is
      300,000. The term of these non-transferable stock options may not exceed ten
      years. The exercise price of these stock options may not be less than 100%
      (110%
      if the person granted such options owns more than ten percent of the outstanding
      common stock) of the fair value of one share of common stock on the date of
      grant. On January 23, 2006 the Company granted 1,335,000 shares under the 2006
      Plan, subject to shareholder approval at the next shareholder meeting. On
      November 8, 2006, the shareholders approved the 2006 Plan. As of December 31,
      2007, 1,372,500 options were outstanding under the 2006 Plan, of which 735,256
      were exercisable.




18




In
      November 2000, the Company adopted its 2000 Stock Option Plan (the "2000 Plan").
      The aggregate number of shares of common stock for which options may be granted
      under the 2000 Plan is 3,000,000. The maximum number of options which may be
      granted to an employee during any calendar year under the 2000 Plan is 400,000.
      The term of these non-transferable stock options may not exceed ten years.
      The
      exercise price of these stock options may not be less than 100% (110% if the
      person granted such options owns more than ten percent of the outstanding common
      stock) of the fair value of one share of common stock on the date of grant.
      As
      of December 31, 2007, 2,099,500 options were outstanding under the 2000 Plan,
      of
      which 2,073,925 options were exercisable.





In
      June
      1998, the Company adopted its 1998 Stock Option Plan (the "1998 Plan"). The
      aggregate number of shares of common stock for which options may be granted
      under the 1998 Plan is 3,000,000. The maximum number of options which may be
      granted to an employee during any calendar year under the 1998 Plan is 400,000.
      The term of these non-transferable stock options may not exceed ten years.
      The
      exercise price of these stock options may not be less than 100% (110% if the
      person granted such options owns more than ten percent of the outstanding common
      stock) of the fair value of one share of common stock on the date of grant.
      On
      January 23, 2006 the Company granted 1,335,000 shares under the 1998 Plan.
      As of
      December 31, 2007, 2,375,356 options were outstanding under the 1998 Plan,
      of
      which 1,935,999 options were exercisable.





In
      August
      1994, the Company adopted its 1994 Stock Option Plan (the "1994 Plan"). The
      aggregate number of shares of common stock for which options may be granted
      under the 1994 Plan, as amended, is 1,250,000. The term of these
      non-transferable stock options may not exceed ten years. The exercise price
      of
      these stock options may not be less than 100% (110% if the person granted such
      options owns more than ten percent of the outstanding common stock) of the
      fair
      market value of one common stock on the date of grant. As of December 31, 2007, 25,000
      options were outstanding and exercisable under the 1994 Plan.





During
      the years ended 2005 and 2004, there were no options granted under the Company's
      Time Accelerated Restricted Stock Award Plan ("TARSAP"). The options vest after
      seven years, however, under the TARSAP, the vesting is accelerated to the last
      day of the fiscal year in which the options are granted if the Company meets
      certain predetermined sales targets. The Company did not meet the targets for
      2001 and, as such, all options granted under the TARSAP in 2001 will vest seven
      years from the original date of grant.





(2)
                Non-Shareholder
                    Approved Plans and Awards





During
      2007, the Company granted 1,212,500 warrants to purchase shares of Common Stock
      outside of the shareholder approved plans. The awards have been made to
      employees, directors and consultants, and except as noted below, have been
      granted with an exercise price equal to the fair market value of the Common
      Stock on the date of grant. The Company has not reserved a specific number
      of
      shares for such awards. The non-shareholder approved awards are more
      specifically described below.





On
      September 9, 2005 in connection with services performed by a consultant, the
      Company issued fully vested warrants to purchase 326,087 shares of the Company’s
      Common Stock at $0.23 per share. The warrants will expire on September 9,
      2008.





On
      December 1, 2005 in connection with services performed by a consultant, the
      Company issued warrants to purchase 350,000 shares of the Company’s Common Stock
      at $0.11 per share. All warrants expired unexercised on November 30, 2007.




In
      January 2004, the Company issued options to certain officers to purchase
      1,000,000 shares of the Company’s Common Stock, which vested immediately. The
      exercise price of the options ranged from $0.045 to $0.06. At December 31,
      2007,
      488,404 options were outstanding and exercisable.




On
      January 26, 2007, the Company entered into an agreement with a consultant.
      In
      connection with this agreement, the Company issued fully vested warrants with
      a
      two year term to purchase 1,500,000 shares of the Company’s Common Stock at
      $0.10 per share for a total value of $133,709 based on the Black-Scholes model.
      On May 1, 2007, the Company amended this previous agreement made on January
      26,
      2007 with a consultant. In connection with this amendment, the Company received
      back 562,500 fully vested warrants with a two year term to purchase 562,500
      shares of the Company’s Common Stock at $0.10 per share for a total value of
      $50,141 based on the Black-Scholes model. The remaining value of $37,606 was
      credited to deferred compensation .




On
      July
      17, 2007, the Company received in aggregate of $50,000 from two investors
      through the issuance of promissory notes due the earlier of the receipt of
      any
      proceeds from the sale of State of New Jersey Net Operating Losses or six months
      from the date of the note. The interest rate on the notes is 20% per annum
      and
      the effective interest rate is 20.86%. In conjunction with these notes, the
      Company granted to the note holders warrants to purchase an aggregate of 50,000
      shares of common stock for $0.05 per share. This note was recorded net of a
      debt
      discount of $2,050 based on the relative fair value of the warrants. The
      deferred debt discount was amortized to interest expense.




19




On
      August
      21, 2007, a Board member of the Company advanced an aggregate of $125,000
      through the issuance of promissory notes due the earlier of the receipt of
      any
      proceeds from the sale of State of New Jersey Net Operating Losses or six months
      from the date of the note. The interest rate on the note is 20% per annum and
      the effective interest rate is 20.86%. In conjunction with this note, the
      Company granted to the note holder warrants to purchase an aggregate of 125,000
      shares of common stock for $0.05 per share. This note was recorded net of a
      debt
      discount of $5,125 based on the relative fair value of the warrants. The
      deferred debt discount was amortized to interest expense.





On
      September 10, 2007, the Company received in aggregate of $100,000 from an
      investor through the issuance of a promissory note due the earlier of the
      receipt of any proceeds from the sale of State of New Jersey Net Operating
      Losses or six months from the date of the note. The interest rate on the note
      is
      20% per annum and the effective interest rate is 20.86%. In conjunction with
      this note, the Company granted to the note holder warrants to purchase an
      aggregate of 100,000 shares of common stock for $0.05 per share. This note
      was
      recorded net of a debt discount of $4,100 based on the relative fair value
      of
      the warrants. The deferred debt discount was amortized to interest expense.





*Security
      Ownership of Certain* *Beneficial* *Owners
      and Management*





The
      following tables sets forth certain information regarding the beneficial
      ownership of the Company's Common Stock as of March 31, 2008 by each person
      (or
      group within the meaning of Section 13(d)(3) of the Exchange Act) known by
      the
      Company to own beneficially 5% percent or more of the Company's Common Stock,
      and by the Company's directors and Named Executive Officers, both individually
      and as a group. Unless otherwise noted, the address of each person in the table
      is c/o the Company, 2001 Route 46, Parsippany, NJ 07054.





As
      used
      in these two tables, "beneficial ownership" means the sole or shared power
      to
      vote or direct the voting or to dispose or direct the disposition of any
      security. A person is deemed to be the beneficial owner of securities that
      can
      be acquired within sixty days from March 31, 2008 through the exercise of any
      option, warrant or right. Shares of Common Stock subject to options, warrants
      or
      rights (including conversion from Preferred Stock) which are currently
      exercisable or exercisable within sixty days are deemed outstanding for
      computing the ownership percentage of the person holding such options, warrants
      or rights, but are not deemed outstanding for computing the ownership percentage
      of any other person. The amounts and percentages are based upon 33,047,161 shares
      of Common Stock and 155,557 shares of Preferred Stock outstanding as of March
      31, 2008.




Title
                of Class
            
            Nameand
                Addressof
                Beneficial Owner
            
            Amount
                and Nature of Beneficial Ownership
            
            
            
            Percent
                of ClassCommon
                Stock
            
            
            AWM
                Investment Company
              153
                East 53rdStreet, 55thFloor
              New
                York, NY 10022
            
            
            11,258,068
            
            
            
            
            
            34.07
            %Common
                Stock
            
            
            Norman
                E. Corn
            
            
            1,711,876
            
            
            /(1)/
            
            
            4.96
            %Common
                Stock
            
            
            Patrick
                E. Delaney
            
            
            1,196,876
            
            
            /(2)/
            
            
            3.52
            %Common
                Stock
            
            
            Stephen
                M. Deixler
            
            
            2,717,516
            
            
            /(3)/
            
            
            8.08
            %Common
                Stock
            
            
            Philip
                Levine
            
            
            89,500
            
            
            /(4)/
            
            
            *Common
                Stock
            
            
            Frank
                S. Russo
            
            
            358,280
            
            
            /(5)/
            
            
            1.07
            %Common
                Stock
            
            
            William
                Whitney
            
            
            101,704
            
            
            /(6)/
            
            
            *Common
                Stock
            
            
            Henry
                A. Hill
            
            
            -
            
            
            
            
            
            *Common
                Stock
            
            
            Directors
                and Executive Officers as a group (7 persons)
            
            
            7,369,504
            
            
            
            
            
            19.55
            %





(1)
      Includes 1,435,280 shares of Common Stock subject to options that are currently
      exercisable or exercisable within 60 days of March 31, 2008.





(2)
      Includes 946,876 shares of Common Stock subject to options that are currently
      exercisable or exercisable within 60 days of March 31, 2008.





(3)
      Does
      not include 967,477 shares of Common Stock owned by Mr. Deixler's mother,
      children and grandchildren as to which shares Mr. Deixler disclaims beneficial
      ownership. Includes 480,560 shares of Common Stock subject to conversion from
      48,056 shares of Preferred Stock within 60 days of March 31, 2008, 107,000
      shares of Common Stock subject to options that are currently exercisable or
      exercisable within 60 days of March 31, 2008, and 2,200 shares of common stock
      owned by Mr. Deixler’s wife in which he claims beneficial ownership of.




20




(4)
      Consist of 89,500 shares of Common Stock subject to options that are currently
      exercisable or exercisable within 60 days of March 31, 2008.





(5)
      Includes 277,780 shares of Common Stock subject to conversion from 27,778 shares
      of Preferred Stock within 60 days of March 31, 2008 and 80,500 shares of Common
      Stock subject to options that are currently exercisable or exercisable within
      60
      days of March 31, 2008.





(6)
      Includes 38,890 shares of Common Stock subject to conversion from 3,889 shares
      of Preferred Stock within 60 days of March
      31,
      2008.




