----

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**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**
**EXCHANGE      ACT OF 1934**

**For      the quarterly period ended June 30, 2008**

**OR**

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

**Commission      file number 0-50918**

**AIRBEE      WIRELESS, INC.**

| **DELAWARE**                                            | **46-0500345**                     |
|---------------------------------------------------------|------------------------------------|
| (State                or other jurisdiction             | (IRS                Employer       |
| of                incorporation or organization)        | Identification                No.) |
| **9400                Key West Avenue, Suite 100**      |                               |
| **Rockville,                MD**                        | **20850-3322**                     |
| (Address                of principal executive offices) | (Zip                Code)          |

**(301)      517-1860**

| Large                  accelerated filer £ | Accelerated                  filer £ | Non-accelerated                  filer £ | Smaller                  reporting company R  |
|-------------------------------------------------|-------------------------------------------|-----------------------------------------------|----------------------------------------------------|

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|                                                                                                                                                                     |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                     | **PAGE** |
| PART                  I FINANCIAL INFORMATION                                                                                                                            | 3        |
| Item                  1. Financial Statements                                                                                                                            | 3        |
| Condensed                  Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and                  December                  31, 2007 (Audited)                 | 4        |
| Condensed                  Consolidated Statements of Operations for the Six and Three Months                  Ended                  June 30, 2008 and 2007 (Unaudited) | 5        |
| Condensed                  Consolidated Statements of Cash Flows for the Six Months Ended                  June 30,                  2008 and 2007 (Unaudited)           | 6        |
| Notes                  to the Condensed Consolidated Financial Statements                  (Unaudited)                                                                   | 8        |
| Item                  2. Management’s Discussion and Analysis of Financial Condition and Results                  of Operations                                    | 22       |
| Item                  3. Quantitative and Qualitative Disclosures About Market                  Risk                                                                     | 32       |
| Item                  4. Controls and Procedures                                                                                                                         | 32       |
| Item                  4T. Controls and Procedures                                                                                                                        | 34       |
| PART                  II OTHER INFORMATION                                                                                                                               | 35       |
| Item                  1. Legal Proceedings                                                                                                                               | 35       |
| Item                  2. Unregistered Sales of Equity Securities and Use of                  Proceeds                                                                    | 35       |
| Item                  3. Defaults Upon Senior Securities                                                                                                                 | 38       |
| Item                  4. Submission of Matters to a Vote of Security Holders                                                                                             | 38       |
| Item                  5. Other Information                                                                                                                               | 39       |
| Item                  6. Exhibits                                                                                                                                        | 39       |
| SIGNATURES                                                                                                                                                               | 40       |

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**PART      I FINANCIAL INFORMATION**

**Item      1. Financial Statements**

**AIRBEE      WIRELESS, INC.**

**CONDENSED      CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE      30, 2008 AND 2007**

**(UNAUDITED)**

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| **AIRBEE                  WIRELESS, INC.**                                  |
|-----------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED BALANCE                  SHEETS** |