*Indicates
      ownership of Common Stock of less than one (1%) percent of the total issued
      and
      outstanding Common Stock on Marc h 31, 2008.





**Item
      12: Certain Relationships and Related Transactions, and Director
      Independence**





*Related
      Party Transactions*





In
      June
      2007, Mr. Russo, Mr. Deixler, and Mr. Corn, advanced an aggregate of $50,000
      through the issuance of promissory notes due the earlier of the receipt of
      any
      proceeds from the sale of State of New Jersey Net Operating Losses or six months
      from the date of the note. The interest rate on the note is prime plus 1.75%
      per
      annum. In December 2007, this note was paid in full. During the year ended
      December 31, 2007, the Company recorded $2,341 of related party interest expense
      relating to this note.





On
      August
      21, 2007, Mr. Russo advanced an aggregate of $125,000 through the issuance
      of
      promissory notes due the earlier of the receipt of any proceeds from the sale
      of
      State of New Jersey Net Operating Losses or six months from the date of the
      note. The interest rate on the note is 20% per annum and the effective interest
      rate is 20.86%. In conjunction with this note, the Company granted to the note
      holder warrants to purchase an aggregate of 125,000 shares of common stock
      for
      $0.05 per share. This note was recorded net of a debt discount of $5,125 based
      on the relative fair value of the warrants. In December 2007, this note was
      paid
      in full. During the year ended December 31, 2007, the Company recorded $7,671
      of
      related party interest expense relating to this note.





On
      August
      5, 2004, the Company issued a convertible debenture (the “Debenture”) for
      $200,000 cash to Stephen M. Deixler, one of the Company’s directors. On February
      15, 2006, Mr. Deixler converted the Debenture into 2,409,639 shares of common
      stock. The Debenture would have matured on August 5, 2008 and had an interest
      rate of five (5%) percent per annum, compounded annually. The principal amount
      of the Debenture was convertible at any time by the holder into shares of the
      Company’s common stock, $.001 par value, at a conversion price equal to $0.083
      per share (the “Conversion Price”), for a total of 2,409,639 shares of common
      stock. The accrued interest can only be converted by the borrower. During the
      year ended December 31, 2006, the Company recorded $1,696 of related party
      interest expense relating to the Debenture.





*Director
      Independence*





The
      Board
      of Directors has determined that Stephen M. Deixler, Frank S. Russo and Philip
      Levine, constituting a majority of the directors and all current members
      of the audit
      committee, are within
      the meaning of Nasdaq Rule 4200(a)(15), and that the members of the audit
      committee are also “independent” for purposes of Rule 10A-3 of the Exchange Act.
      The Company has further determined that all of the members of the compensation
      committee and nominating committee are independent within the meaning of Nasdaq
      Rule 4200(a)(15).




In
      making
      each of these independence determinations, the Board considered and broadly
      assessed, from the standpoint of materiality and independence, all of the
      information provided by each director in response to detailed inquiries
      concerning the director’s independence and any direct or indirect business,
      family, employment, transactional or other relationship or affiliation of such
      director with the Company.


21


**Item
                13. Exhibits**




(a)
                Exhibits:




Exhibit
                  No.
              
              Description3.1
              
              Certificate
                  of Incorporation of the Company, as amended through December 31,
                  2005.
                  /(12)/3.2
              
              By-Laws
                  of the Company. /(1)/4.1
              
              1994
                  Stock Option Plan of the Company. /(12)/4.2
              
              1998
                  Stock Option Plan of the Company. /(1)/+4.3
              
              2000
                  Stock Option Plan of the Company. /(12)/4.4
              
              2006
                  Stock Option Plan of the Company. /(12)/4.5
              
              Warrant
                  Agreement by and between the Company and Creso Capital Partners
                  dated
                  September 9, 2005./(12)/4.6
              
              Form
                  of Warrant Agreement by and between the Company and Mehrdad Nadooshan
                  dated November 30, 2005. /(12)/4.7
              
              Form
                  of Warrant Agreement by and between the Company and McGat Enterprises,
                  LLC. dated January 29, 2007. *10.1
              
              Equipment
                  Lease Agreement dated October 29, 2003 by and between the Company
                  and GE
                  Capital Corporation. /(11)/10.2
              
              Stock
                  Purchase Agreement dated August 11, 2000 by and between the Company
                  and
                  the parties identified therein. /(2)/10.3
              
              Purchase
                  Agreement by and between the Company and the Selling Shareholders
                  set
                  forth therein dated February 7, 2002. /(4)/10.4
              
              Severance
                  Agreement dated September 2, 2004 by and between the Company and
                  William
                  Whitney. /(11)/ +10.5
              
              Severance
                  Agreement dated September 2, 2004 by and between the Company and
                  Henry
                  Gold. /(11)/ +10.6
              
              Employment
                  Agreement dated August 31, 2004 by and between the Company and
                  Henry A.
                  Hill. /(10)/+10.7
              
              Employment
                  Agreement dated February 25, 2002 by and between the Company and
                  William
                  Whitney. /(6)/+10.8
              
              Amended
                  and Restated Employment Agreement dated September 8, 2003, by and
                  between
                  the Company and Norman E. Corn. /(7)/+10.9
              
              First
                  Amendment to the Amended and Restated Employment Agreement dated
                  September
                  8, 2003 by and between the Company and Norman E. Corn dated November
                  10,
                  2004. /(11)/+10.10
              
              Employment
                  Agreement dated September 15, 2003 by and between the Company and
                  Patrick
                  E. Delaney. /(5)/+10.11
              
              First
                  Amendment to the Employment Agreement dated September 15, 2003
                  by and
                  between the Company and Patrick E. Delaney dated November 10, 2004.
                  /(11)/+
  22
  Exhibit
                  No.
              
              Description10.12
              
              Option
                  Agreement dated January 28, 2004 by and between the Company and
                  Norman E.
                  Corn. /(11)/+10.13
              
              Option
                  Agreement dated January 28, 2004 by and between the Company and
                  Patrick E.
                  Delaney. /(11)/+10.14
              
              Lease
                  Agreement dated July 21, 2003 by and between the Company and 116
                  Corporate
                  Boulevard, LLC, Inc. /(8)/10.15
              
              Agreement
                  dated February 25, 2005 by and between the Company and Sprint/Untied
                  Management Company. /(11)/10.16
              
              Agreement
                  dated October 28, 2004 by and between the Company and General Dynamics
                  Network systems. /(11)/10.17
              
              Final
                  Settlement Agreement dated October 11, 2005 by and between the
                  Company and
                  Mr. Gray. /(12)/10.18
              
              Agreement
                  to Reprice and Exercise Warrants dated April 25, 2006 by and between
                  the
                  Company and the parties identified herein. /(13)/10.19
              
              Agreement
                  dated January 26, 2007 by and between the Company and McGat Enterprises,
                  LLC. *10.20
              
              Business
                  Finance Agreement dated September 9, 2005 by and between the Company
                  and
                  Bridge Bank , National Association. /(14)/10.21
              
              Purchase
                  Agreement by and between the Company and the purchasers named therein
                  dated March 31, 2005. /(15)/10.22
              
              Registration
                  Rights Agreement by and between the Company and the investors named
                  therein dated March 31, 2005. /(15)/10.23
              
              Form
                  of Incentive Stock Option Agreement under ION Networks, Inc. 2006
                  Stock
                  Incentive Plan. /(16)/+10.24
              
              Form
                  of Nonqualified Stock Option Agreement under ION Networks, Inc.
                  2006 Stock
                  Incentive Plan. /(16)/+10.25
              
              Form
                  of Restrictive Stock Option Agreement under ION Networks, Inc.
                  2006 Stock
                  Incentive Plan. /(16)/+10.26
              
              Lease
                  Extension dated May 11, 2006 by and between the Company and 116
                  Corporate
                  Boulevard, LLC to the Lease Agreement dated July 21, 2003.
                  /(17)/10.27
              
              Asset
                  Purchase Agreement by and between Cryptek, Inc. and ION Networks,
                  Inc.
                  dated November 19, 2007. /(18)/10.28
              
              Letter
                  Agreement dated December 19, 2007, between the Company and Norman
                  E. Corn.
                  */+10.29
              
              Letter
                  Agreement dated December 19, 2007, between the Company and Patrick
                  E.
                  Delaney. */+21.1
              
              List
                  of Subsidiaries. /(11)/31.1
              
              Certification
                  of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of
                  2002.
                  *31.2
              
              Certification
                  of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
                  *32.1
              
              Certification
                  of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
                  *
 32.2
              
              Certification
                  of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
                  *




(1)
      Incorporated by reference to the Company's Registration Statement on Form S-8
      filed on April 22, 1999.




(2)
      Incorporated by reference to the Company’s Annual report on Form 10-KSB filed on
      June 29, 2001.




(3)
      Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the
      fiscal year ended March 31, 2002, as filed on July 1, 2002.




(4)
      Incorporated by reference to the Company’s Registration Statement on Form S-3
      filed on March 4, 2002.




(5)
      Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
      on November 17, 2003.




(6)
      Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the
      fiscal year ended December 31, 2002, as filed on April 15, 2003.


23


(7)
      Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
      on September 12, 2003.




(8)
      Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed
      for the year ended December 31, 2003.




(9)
      Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
      on August 13, 2004.




(10)
      Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
      on November 15, 2004.




(11)
      Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed
      for the year ended December 31, 2004.




(12)
      Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed
      for the year ended December 31, 2005.




(13)
      Incorporated by reference to Exhibit 99 to the registrant’s Form 8-K with the
      SEC on May 1, 2006.




(14)
      Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
      on November 4, 2005.




(15)
      Incorporated by reference to the registrant’s Form 8-K with the SEC on April 5,
      2005.




(16)
      Incorporated by reference to the registrant’s Form 8-K with the SEC on November
      14, 2006.




(17) Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB filed for the year
      ended December 31, 2006.




(18)
      Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
      on November 19, 2007.




* 
      Filed herewith




+
       Management contract for compensatory plan or arrangement





**Item
      14. Principal Accountant Fees and Services**





The
      following table presents fees for professional services rendered by Marcum
&
Kliegman LLP (“Marcum”) for the audit of the Company’s annual consolidated
      financial statements for the years ended December 31, 2007, and December 31,
      2006, and fees billed for other services rendered by Marcum during those
      periods.




Year
                  Ended
              
              Year
                  EndedDecember
                  31, 2007
              
              December
                  31, 2006Audit
                  Fees(1)
              
              $
              95,415
              
              $
              97,500Audit
                  Related Fees(2)
              
              
              -
              
              
              -Tax
                  Fees (3)
              
              
              -
              
              
              -All
                  Other Fees(4)
              
              
              -
              
              
              -




(1)
      Audit
      fees were principally for audit work performed on our annual financial
      statements and review of our interim financial statements




(2)
      Marcum did not provide any “audit-related services” during the
      period.




(3)
      Marcum did not provide any “tax services” during the period.




(4)
      Marcum did not provide any “other services” during the period.




The
      Audit
      Committee has adopted a formal policy concerning the pre-approval of audit
      and
      non-audit services to be provided by the Company’s independent registered public
      accounting firm. The policy requires that all services to be performed by the
      Company’s independent registered public accounting firm, including audit
      services, audit-related services and permitted non-audit services, be
      pre-approved by the Audit Committee. The policy permits the Audit Committee
      to
      delegate pre-approval authority to one or more members, provided that any
      pre-approval decisions are reported to the Audit Committee at its next meeting.
      Specific services being provided by the independent registered public accounting
      firm are regularly reviewed in accordance with the pre-approval policy. At
      subsequent Audit Committee meetings, the Audit Committee receives updates on
      services being provided by the independent registered public accounting firm,
      and management may present additional services for approval. Since the May
      6,
      2003 effective date of the SEC rule applicable to services being provided by
      the
      independent accountants, each new engagement of the Company’s independent
      registered public accounting firm was approved in advance by the Audit
      Committee.




24


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**CLACENDIX,
                INC.**Dated:
                April 14, 2008
            By:
            /s/
              Norman E. CornNorman
                E. Corn
              Chief
                Executive Officer and
              Director




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities indicated
      on
      April 14, 2008:




Signature
              
              Title/s/
                  Norman E. Corn
              
              Chief
                  Executive Officer and DirectorNorman
                  E. Corn/s/
                  Patrick E. Delaney
              
              Chief
                  Financial Officer and Principal AccountingPatrick
                  E. Delaney
              
              Officer/s/
                  Stephen M. Deixler
              
              Chairman
                  of the Board of DirectorsStephen
                  M. Deixler/s/
                  Philip Levine
              
              DirectorPhilip
                  Levine/s/
                  Frank S. Russo
              
              DirectorFrank
                  S. Russo




25




**Clacendix,
      Inc. and Subsidiary**





**Index
      to Consolidated Financial Statements**


**For
      the Years Ended December 31, 2007 and 2006**




Page(s)Report
                  of Independent Registered Public Accounting Firm
              
              
              27Consolidated
                  Financial Statements:Consolidated
                  Balance Sheet as of December 31, 2007
              
              
              28Consolidated
                  Statements of Operations for the Years Ended December 31, 2007
                  and
                  2006
              
              
              29Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2007
                  and
                  2006
              
              
              30Consolidated
                  Statements of Stockholders' Equity for the Years Ended December
                  31, 2007
                  and 2006
              
              
              31Notes
                  to Consolidated Financial Statements
              
              
              32-46




26




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
      the
      Audit Committee of the Board of Directors and Stockholders of


Clacendix,
      Inc. (formerly ION Networks, Inc.)





We
      have
      audited the accompanying consolidated balance sheet of Clacendix, Inc. (formerly
      ION Networks, Inc.) and Subsidiary (the “Company”) as of December 31, 2007, and
      the related consolidated statements of operations, stockholders’ equity, and
      cash flows for the years ended December 31, 2007 and 2006. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement.  The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion.  An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation.  We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Clacendix, Inc. and
      Subsidiary (formerly ION Networks, Inc.) as of December 31, 2007, and the
      results of their operations and their cash flows for the years ended December
      31, 2007 and December 31, 2006 in conformity with generally accepted accounting
      principles (United States).





As
      discussed in Note 2, during the year ended December 31, 2006, the Company
      changed its method of accounting for stock-based compensation in accordance
      with
      Statement of Financial Accounting Standard No. 123R, “Share-Based
      Payment”.





As
      discussed in Note 1, on December 31, 2007. the Company sold substantially all
      of
      its operating assets to a third party.







/s/
      Marcum & Kliegman LLP




New
      York,
      New York


April
      14,
      2008




27


**Clacendix,
      Inc. and Subsidiary**


**(formerly
      ION Networks, Inc.)**


**Consolidated
      Balance Sheet**


**December
      31, 2007**





**Assets**Current
                assetsCash
                and cash equivalents
            
            $
            2,525,641Restricted
                cash
            
            
            320,000Other
                receivables
            
            
            397,868Prepaid
                expenses and other current assets
            
            
            9,527Total
                assets
            
            $
            3,253,036**Liabilities
                and Stockholders’ Equity**Current
                liabilitiesAccounts
                payable
            
            $
            333,880Accrued
                expenses
            
            
            164,248Accrued
                payroll and related liabilities
            
            
            897,248Accrued
                interest - related party
            
            
            15,814Total
                liabilities
            
            $
            1,411,190Commitments
                and contingenciesStockholders’
                equityPreferred
                stock - par value $.001 per share; authorized 1,000,000 shares,200,000
                shares designated Series A; 155,557 shares issued and outstanding(Aggregate
                Liquidation Preference $280,003)
            
            
            156Common
                stock - par value $.001 per share; authorized 50,000,000 shares;33,047,161
                shares issued and outstanding
            
            
            33,048Additional
                paid-in capital
            
            
            45,862,529Accumulated
                deficit
            
            
            (44,053,887
            )Total
                stockholders’ equity
            
            
            1,841,846Total
                liabilities and stockholders’ equity
            
            $
            3,253,036





The
      accompanying notes are an integral part of these consolidated financial
      statements.




28


**Clacendix,
      Inc. and Subsidiary**


**(formerly
      ION Networks, Inc.)**


**Consolidated
      Statements of Operations**




Years
                Ended December 31,2007
            
            2006Net
                sales
            
            $
            3,314,503
            
            $
            3,380,346Cost
                of sales
            
            
            1,518,067
            
            
            1,384,641Gross
                margin
            
            
            1,796,436
            
            
            1,995,705Operating
                expenses:Research
                and development expenses
            
            
            328,797
            
            
            666,069Selling,
                general and administrative expenses
            
            
            3,221,267
            
            
            2,558,523Depreciation
                expense
            
            
            21,887
            
            
            16,086Restructuring
                and other credits
            
            
            -
            
            
            (81,000
            )Total
                operating expenses
            
            
            3,571,951
            
            
            3,159,678Loss
                from operations
            
            
            (1,775,515
            )
            
            (1,163,973
            )Gain
                on sale of assets
            
            
            1,453,113
            
            
            -Other
                income
            
            
            3,301
            
            
            396Interest
                expense- related party
            
            
            (10,012
            )
            
            (1,696
            )Interest
                income/(expense)
            
            
            (66,693
            )
            
            (52,636
            )Loss
                before income tax benefit
            
            
            (395,806
            )
            
            (1,217,908
            )Income
                tax benefit
            
            
            489,298
            
            
            464,836Net
                income(loss)
            
            $
            93,492
            
            $
            (753,072
            )Per
                share data:Net
                income (loss) per common shareBasic
            
            $
            0.00
            
            $
            (0.02
            )Diluted
            
            $
            0.00
            
            $
            (0.02
            )Weighted
                average number of common shares outstandingBasic
            
            
            32,799,899
            
            
            31,415,780Diluted
            
            
            34,553,372
            
            
            31,415,780




The
      accompanying notes are an integral part of these consolidated financial
      statements.




29


**Clacendix,
      Inc. and Subsidiary**


**(formerly
      ION Networks, Inc.)**


**Consolidated
      Statements of Cash Flows**


Years
                Ended December 31,2007
            
            2006Cash
                flows from operating activitiesNet
                income(loss)
            
            $
            93,492
            
            $
            (753,072
            )Adjustments
                to reconcile net income/(loss) to net cash from operating
                activities:Restructuring
                and other credits
            
            
            -
            
            
            (81,000
            )Depreciation
                and amortization
            
            
            386,183
            
            
            261,663Provision
                for inventory reserve
            
            
            (28,638
            )
            
            (14,578
            )Non-cash
                stock-based compensation
            
            
            114,328
            
            
            198,661Gain
                on sale of assets
            
            
            (1,453,113
            )
            
            -Interest
                on convertible debt - related party
            
            
            -
            
            
            1,696Deferred
                rent
            
            
            2,683
            
            
            -Deferred
                compensation
            
            
            47,355
            
            
            -Amortization
                of deferred financing costs
            
            
            25,775
            
            
            36,026Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            70,172
            
            
            575,086Other
                receivable
            
            
            (397,868
            )
            
            -Inventories
            
            
            309,428
            
            
            (7,390
            )Prepaid
                expenses and other current assets
            
            
            (26,160
            )
            
            48,062Other
                assets
            
            
            10,085
            
            
            (85
            )Accounts
                payable
            
            
            89,231
            
            
            (164,430
            )Accrued
                expenses
            
            
            (199,115
            )
            
            (26,733
            )Accrued
                payroll and related liabilities
            
            
            815,732
            
            
            (140,856
            )Deferred
                income
            
            
            (6,860
            )
            
            (14,718
            )Net
                cash used in operating activities
            
            
            (147,290
            )
            
            (81,668
            )Cash
                flows from investing activitiesAcquisition
                of property and equipment
            
            
            (1,379
            )
            
            (26,729
            )Capitalized
                software expenditures
            
            
            (535,839
            )
            
            (565,775
            )Proceeds
                from the sale of assets
            
            
            2,880,000
            
            
            -Restricted
                proceeds from the sale of assets
            
            
            320,000
            
            
            -Restricted
                proceeds from the sale of assets
            
            
            (320,000
            )
            
            -Net
                cash provided by (used in) investing activities
            
            
            2,342,782
            
            
            (592,504
            )Cash
                flows from financing activitiesPrincipal
                payments on debt and capital leases
            
            
            (2,319
            )
            
            (7,421
            )Proceeds
                from notes payable
            
            
            150,000
            
            
            -Proceeds
                from notes payable - related parties
            
            
            175,000
            
            
            -Repayment
                of notes payable
            
            
            (150,000
            )
            
            -Repayment
                of notes payable - related parties
            
            
            (175,000
            )
            
            -Borrowings
                from revolving credit facility
            
            
            1,166,788
            
            
            565,000Repayments
                of revolving credit facility
            
            
            (1,114,285
            )
            
            (279,316
            )Proceeds
                from the exercise of warrants, net
            
            
            -
            
            
            468,201Proceeds
                from the exercise of stock options
            
            
            15,696
            
            
            -Deferred
                financing costs
            
            
            (1,667
            )
            
            (2,698
            )Net
                cash provided by financing activities
            
            
            64,213
            
            
            743,766Net
                increase in cash and cash equivalents
            
            
            2,259,705
            
            
            69,594Cash
                and cash equivalents - beginning of year
            
            
            265,936
            
            
            196,342Cash
                and cash equivalents - end of year
            
            $
            2,525,641
            
            $
            265,936Supplemental
                disclosure of cash flow informationCash
                paid during period for interest
            
            $
            43,459
            
            $
            16,429Non-cash
                disclosures of investing and financing activities:Conversion
                of convertible debenture into common stock
            
            $
            -
            
            $
            200,000





The
      accompanying notes are an integral part of these consolidated financial
      statements.


30


**Clacendix,
      Inc. and Subsidiary**


**(formerly
      ION Networks, Inc.)**


**Consolidated
      Statements of Stockholders’ Equity**


**For
      the Years Ended December 31, 2007 and 2006**




Preferred
            
            Common
            
            Additional
              Paid-In
            
            Accumulated
            
            Deferred
            
            Total
                Stockholders’Shares
            
            Stock
            
            Shares
            
            Stock
            
            Capital
            
            Deficit
            
            Compensation
            
            EquityBalances,
                December 31, 2005
            
            
            155,557
            
            $
            156
            
            
            27,050,044
            
            $
            27,051
            
            $
            44,840,882
            
            $
            (43,394,307
            )
            $
            (16,597
            )
            $
            1,457,185Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (753,072
            )
            
            
            
            
            (753,072
            )Exercise
                of Stock Options and Warrants, net
            
            
            
            
            
            
            
            
            3,325,882
            
            
            3,326
            
            
            464,875
            
            
            
            
            
            
            
            
            468,201Conversion
                of Convertible Debenture into common stock
            
            
            
            
            
            
            
            
            2,409,639
            
            
            2,409
            
            
            197,591
            
            
            
            
            
            
            
            
            200,000Amortization
                of deferred compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            182,064
            
            
            
            
            
            16,597
            
            
            198,661Balances,
                December 31, 2006
            
            
            155,557
            
            $
            156
            
            
            32,785,565
            
            $
            32,786
            
            $
            45,685,412
            
            $
            (44,147,379
            )
            $
            -
            
            $
            1,570,975Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            93,492
            
            
            
            
            
            93,492Exercise
                of Stock Options and Warrants, net
            
            
            
            
            
            
            
            
            261,596
            
            
            262
            
            
            15,434
            
            
            
            
            
            
            
            
            15,696Non-cash
                stock-based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            114,328
            
            
            
            
            
            
            
            
            114,328Issuance
                of warrants to consultant
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            133,709
            
            
            
            
            
            (133,709
            )
            
            -Cancelation
                of warrants to consultant
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (86,354
            )
            
            
            
            
            86,354
            
            
            -Amortization
                of deferred compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            47,355
            
            
            47,355Balances,
                December 31, 2007
            
            
            155,557
            
            $
            156
            
            
            33,047,161
            
            $
            33,048
            
            $
            45,862,529
            
            $
            (44,053,887
            )
            $
            -
            
            $
            1,841,846





The
      accompanying notes are an integral part of these consolidated financial
      statements.


31


**Clacendix,
      Inc. and Subsidiary**


**(formerly
      ION Networks, Inc.)**


**Notes
      to Consolidated Financial Statements**





**1.
      Organization, Basis of Presentation and Plan of Operation**





*Organization
      and Basis of Presentation*





ION
      Networks, Inc. (“ION”), a Delaware corporation founded in 1999 through the
      combination of two companies -- MicroFrame, a New Jersey Corporation (the
      predecessor entity to ION, originally founded in 1982), and SolCom Systems
      Limited, a Scottish corporation located in Livingston, Scotland (originally
      founded in 1994), designed, developed, manufactured and sold network and
      information security and management products to corporations, service providers
      and government agencies. ION’s hardware and software suite of products are
      designed to form a secure auditable portal to protect IT and network
      infrastructure from internal and external security threats. ION's products
      operate in the IP, data center, telecommunications and transport, and telephony
      environments and are sold by a direct sales force and indirect channel partners
      mainly throughout North America and Europe. On December 31, 2007, ION Networks,
      Inc. changed its name to Clacendix, Inc. The accompanying consolidated financial
      statements include the accounts of Clacendix, Inc. and ION Networks, N.V.,
      a
      wholly-owned, inactive subsidiary (collectively, the “Company”).




As
      discussed further below, on December 31, 2007, the Company sold substantially
      all of its operating assets. The Company is currently operating as a shell
      company with no active operations.




*Sale
      of Substantially All of the Operating Assets* ******




On
      December 31, 2007, the shareholders of the Company voted in favor of the
      Transaction to sell substantially all of the operating assets of the Company
      to
      Cryptek, Inc., a Delaware Corporation (“Cryptek”). The consent of the majority
      of the stockholders of the Company was a requirement of the Asset Purchase
      Agreement and was obtained at the Annual Meeting of Shareholders.




The
      closing of the Transaction occurred immediately upon the conclusion of the
      Annual Meeting of Shareholders.  Pursuant to the Asset Purchase Agreement,
      the Company sold to Cryptek, Inc. substantially all of the operating assets
      of
      the Company in exchange for the total consideration of $3,771,040 which is
      made
      up as follows: (i) $3,200,000 in cash, (ii) $338,187 in receivables receipts
      which will flow to the Company and (iii) $232,853 in certain assumed
      liabilities.  At the closing of the Transaction, $320,000 was reduced from
      the total cash delivered to the Company and deposited in an escrow account
      to
      provide for any claims against the Company’s transferred Intellectual Property
      which may arise within one year of the closing date. This escrow amount has
      been
      classified as Restricted Cash as of December 31, 2007.




32




A
                summary of the assets sold and liabilities assumed as part of the
                transaction are as follows:





Accounts
                receivable, net
            
            $
            378,656Inventories,
                net
            
            
            267,256Prepaid
                expenses
            
            
            43,950Property,
                plant and equipment
            
            
            16,005Capitalized
                software
            
            
            1,383,417Other
                assets
            
            
            12,912Total
                assets sold
            
            $
            2,102,196Accounts
                payable
            
            $
            16,799Accrued
                expenses
            
            
            70,522Deferred
                maintenance
            
            
            145,532Total
                liabilities assumed
            
            $
            232,853




The
      Company realized a gain of $1,453,113 on the sale of substantially all of the
      operating assets of the Company.  The Company incurred $215,731 in
      expenses related to the transaction comprised of legal and accounting fees
      of
      $169,672, shareholder meeting related expenses of $30,327 and other fees of
      $15,732.




*Plan
      of Operation*




The
      plan
      of operation of the Company is to seek a target company with which to merge
      or
      to complete a business combination.  In any transaction, it is expected
      that the Company would be the surviving legal entity and the shareholders of
      the
      Company would retain a percentage ownership interest in the post-transaction
      company.  The Company does not plan to restrict its search to any specific
      business, industry or geographic location, and it may participate in a business
      venture of virtually any kind or nature.




The
      Company may seek a business opportunity with entities which have recently
      commenced operations, or that desire to utilize the public marketplace in order
      to raise additional capital in order to expand into new products or markets,
      to
      develop a new product or service, or for other corporate purposes.  The
      Company may acquire assets and establish wholly owned subsidiaries in various
      businesses or acquire existing businesses as subsidiaries.




The
      Company can give no assurance that any such a transaction will occur, or that
      if
      such a transaction were to occur, it would enhance the Company’s future
      operations or financial results, or specifically that the Company would become
      and remain profitable as a result of such transaction.




**2.
      Summary of Significant Accounting Policies**





*Principles
      of Consolidation*





The
      accompanying consolidated financial statements include the accounts of
      Clacendix, Inc. and ION Networks, NV, a wholly-owned inactive subsidiary. All
      material inter-company balances and transactions have been eliminated in
      consolidation.




33




*Use
      of Estimates*





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





The
      significant estimates include the allowance for doubtful accounts, allowance
      for
      inventory obsolescence, capitalized software costs including estimates of future
      gross revenues, and the related amortization lives, deferred tax asset valuation
      allowance and depreciation and amortization lives.





*Cash
      and Cash Equivalents*





The
      Company considers all highly liquid investments with a maturity of three months
      or less at the time of purchase to be cash equivalents. Cash equivalents include
      demand deposits and money market accounts.





*Restricted
      Cash*





The
      Company considers as restricted cash, amounts held in an escrow account to
      secure any representation and warranty claims against the intellectual property
      as delineated in the asset purchase agreement by and between ION Networks,
      Inc.
      and Cryptek.





*Allowance
      for Doubtful Accounts Receivable*





Prior
      to
      the sale of substantially all the operating assets of the Company, the accounts
      receivable were reduced by an allowance to estimate the amount that will
      actually be collected from our customers. If the financial condition of
      customers were to materially deteriorate, resulting in an impairment of their
      ability to make payments, additional allowances could be required.





*Inventories*





Prior
      to
      the sale of substantially all the operating assets of the Company, the
      inventories were stated at the lower of cost (average cost) or market. Reserves
      for slow moving and obsolete inventories are provided based on historical
      experience and current product demand. If the Company’s estimate of future
      demand is not correct or if its customers place significant order cancellations,
      inventory reserves could increase from the Company’s estimate. The Company may
      also receive orders for inventory that has been fully or partially reserved.





*Property
      and Equipment*





Prior
      to
      the sale of substantially all the operating assets of the Company, property
      and
      equipment were stated at cost. Depreciation is calculated using the
      straight-line method over the estimated useful lives of the assets, which are
      generally two to five years. Expenditures for maintenance and repairs, which
      do
      not extend the economic useful life of the related assets, are charged to
      operations as incurred. Gains or losses on disposal of property and equipment
      are reflected in the consolidated statements of operations in the period of
      disposal.





*Deferred
      Financing Costs*





Costs
      incurred in conjunction with borrowing facilities have been capitalized as
      Deferred Financing Costs and are amortized over the term of the respective
      agreements.





*Capitalized
      Software*





Prior
      to
      the sale of substantially all the operating assets of the Company, the Company
      capitalized computer software development costs in accordance with the
      provisions of Statement of Financial Accounting Standards No. 86, "Accounting
      for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
      ("SFAS No. 86"). SFAS No. 86 requires that the Company capitalize computer
      software development costs upon the establishment of the technological
      feasibility of a product, to the extent that such costs are expected to be
      recovered through future sales of the product. Management is required to use
      professional judgment in determining whether development costs meet the criteria
      for immediate expense or capitalization. Capitalized costs are amortized by
      the
      greater of the amount computed using (i) the ratio that current gross revenues
      from the sales of software bear to the total of current and anticipated future
      gross revenues from the sales of that software, or (ii) the straight-line method
      over the estimated useful life of the product. As a result, the carrying amount
      of the capitalized software costs may be reduced materially in the near term.




34




The
      Company records impairment losses on capitalized software and other long-lived
      assets used in operations when events and circumstances indicate that the assets
      might be impaired and the undiscounted cash flows estimated to be generated
      by
      those assets are less than the carrying amount of those items. The Company’s
      cash flow estimates are based on historical results adjusted to reflect its
      best
      estimate of future market and operating conditions. The net carrying value
      of
      assets not recoverable is reduced to fair value. While the Company believes
      that
      its estimates of future cash flows are reasonable, different assumptions
      regarding such cash flows could materially affect the Company’s estimates.





The
      Company capitalized $535,839 of software development costs for the year ended
      December 31, 2007. Amortization
      expense totaled
      $364,296 and $245,577 for the years December 31, 2007 and 2006, respectively,
      and is included in cost of sales in the accompanying consolidated financial
      statements.On December 31, 2007, all of the Company’s remaining capitalized
      software was sold to Cryptek as part of the sale of substantially all of the
      operating assets of the Company.





*Research
      and Development Costs*





Prior
      to
      the sale of substantially all the operating assets of the Company, the Company
      charged all costs incurred to establish the technological feasibility or
      enhancement of a product to research and development expense in the period
      incurred.





Advertising
      Costs





Advertising
      costs are expensed as incurred. The Company incurred approximately $1,000 in
      advertising costs for the years ended December 31, 2007 and 2006.





*Revenue
      Recognition*





Prior
      to
      the sale of substantially all the operating assets of the Company, the Company
      recognized revenue from product sales of hardware and software to end-users,
      value added resellers (VARs) and original equipment manufacturers (OEMs) upon
      shipment and passage of title if no significant vendor obligations exist and
      collectibility is probable. The Company did not offer customers the right to
      return products, however the Company records warranty costs at the time revenue
      is recognized. Management estimated the anticipated warranty costs but actual
      results could differ from those estimates.





In
      addition, the Company sold internally developed stand-alone finished software
      packages (“PRIISMS Software”), which permit end-users to monitor, secure and
      administer voice and data communications networks. The software packages permit
      the customer to utilize the PRIISMS software pursuant to the terms of the
      license. Other than during an initial ninety-day warranty period from the date
      of shipment, the purchaser is not entitled to upgrades/enhancements or services
      that can be attributable to a multi-element arrangement. In addition, the
      customer did not have any rights to exchange or return the software. Since
      the
      software package sale did not require significant production, modification
      or
      customization, the Company recognized revenue at such time the product was
      shipped and title passes and collectibility was probable in accordance with
      the
      accounting guidance under Statement Position 97-2, “Software Revenue
      Recognition.”





The
      Company sold separate customer maintenance contracts and maintenance revenue
      was
      recognized on a straight-line basis over the period the service was provided,
      generally one year. On some occasions, maintenance was provided on a time and
      material basis in which case revenue was recognized upon shipment of the
      repaired item.





*Shipping
      and Handling Costs*





Prior
      to
      the sale of substantially all the operating assets of the Company, shipping
      and
      handling costs incurred were recorded as part of cost of sales.





*Fair
      Value of Financial Instruments*





The
      carrying value of items included in working capital and debt approximates fair
      value because of the relatively short maturity of these instruments.





*Net
      Income/(Loss) Per Share of Common Stock*





Basic
      net
      income/(loss) per share is computed by dividing net loss attributable to common
      shareholders by the weighted average number of common shares outstanding during
      the period.  Diluted net income/(loss) per share reflects the potential
      dilution that could occur if securities or other instruments to issue common
      stock were exercised or converted into common stock.




35




The
      following table sets forth the components used in the computation of basic
      and
      diluted income/(loss) per common share:




For
                the years endedDecember
                31, 2007**
            
            December
                31, 2006*Weighted
                average common shares outstanding, basic
            
            
            32,799,899
            
            
            31,415,780Incremental
                shares of common stock equivalents
            
            
            37,321
            
            
            -Conversion
                of preferred stock to common stock
            
            
            1,555,570
            
            
            -Conversion
                of in the money warrants to common stock
            
            
            160,582
            
            
            -Weighted
                average common shares outstanding, diluted
            
            
            34,553,372
            
            
            31,415,780




*
      Potential common shares of 9,026,513 for the year ended December 31, 2006,
      were
      excluded from the computation of diluted earnings per share, as their inclusion
      would be anti dilutive.




**
      Potential common shares of 7,029,679 for the year ended December 31, 2007,
      were
      excluded from the computation of diluted earnings per share, as their exercise
      prices were greater than the average market price of the common stock during
      the
      period.




Stock-Based
      Compensation




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of “Share Based Payment” (“FAS 123R”), using the modified prospective
      transition method and therefore has not restated prior periods' results. Under
      this transition method, stock-based compensation expense for the year ended
      December 31, 2006 included compensation expense for stock-based compensation
      awards granted prior to, but not yet fully vested as of January 1, 2006
      based on the grant date fair value estimated in accordance with the original
      provisions of FAS 123. Stock-based compensation expense for all share-based
      payment awards granted after January 1, 2006 is based on the grant-date
      fair value estimated in accordance with the provisions of FAS 123R. The
      Company recognizes these compensation costs over the requisite service period
      of
      the award, which is generally the option vesting term. Stock based compensation
      expense for the years ending December 31, 2007 and 2006 was $114,328 and
      $198,661, respectively. As of December 31, 2007, the fair value of unvested
      options totaled $7,767. Such costs are expected to be recognized over a two
      year
      period. Stock based compensation for the years ended December 31, 2007 and
      2006
      was recorded in the statement of operations as follows:




For
                the Year Ended December 31,2007
            
            2006Cost
                of Sales
            
            $
            4,614
            
            $
            8,036Research
                &Development Expenses
            
            
            34,232
            
            
            68,404Selling,
                General &Administrative Expenses
            
            
            75,482
            
            
            122,221Total
            
            $
            114,328
            
            $
            198,661


36




The
      fair
      value of share-based payment awards was estimated using the Black-Scholes
      pricing model with the following assumptions and weighted average fair values
      as
      follows:




**Years
                ended****December
                31****2007**
            
            
            **2006**Risk-free
                interest rate
            
            
            3.39%-5.05
            %
            
            4.00%-5.10
            %Dividend
                yield
            
            
            N/A
            
            
            N/AExpected
                volatility
            
            
            202-224
            %
            
            208-233
            %Expected
                life in years
            
            
            5
            
            
            5Expected
                forfeiture rate (through term)
            
            
            0
            %
            
            75.9
            %




The
      determination of the fair value of stock-based awards on the date of grant
      is
      affected by the Company’s stock price as well as assumptions regarding a number
      of complex and subjective variables. These variables include the price of the
      underlying stock, the Company’s expected stock price volatility over the
      expected term of the awards, actual and projected employee stock option exercise
      behaviors, risk-free interest rate and the expected annual dividend yield on
      the
      underlying shares.




The
      Company uses historical information to estimate expected life and forfeitures
      within the valuation model. The risk-free rate for periods within the expected
      life of the award is based on the U.S. Treasury yield curve in effect at the
      time of grant. Expected volatility is based on historical volatility of the
      price of our common stock over the calculated expected life. The Company does
      not anticipate paying cash dividends in the future and therefore uses an
      expected dividend yield of 0.0%.




Developing
      these assumptions requires significant judgment on the part of the Company
      and,
      generally, may involve analyzing available historical data, considering whether
      historical data is relevant to predicting future behavior, making appropriate
      adjustments to historical data for future expectations, supplementing or
      replacing Company-specific historical data with data from other supportable
      sources and appropriately weighting each of the inputs. These assumptions are
      evaluated at each grant date. If factors change and the Company employs
      different assumptions for estimating share-based compensation expense in future
      periods or if the Company decides to use a different valuation model, the future
      periods may differ significantly from what the Company has recorded in the
      current period and could materially affect operating income, net income/(loss)
      and net income/(loss) per share. Option
      valuation models require the input of highly subjective assumptions including
      the expected life of the option. Because the Company's employee stock options
      have characteristics significantly different from those of traded options,
      and
      because changes in the subjective input assumptions can materially affect the
      fair value estimate, in management's opinion, the existing models do not
      necessarily provide a reliable single measure of the fair value of its employee
      stock options. Consequently, there is a significant risk that the Company’s estimates of the
      fair values of stock-based compensation awards on the grant dates may not
      reflect the actual values realized upon the vesting, exercise, expiration,
      early
      termination or forfeiture of those stock-based payments in the
      future.




If
      actual
      results differ significantly from these estimates or different key assumptions
      were used, there could be a material effect on the Company’s financial
      statements. The future impact of the cost of stock-based compensation on our
      results of operations, including net income/(loss) and earnings/(loss) per
      diluted share, will depend on, among other factors, the level of equity awards
      as well as the market price of the Company’s common stock at the time of the
      award as well as various other assumptions used in valuing such awards. The
      Company will periodically evaluate these estimates.




*Income
      Taxes*





Deferred
      income tax assets and liabilities are computed annually based on enacted tax
      laws and rates for temporary differences between the financial accounting and
      income tax bases of assets and liabilities.  A valuation allowance is
      established, when necessary, to reduce deferred income tax assets to the amount
      that is more likely than not to be realized.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
      measurement attribute for the financial statement recognition and measurement
      of
      tax positions taken or expected to be taken in a tax return. For those benefits
      to be recognized, a tax position must be more likely than not to be sustained
      upon examination by taxing authorities. Differences between tax positions taken
      or expected to be taken in a tax return and the benefit recognized and measured
      pursuant to the interpretation are referred to as “unrecognized benefits”. A
      liability is recognized (or amount of net operating loss carry forward or amount
      of tax refundable is reduced) for an unrecognized tax benefit because it
      represents an enterprise’s potential future obligation to the taxing authority
      for a tax position that was not recognized as a result of applying the
      provisions of FIN 48.




37




In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as “Interest
      expense” in the consolidated statements of operations. Penalties would be
      recognized as a component of “Selling, general and administrative
      expenses.”




In
      many
      cases the Company’s tax positions are related to tax years that remain
      subject to examination by relevant tax authorities. The Company files income
      tax
      returns in the United States (federal) and in various state and local
      jurisdictions. In most instances, the Company is no longer subject to federal,
      state and local income tax examinations by tax authorities for years prior
      to
      2004.




The
      adoption of the provisions of FIN 48 did not have a material impact on
      the Company’s consolidated financial position and results of operations. As
      of December 31, 2007, no liability for unrecognized tax benefits was required
      to
      be recorded.




As
      of
      December 31, 2007, the Company has a deferred tax asset of $15,593,183,
      primarily relating to federal net operating loss carry forwards of approximately
      $43,950,000 available to offset future taxable income through 2026. The ultimate
      realization of deferred tax assets is dependent upon the generation of future
      taxable income during the periods in which those temporary differences become
      deductible. The Company considers projected future taxable income and tax
      planning strategies in making this assessment. At present, the Company does
      not
      have a sufficient history of income to conclude that it is more likely than
      not
      that the Company will be able to realize all of its tax benefits in the near
      future and therefore a valuation allowance was established in the full value
      of
      the deferred tax asset.




A
      valuation allowance will be maintained until sufficient positive evidence exists
      to support the reversal of any portion or all of the valuation allowance net
      of
      appropriate reserves. Should the Company continue to be profitable in future
      periods with supportable trends, the valuation allowance will be reversed
      accordingly.




*Warranty
      Costs*





Prior
      to
      the sale of substantially all the operating assets of the Company, the Company
      estimated its warranty costs based on historical warranty claim experience.
      Future costs for warranties applicable to sales recognized in the current period
      were charged to cost of sales. Adjustments were made when actual warranty claim
      experience differed from estimates.





**3.
      Restructuring and Other Credits**





The
      Company’s accounts payable balance includes invoices for professional services
      in the amount of $88,687. Accrued expenses include professional services in
      the
      amount of $118,671. These items arose from alleged services provided to the
      Company between November 2002 and August 2003. The Company is disputing these
      amounts with the vendors, and at the present time management is unable to
      estimate the final outcome of these disputes but believes that the final
      settlement amount should not exceed the total of the above amounts. The Company
      released $60,000 of professional services and $21,000 of shareholder relation
      related expenses from disputed accruals during the year ended December 31,
      2006.





**4.
      Property and Equipment**





Depreciation
      expense for property and equipment for the year ended December 31, 2007 and
      2006
      amounted to $21,887 and $16,086, respectively. During the years ended December
      31, 2007 and 2006, the Company retired fully depreciated assets amounting to
      $21,011 and $76,512, respectively.





**5.
      Notes Payable**





*Related
      Parties*





In
      June
      2007, certain Board members and an officer of the Company advanced an aggregate
      of $50,000 through the issuance of promissory notes due the earlier of the
      receipt of any proceeds from the sale of State of New Jersey Net Operating
      Losses or six months from the date of the note. The interest rate on the note
      is
      prime plus 1.75% per annum. In December 2007, this note was paid in full. During
      the year ended December 31, 2007, the Company incurred interest expense of
      $2,341 relating to this note.





On
      August
      21, 2007, a Board member of the Company advanced an aggregate of $125,000
      through the issuance of promissory notes due the earlier of the receipt of
      any
      proceeds from the sale of State of New Jersey Net Operating Losses or six months
      from the date of the note. The interest rate on the note is 20% per annum and
      the effective interest rate is 20.86%. In conjunction with this note, the
      Company granted to the note holder warrants to purchase an aggregate of 125,000
      shares of common stock for $0.05 per share. This note was recorded net of a
      debt
      discount of $5,125 based on the relative fair value of the warrants, which
      was
      being amortized to interest expense over the terms of the note. In December
      2007, this note was paid in full and the remaining debt discount was charged
      to
      expense. During the year ended December 31, 2007, the Company incurred interest
      expense of $7,671 relating to this note.




38




*Non-related
      parties*





On
      July
      17, 2007, the Company received in aggregate of $50,000 from two investors
      through the issuance of promissory notes due the earlier of the receipt of
      any
      proceeds from the sale of State of New Jersey Net Operating Losses or six months
      from the date of the note. The interest rate on the notes are 20% per annum
      and
      the effective interest rate is 20.86%. In conjunction with these notes, the
      Company granted to the note holders warrants to purchase an aggregate of 50,000
      shares of common stock for $0.05 per share. This note was recorded net of a
      debt
      discount of $2,050 based on the relative fair value of the warrants, which
      was
      being amortized to interest expense over the terms of the note. In December
      2007, this note was paid in full and the remaining debt discount was charged
      to
      interest expense.





On
      September 10, 2007, the Company received in aggregate of $100,000 from an
      investor through the issuance of a promissory note due the earlier of the
      receipt of any proceeds from the sale of State of New Jersey Net Operating
      Losses or six months from the date of the note. The interest rate on the note
      is
      20% per annum and the effective interest rate is 20.86%. In conjunction with
      this note, the Company granted to the note holder warrants to purchase an
      aggregate of 100,000 shares of common stock for $0.05 per share. This note
      was
      recorded net of a debt discount of $4,100 based on the relative fair value
      of
      the warrants, which was being amortized to expense over the terms of the note.
      In December 2007, this note was paid in full and the remaining debt discount
      was
      charged to expense.





**6.
      Convertible Debenture - Related Party**





On
      August
      5, 2004, the Company issued a convertible debenture (the “Debenture”) for
      $200,000 cash to Stephen M. Deixler, one of the Company’s directors. The
      Debenture would have matured on August 5, 2008 and had an interest rate of
      five
      (5%) percent per annum, compounded annually. The principal amount of the
      Debenture was convertible at any time by the holder into shares of the Company’s
      common stock, $.001 par value, at a conversion price equal to $0.083 per share
      (the “Conversion Price”), for a total of 2,409,639 shares of common stock. On
      February 15, 2006, Mr. Deixler converted the Debenture into 2,409,639 shares
      of
      common stock. During the year ended December 31, 2006, the Company recorded
      $1,696 of interest expense related to the Debenture, respectively. The accrued
      interest of $15,814 can only be converted by the borrower and is included in
      current liabilities as of December 31, 2007.





**7.
      Revolving Credit Facility**





On
      September 21, 2005, the Company entered into the asset based Revolving Credit
      Facility for $2.5 million with Bridge Bank, N.A. The Revolving Credit Facility
      had a two-year term, which upon maturity required payment of the outstanding
      principal and interest balance. The Revolving Credit Facility provided for
      advances of up to $2.0 million based on a percentage of eligible accounts
      receivables, the stated percentage is 80% although Bridge bank has advanced
      85%
      on all funding requests for the period to and an additional $500,000 against
      inventory capped at 30% of eligible accounts receivables. The annual interest
      rate was prime plus 1.75%, with a minimum prime rate of 6.25%. Certain assets
      of
      the Company secure the Revolving Credit Facility, and the Company was subject
      to
      certain financial and restrictive covenants, as defined in the agreement. The
      Company failed to comply with certain financial covenants in the Revolving
      Credit Facility at June 30, 2007.





On
      July
      26, 2007, the Company amended its Revolving Credit Facility with Bridge Bank,
      N.A. The amended facility has a two-year term, and provides for advances of
      up
      to $1.0 million against 80% of eligible accounts receivables, which also serves
      as collateral for the loan. The annual interest rate is prime plus 1.75%. The
      financial covenant requirements of the Company were eliminated with the amended
      Revolving Credit Facility. As of December 31, 2007, the Company paid all
      outstanding balances and fees and terminated the Revolving Credit Facility
      with
      Bridge Bank, N.A.





**8.
      Income Taxes**




Income
      Taxes




As
      of
      December 31, 200 7 ,
      the
      Company has available federal and state net operating loss carry forwards of
      approximately $4 3 , 95 0,000
      and
      $1 2 ,0 75 ,000,
      respectively, to offset future taxable income. The federal net operating loss
      carry forwards expire during the years 2011 through 2026. In addition, the
      Company has investment tax credits and research and development credits carry
      forwards aggregating approximately $405,000, which may provide future tax
      benefits, expiring from 2008 through 2020. The Internal Revenue Code contains
      provisions which will limit the net operating loss carry forward available
      for
      use in any given year if significant changes in ownership interest of the
      Company occur.




The
      Company obtained a corporation business tax benefit certificate pursuant to
      New
      Jersey law which allows the sale of unused New Jersey net operating losses
      and
      investment credit carry forwards. For the years ended December 200 7 and
      200 6 ,
      the
      Company received a benefit of $492,069 and $465,398, respectively. Two of the
      requirements of the program are maintaining a company's headquarters in New
      Jersey for at least twelve calendar months and having at least 75% of the
      company’s employees working in New Jersey, based on the Company’s current
      business activities indications are it maybe unable to receive this benefit
      during 2008.




39




The
      tax
      effect of temporary differences which make up the significant components of
      the
      net deferred tax asset and liability at December 31, 2007 are as follows:




Current
                deferred tax assets
            
            
            -Accrued expenses
            
            $
            171,974Valuation allowance
            
            
            (171,974
            )Net
                current deferred tax assets
            
            
            -Noncurrent
                deferred tax assetsNet
                operating loss carry forwards
            
            
            15,657,994Research
                and development credit
            
            
            405,078Stock
                based compensation
            
            
            79,465Total
                noncurrent deferred tax assets
            
            
            16,142,537Valuation allowance
            
            
            (16,142,537
            )Net
                noncurrent deferred tax assets
            
            
            -Net
                noncurrent deferred tax (liabilities) assets
            
            $
            -




The
      Company has recorded a full valuation allowance against the deferred tax assets,
      including the federal and state net operating loss carry forwards as management
      believes that it is more likely than not that substantially all of the deferred
      tax assets will not be realized.  During the year ended December 31, 2007,
      the Company had an annual change in the valuation allowance of approximately
      $ 41 5 ,0 00.




The
      reconciliation of the statutory U.S. Federal income tax rate to the Company’s
      effective income tax rate is as follows:




Year
                  ended December 31,2007
              
              2006Statutory
                  federal income tax rate (benefit)
              
              
              34.00
              %
              
              (34.00
              )%State
                  Taxes
              
              
              6.00
              
              
              (6.00
              )Sales
                  of net operating losses
              
              
              (210.00
              )
              
              (38.00
              )Change
                  in valuation
                  allowance
              
              
              178.00
              
              
              78.00Change
                  in estimate of prior year tax provision
              
              
              (8.00
              )
              
              0.00Effective
                  tax rate
              
              
              0.00
              %
              
              0.00
              %




**9.
      Stockholders' Equity**





***Preferred
      Stock -*** The
      Company has designated 200,000 of the 1,000,000 authorized shares of preferred
      stock as Series A Preferred Stock ("Preferred Stock"). The Preferred Stock
      is
      non-voting, has a standard liquidation preference equal to its purchase price,
      and does not pay dividends. As of December 31, 2007 and 2006, there were 155,557
      shares of Series A Preferred Stock outstanding, which are convertible to
      1,555,570 shares of common stock. The holders can call the conversion of the
      Preferred Stock at any time.





***Common
      Stock***





On
      December 12, 2007 an officer of the Company exercised 261,596 options to
      purchase common stock at $0.06 per share for total proceeds of
      $15,696.





On
      December 31, 2007, at the Company’s annual shareholders’ meeting, the
      shareholders’ approved a proposal to amend Article Fourth of the certificate of
      incorporation of the Company to increase the number of authorized shares of
      common stock from 50,000,000 to 750,000,000. The
      Company has not yet filed the charter amendment necessary to effect this
      change. .




40




***Stock
      Option Plans*** ****





On
      January 23, 2006, the Company adopted its 2006 Stock Option Plan (the "2006
      Plan"). The aggregate number of shares of common stock for which options may
      be
      granted under the 2006 Plan is 4,000,000. The maximum number of options which
      may be granted to an employee during any calendar year under the 2006 Plan
      is
      300,000. The term of these non-transferable stock options may not exceed ten
      years. The exercise price of these stock options may not be less than 100%
      (110%
      if the person granted such options owns more than ten percent of the outstanding
      common stock) of the fair value of one share of common stock on the date of
      grant. On January 23, 2006 the Company granted 1,335,000 shares with an exercise
      price of $0.18 for a total value of approximately $57,000 under the 2006 Plan,
      subject to shareholder approval at the next shareholder meeting. On November 8,
      2006 the shareholders approved the plan. As of December 31, 2007, 838,380
      options were outstanding under the 2006 Plan, of which 735,256 were
      exercisable.





In
      November 2000, the Company adopted its 2000 Stock Option Plan (the "2000 Plan").
      The aggregate number of shares of common stock for which options may be granted
      under the 2000 Plan is 3,000,000. The maximum number of options which may be
      granted to an employee during any calendar year under the 2000 Plan is 400,000.
      The term of these non-transferable stock options may not exceed ten years.
      The
      exercise price of these stock options may not be less than 100% (110% if the
      person granted such options owns more than ten percent of the outstanding common
      stock) of the fair value of one share of common stock on the date of grant.
      As
      of December 31, 2007, 2,099,500 options were outstanding under the 2000 Plan,
      of
      which 2,073,925 options were exercisable.





In
      June
      1998, the Company adopted its 1998 Stock Option Plan (the "1998 Plan"). The
      aggregate number of shares of common stock for which options may be granted
      under the 1998 Plan is 3,000,000. The maximum number of options which may be
      granted to an employee during any calendar year under the 1998 Plan is 400,000.
      The term of these non-transferable stock options may not exceed ten years.
      The
      exercise price of these stock options may not be less than 100% (110% if the
      person granted such options owns more than ten percent of the outstanding common
      stock) of the fair value of one share of common stock on the date of grant.
      On
      January 23, 2006 the Company granted 1,335,000 shares under the 1998 Plan.
      As of
      December 31, 2007, 2,039,123 options were outstanding under the 1998 Plan,
      of
      which 1,935,999 options were exercisable.





In
      August
      1994, the Company adopted its 1994 Stock Option Plan (the "1994 Plan"). The
      aggregate number of shares of common stock for which options may be granted
      under the 1994 Plan, as amended, is 1,250,000. The term of these
      non-transferable stock options may not exceed ten years. The exercise price
      of
      these stock options may not be less than 100% (110% if the person granted such
      options owns more than ten percent of the outstanding common stock) of the
      fair
      market value of one common stock on the date of grant. As of December 31, 2007,
      25,000 options were outstanding and exercisable under the 1994 Plan.





During
      the years ended 2007 and 2006, there were no options granted under the Company's
      Time Accelerated Restricted Stock Award Plan ("TARSAP"). The options vest after
      seven years, however, under the TARSAP, the vesting is accelerated to the last
      day of the fiscal year in which the options are granted if the Company meets
      certain predetermined sales targets. The Company did not meet the targets for
      2001 and, as such, all options granted under the TARSAP in 2001 will vest seven
      years from the original date of grant.




Warrants




On
      September 9, 2005 in connection with services performed by a consultant, the
      Company issued fully vested warrants to purchase 326,087 shares of the Company’s
      Common Stock at $0.23 per share. The warrants will expire on September 9,
      2008.





On
      December 1, 2005 in connection with services performed by a consultant, the
      Company issued warrants to purchase 350,000 shares of the Company’s Common Stock
      at $0.11 per share. All warrants expired unexercised on November 30, 2007.





On
      January 26, 2007, the Company entered into an agreement with a consultant.
      In
      connection with this agreement, the Company issued fully vested warrants with
      a
      two year term to purchase 1,500,000 shares of the Company’s Common Stock at
      $0.10 per share for a total value of $133,709 based on the Black-Scholes model.
      On May 1, 2007, the Company amended this previous agreement made on January
      26,
      2007 with a consultant. In connection with this amendment, the Company received
      back warrants to purchase 562,500 shares of the Company’s Common Stock at $0.10
      per share for a total value of $50,141 based on the Black-Scholes model. The
      remaining value of $48,648 was credited to deferred compensation . During
      October 2007, the Company terminated its Sales Outsourcing Agreement with McGat
      Enterprises, LLC. ****





On
      July
      17, 2007, in connection with the issuance of a promissory note to a related
      party, the Company granted to the note holders warrants to purchase an aggregate
      of 50,000 shares of common stock for $0.05 per share. See Note 5.





On
      August
      21, 2007, in connection with the issuance of a promissory note to a related
      party, the Company granted to the note holder warrants to purchase an aggregate
      of 125,000 shares of common stock for $0.05 per share. See Note 5.




41




On
      September 10, 2007, in connection with the issuance of a promissory note, the
      Company granted to the note holder warrants to purchase an aggregate of 100,000
      shares of common stock for $0.05 per share. See Note 5.





As
      of
      December 31, 2007 there are warrants to purchase 1,538,587 shares outstanding
      and exercisable with an average exercise price of $0.12 . As
      of
      December 31, 2006 there are warrants to purchase 676,087 shares outstanding
      and
      exercisable with an average exercise price of $0.17 .





*Options*





On
      January 23, 2006, the Company granted employees options to purchase an aggregate
      of 1,335,000 shares of common stock with an exercise price of $0.18 per share
      for a total value of approximately $57,000 under a previously approved option
      plan.





On
      January 23, 2006, the Company granted board members immediately exercisable
      options to purchase an aggregate of 9,000 shares of common stock, for two board
      meetings held on January 11, 2006 and January 23, 2006, with an exercise price
      of $0.18 for a total value of $804 under a previously approved option plan.





On
      February 14, 2006, the Company granted board members immediately exercisable
      options to purchase an aggregate of 4,500 shares of common stock with an
      exercise price of $0.20 for a total value of $803 under a previously approved
      option plan.





On
      March
      15, 2006, the Company granted board members immediately exercisable options
      to
      purchase an aggregate of 4,500 shares of common stock with an exercise price
      of
      $0.18 for a total value of $803 under a previously approved option plan.





On
      May
      10, 2006, the Company granted board members immediately exercisable options
      to
      purchase an aggregate of 4,500 shares of common stock with an exercise price
      of
      $0.21 for a total value of $931 under a previously approved option plan.





On
      June
      30, 2006, the Company granted a non-employee director immediately exercisable
      options to purchase 50,000 shares of common stock with an exercise price of
      $0.11 per share for a total value of $5,428 under a previously approved option
      plan.





On
      August
      8, 2006, the Company granted board members immediately exercisable options
      to
      purchase an aggregate of 4,500 shares of common stock with an exercise price
      of
      $0.12 for a total value of $934 under a previously approved option plan.





On
      August
      8, 2006, the Company granted an employee options to purchase an aggregate of
      30,000 shares of common stock with an exercise price of $0.12 for a total value
      of $3,428 under a previously approved option plan.





On
      November 8, 2006, the Company granted board members immediately exercisable
      options to purchase an aggregate of 64,500 shares of common stock with an
      exercise price of $0.08 for a total value of $5,102 under a previously approved
      option plan.





On
      February 28, 2007, the Company granted board members immediately exercisable
      options to purchase an aggregate of 9,000 shares of common stock with an
      exercise price of $0.10 for a total value of $599, under a previously approved
      stock holder option plan.





On
      May 9,
      2007, the Company granted board members immediately exercisable options to
      purchase an aggregate of 4,500 shares of common stock with an exercise price
      of
      $0.07 for a total value of $311, under a previously approved stock holder option
      plan.





On
      May 9,
      2007, the Company granted an employee 200,000 options to purchase common stock,
      of which 34% vest on the first anniversary of the option grant date and 8.25%
      vest each quarter there after, with an exercise price of $0.07 for a total
      value
      of $13,157, under a previously approved stock holder option plan.





On
      June
      7, 2007, the Company granted board members immediately exercisable options
      to
      purchase an aggregate of 3,000 shares of common stock with an exercise price
      of
      $0.045 for a total value of $148, under a previously approved stock holder
      option plan.





On
      August
      8, 2007, the Company granted board members immediately exercisable options
      to
      purchase an aggregate of 4,500 shares of common stock with an exercise price
      of
      $0.05 for a total value of $222, under a previously approved stock holder option
      plan.




42




On
      November 6, 2007, the Company granted board members immediately exercisable
      options to purchase an aggregate of 9,000 shares of common stock with an
      exercise price of $0.05 for a total value of $444, under a previously approved
      stock holder option plan.





On
      December 6, 2007, the Company granted board members immediately exercisable
      options to purchase an aggregate of 9,000 shares of common stock with an
      exercise price of $0.04 for a total value of $356, under a previously approved
      stock holder option plan.





On
      December 7, 2007, the Company granted board members immediately exercisable
      options to purchase an aggregate of 4,500 shares of common stock with an
      exercise price of $0.03 for a total value of $133, under a previously approved
      stock holder option plan.





On
      December 19, 2007, the Company granted board members immediately exercisable
      options to purchase an aggregate of 4,500 shares of common stock with an
      exercise price of $0.04 for a total value of $178, under a previously approved
      stock holder option plan.




Details
      of the options outstanding under all plans are as follows:





Shares
            
            Weighted
                Average Exercise Price ($)
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
            
            Aggregate
              Intrinsic
              ValueOptions
                outstanding at December 31, 2005
            
            
            4,889,831
            
            
            0.32Granted
            
            
            2,841,500
            
            
            0.18Expired
            
            
            (278,650
            )
            
            0.23Canceled
            
            
            (657,825
            )
            
            0.43Options
                outstanding at December 31, 2006
            
            
            6,794,856
            
            
            0.27
            
            
            3.56
                yearsGranted
            
            
            248,000
            
            
            0.07
            
            
            4.65
                yearsExpired
            
            
            (1,068,353
            )
            
            0.58Exercised
            
            
            (261,596
            )
            
            0.06Canceled
            
            
            (222,500
            )
            
            0.41
            
            
            2.53
                yearsOptions
                outstanding at December 31, 2007
            
            
            5,490,407
            
            
            0.25
            
            
            2.75
                years
            
            $
            540Options
                exercisable at December 31, 2007
            
            
            5,258,584
            
            
            0.27
            
            
            2.63
                years
            
            $
            540




Range
                of Exercise
            
            Number
              Outstanding
            
            Weighted
                Average Remaining Years of Contractual Life
            
            Weighted
                Average Exercise Price
            
            Number
                Exercisable
            
            Weighted
                Average Exercise Price$0.00
                - 0.10
            
            
            887,904
            
            
            2.39
            
            $
            0.07
            
            
            687,904
            
            $
            0.06$0.10
                - 0.25
            
            
            3,999,147
            
            
            2.67
            
            
            0.15
            
            
            3,969,437
            
            
            0.14$0.25
                - 0.50
            
            
            373,000
            
            
            4.83
            
            
            0.35
            
            
            371,350
            
            
            0.35$0.50-
                40.00
            
            
            230,356
            
            
            2.52
            
            
            3.07
            
            
            229,893
            
            
            3.08$0.00
                - 40.00
            
            
            5,490,407
            
            
            2.75
            
            $
            0.25
            
            
            5,258,584
            
            $
            0.27




The
      weighted-average grant-date fair value of options granted during the year ended
      December 31, 2007 and 2006 amounted to $0.07 and $0.18 per share,
      respectively.




43




**10.**  **Commitments**





*Operating
      Leases*





The
      Company entered into a lease on August 1, 2003 for approximately 7,000 square
      feet for its principal executive offices at 120 Corporate Blvd., South
      Plainfield, New Jersey. The base rent is $4,505 per month effective October
      2003
      through July 2006. The Company extended the lease on May 11, 2006 for an
      additional 5 years. The agreement called for an escalating base rent of $4,665
      per month effective August 2006 through July 2007, $4,815 per month effective
      August 2007 through July 2008, and an additional increase of $145 every August
      thereafter through August 2010, and additional payments to the landlord relating
      to certain taxes and operating expenses. The tenant has the option to terminate
      the Lease effective July 31, 2009 with six months written notice to the
      Landlord. In accordance with SFAS No. 13 (“Accounting for Leases”), the Company
      accounts for rent expense using the straight line method of accounting, accruing
      the difference between actual rent due and the straight line amount. On December
      31, 2007, the lease was assumed by Cryptek.





The
      Company also leases certain equipment under agreements which are classified
      as
      capital leases. Each of the capital lease agreements expire within five years
      and have purchase options at the end of the lease term. These leases were
      assumed by Cryptek on December 31, 2007





Rent
      expense under operating leases for the years ended December 31, 2007 and 2006
      was approximately $88,000 and $85,000, respectively.





Employment
      Contracts





The
      Company entered into an agreement with the Chief Executive Officer and Chief
      Financial Officer to remain at the Company in order to facilitate a transaction
      receiving a salary equal to their rate of pay as of December 31, 2007 of
      $235,000 and $200,000, respectively, with a reduction in certain benefits until
      June 30, 2008.





The
      Company has been a party to certain employment contracts with various officers.
      Included in each of these contracts is a severance provision which entitles
      the
      officer to payments ranging from three to eighteen months of the officers’ then
      current annual salary if the officer is terminated without cause (as defined
      in
      the agreement). During December 2007, the Company accrued $834,986 for severance
      costs due to certain provisions in the contracts which were triggered by the
      sale of substantially all the operating assets. This amount was reflected on
      the
      Consolidated Statements of Operation in selling, general and administrative
      expenses.





**11.
      Contingent Liabilities**





In
      the
      normal course of business the Company may be involved in legal proceedings,
      claims and assessments arising in the ordinary course of business. Such matters
      are subject to many uncertainties, and outcomes are not predictable with
      assurance. Management is not aware of any item existing that will have a
      significant impact on the Company’s business or financial
      condition.





**12.
      Employee Benefit Plans**





Effective
      April 1, 1993, the Company adopted a defined contribution savings plan. The
      terms of the plan provide for eligible employees who have met certain age and
      service requirements to participate by electing to contribute up to 15% of
      their
      gross salary to the plan, as defined, with a discretionary contribution by
      the
      Company matching 30% of an employee's contribution in cash up to a maximum
      of 6%
      of gross salary, as defined. Company contributions vest at the rate of 25%
      of
      the balance at each employee's second, third, fourth, and fifth anniversary
      of
      employment. The employees' contributions are immediately vested. As of January
      1, 2003, the Company per the provisions of the plan decided not to make
      discretionary contributions until further notice.





**13.
      New Accounting Pronouncements**





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling interests in
      Consolidated Financial Statements—An Amendment of ARB No. 51”. SFAS No. 160
      establishes accounting and reporting standards for the non-controlling interest
      in a subsidiary (previously referred to as minority interests). SFAS
      No. 160 also requires that a retained non-controlling interest upon the
      deconsolidation of a subsidiary be initially measured at its fair value. Upon
      adoption of SFAS No. 160, the Company would be required to report any
      non-controlling interests as a separate component of consolidated stockholders’
equity. The Company would also be required to present any net income allocable
      to non-controlling interests and net income attributable to the stockholders
      of
      the Company separately in its consolidated statements of operations. SFAS No.
      160 is effective for fiscal years, and interim periods within those fiscal
      years, beginning on or after January 1, 2009. SFAS No. 160 requires
      retroactive adoption of the presentation and disclosure requirements for
      existing minority interests. All other requirements of SFAS No. 160 shall be
      applied prospectively. SFAS No. 160 would have an impact on the presentation
      and
      disclosure of the non-controlling interests of any non wholly-owned business
      acquired in the future.




44




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business
      Combinations” (“SFAS 141R”), which replaces SFAS No. 141, “Business
      Combinations.” SFAS 141R establishes principles and requirements for determining
      how an enterprise recognizes and measures the fair value of certain assets
      and
      liabilities acquired in a business combination, including noncontrolling
      interests, contingent consideration, and certain acquired contingencies. SFAS
      141R also requires acquisition-related transaction expenses and restructuring
      costs be expensed as incurred rather than capitalized as a component of the
      business combination. SFAS 141R will be applicable prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. SFAS
      141R
      would have an impact on accounting for any businesses acquired after the
      effective date of this pronouncement.





In
      February 2007, the FASB issued Statement of Financial Accounting
      Standards No. 159, The Fair Value Option for Financial Assets and Financial
      Liabilities ("SFAS 159"), to permit all entities to choose to elect, at
      specified election dates, to measure eligible financial instruments at fair
      value. An entity shall report unrealized gains and losses on items for which
      the
      fair value option has been elected in earnings at each subsequent reporting
      date, and recognize upfront costs and fees related to those items in earnings
      as
      incurred and not deferred. SFAS 159 applies to fiscal years beginning after
      November 15, 2007, with early adoption permitted for an entity that has also
      elected to apply the provisions of SFAS 157, Fair Value Measurements. An
      entity is prohibited from retrospectively applying SFAS 159, unless it chooses
      early adoption. SFAS 159 also applies to eligible items existing at November
      15,
      2007 (or early adoption date). The
      Company does not expect that the adoption of SFAS 159 will have a material
      impact on its financial statements.





In
      September 2006, the Securities and Exchange Commission ("SEC") issued Staff
      Accounting Bulletin 108, Considering the Effects on Prior Year Misstatements
      when Quantifying Misstatements in Current Year Financial Statements, ("SAB
      108"). SAB 108 requires registrants to quantify errors using both the income
      statement method (i.e. iron curtain method) and the rollover method and requires
      adjustment if either method indicates a material error. If a correction in
      the
      current year relating to prior year errors is material to the current year,
      then
      the prior year financial information needs to be corrected. A correction to
      the
      prior year results that are not material to those years, would not require
      a
      restatement process where prior financials would be amended. SAB 108 is
      effective for fiscal years ending after November 15, 2006. The adoption of
      SAB 108 did not have a material effect on the Company’s financial position,
      results of operations or cash flows.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”).  This Statement defines fair value, establishes a framework for
      measuring fair value and expands disclosure of fair value measurements. 
SFAS No. 157 applies under other accounting pronouncements that require or
      permit fair value measurements and accordingly, does not require any new fair
      value measurements.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007.  The does
      not expect that the adoption of SFAS No. 157 will have a material impact on
      its
      results of operations, financial condition and cash flow.





In
      March 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard 156 - *Accounting
      for Servicing of Financial Assets* (“SFAS
      156”), which requires all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value. SFAS 156 permits, but does
      not
      require, the subsequent measurement of servicing assets and servicing
      liabilities at fair value. Adoption is required as of the beginning of the
      first
      fiscal year that begins after September 15, 2006. The
      adoption of SFAS 156 did not have a material effect on the Company’s
      consolidated financial position, results of operations or cash
      flows.




**14.
      Concentration of Credit and Supplier Risk**





The
      Company maintains deposits in a financial institution which is insured by the
      Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December
      31,
      2007, the Company had deposits in this financial institution in excess of the
      amount insured by the FDIC.




**13.
      Concentrations**





The
      Company's headquarters, physical production and shipping facilities are located
      in the United States. The Company's domestic and foreign export sales for each
      of the years ended December 31, 2007 and 2006 are as follows:





For
                the Years EndedDecember
                31, 2007
            
            December
                31, 2006United
                States
            
            $
            2,653,907
            
            $
            2,529,907Europe
            
            
            414,458
            
            
            618,067Pacific
                Rim
            
            
            217,086
            
            
            229,722Other
            
            
            29,052
            
            
            2,650$
            3,314,503
            
            $
            3,380,346




45




Historically,
      the Company has been dependent on several large customers each year, but they
      are not necessarily the same every year. For the year ended December 31, 2007,
      the Company’s net sales came from four customers (stated as an approximate
      percentage of revenue) consists of 18%, 14%, 14% and 11%, compared to the year
      ended December 31, 2006 consisting of 19%, 17% and 12%. In general, the Company
      cannot predict with certainty, which large customers will continue to order.
      The
      loss of any of these customers or a significant decline in sales volumes from
      any of these customers could have a material adverse effect on the Company's
      financial position, results of operations and cash flows.





The
      Company maintains deposits in a financial institution which is insured by the
      Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December
      31,
      2007, the Company had deposits in this financial institution in excess of the
      amount insured by the FDIC.





The
      Company designs its products utilizing readily available parts manufactured
      by
      multiple suppliers and the Company currently relies on and intends to continue
      to rely on these suppliers. The Company has been and expects to continue to
      be
      able to obtain the parts generally required to manufacture its products without
      any significant interruption or sudden price increase, although there can be
      no
      assurance that the Company will be able to continue to do so.





The
      Company sometimes utilizes a component available from only one supplier. If
      this
      supplier were to cease to supply this component, the Company would most likely
      have to redesign a feature of the affected device. The Company maintains a
      supply of the component on hand which the Company estimates would allow the
      time
      necessary to effectuate a redesign or alternative course of action should the
      need arise.





**15.
      Subsequent Events**





**None.**




46