| **ASSETS**                                                                                                                                                                                                                                                                                               |   |                          |        |                              |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|-------------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |
|                                                                                                                                                                                                                                                                                                     |   | **(Unaudited)**               |        | **(Audited)**                     |   |
|                                                                                                                                                                                                                                                                                                     |   | **June                  30,** |        | **December                  31,** |   |
|                                                                                                                                                                                                                                                                                                     |   | **2008**                      |        | **2007**                          |   |
| Current                  Assets:                                                                                                                                                                                                                                                                         |   |                          |        |                              |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                                                               |   | $                             | 87,481      |                              | $      | 1,925 |   |
| Accounts                  receivable, net                                                                                                                                                                                                                                                                |   |                          | 40,000      |                              |   | 89,960 |   |
| Deferred                  financing costs - current                                                                                                                                                                                                                                                      |   |                          | 482,045     |                              |   | - |   |
| Prepaid                  expenses and other current assets                                                                                                                                                                                                                                               |   |                          | 31,525      |                              |   | 4,589 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| Total                  Current Assets                                                                                                                                                                                                                                                                    |   |                          | 641,051     |                              |   | 96,474 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| Fixed                  assets, net of depreciation                                                                                                                                                                                                                                                       |   |                          | 206,060     |                              |   | 212,793 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| Intangible                  assets                                                                                                                                                                                                                                                                       |   |                          | 196,405     |                              |   | 268,913 |   |
| Deferred                  financing costs                                                                                                                                                                                                                                                                |   |                          | 341,146     |                              |   | 79,265 |   |
| Other                  assets                                                                                                                                                                                                                                                                            |   |                          | 70,397      |                              |   | 68,656 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          | 607,948     |                              |   | 416,834 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |             |                              |   |   |   |
| **TOTAL                  ASSETS**                                                                                                                                                                                                                                                                        |   | $                             | 1,455,059   |                              | $      | 726,101 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' DEFICIT**                                                                                                                                                                                                                                               |   |                          |        |                              |   |   |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                          |   |                          |        |                              |   |   |   |
| Current                  Liabilities:                                                                                                                                                                                                                                                                    |   |                          |        |                              |   |   |   |
| Notes                  payable - related party                                                                                                                                                                                                                                                           |   | $                             | 55,389      |                              | $      | 133,580 |   |
| Notes                  payable - other                                                                                                                                                                                                                                                                   |   |                          | 456,100     |                              |   | 2,024,952 |   |
| Litigation                  liability                                                                                                                                                                                                                                                                    |   |                          | -           |                              |   | 718,411 |   |
| Fair                  value of derivatives                                                                                                                                                                                                                                                               |   |                          | 392,485     |                              |   | 458,167 |   |
| Convertible                  debentures, net of discount                                                                                                                                                                                                                                                 |   |                          | 1,751,004   |                              |   | 484,892 |   |
| Warrants                  liability                                                                                                                                                                                                                                                                      |   |                          | 1,193,532   |                              |   | 62,229 |   |
| Liability                  for stock to be issued                                                                                                                                                                                                                                                        |   |                          | -           |                              |   | 10,000 |   |
| Accounts                  payable and accrued expenses                                                                                                                                                                                                                                                   |   |                          | 3,067,848   |                              |   | 2,903,222 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| Total                  Current Liabilities                                                                                                                                                                                                                                                               |   |                          | 6,916,358   |                              |   | 6,795,453 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| Long-term                  Liabilities:                                                                                                                                                                                                                                                                  |   |                          |        |                              |   |   |   |
| Convertible                  debentures, net of discount                                                                                                                                                                                                                                                 |   |                          | 1,326,962   |                              |   | - |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| **Total                  Liabilities**                                                                                                                                                                                                                                                                   |   |                          | 8,243,320   |                              |   | 6,795,453 |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| **COMMITMENTS                  AND CONTINGENCIES**                                                                                                                                                                                                                                                       |   |                          | -           |                              |   | - |   |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| **STOCKHOLDERS'                  DEFICIT**                                                                                                                                                                                                                                                               |   |                          |        |                              |   |   |   |
| Common                    stock, $.00004 Par Value; 200,000,000 shares authorized;137,975,797                    and 132,055,795 shares issued; 14,142,511 and 14,142,511                    shares held in escrow; and 123,833,286 and 116,253,248                  shares                  outstanding |   |                          | 4,953       |                              |   | 4,650 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                              |   |                          | 11,756,295  |                              |   | 15,625,500 |   |
| Unearned                  compensation                                                                                                                                                                                                                                                                   |   |                          | (5,555      | )                                 |   | (6,660 | ) |
| Prepaid                  consulting                                                                                                                                                                                                                                                                      |   |                          | -           |                              |   | (83,333 | ) |
| Other                  accumulated comprehensive income                                                                                                                                                                                                                                                  |   |                          | 30,202      |                              |   | 63,938 |   |
| Shares                  issued for deferred financing, net of $3,450,069 discount                                                                                                                                                                                                                        |   |                          | -           |                              |   | (4,216,751 | ) |
| Accumulated                  deficit                                                                                                                                                                                                                                                                     |   |                          | (18,276,617 | )                                 |   | (17,159,157 | ) |
|                                                                                                                                                                                                                                                                                                     |   |                          | (6,490,722  | )                                 |   | (5,771,813 | ) |
| Less:                  treasury stock, 1,660,036 and 1,660,036 shares at cost                                                                                                                                                                                                                            |   |                          | (297,539    | )                                 |   | (297,539 | ) |
| **Total                  Stockholders' Deficit**                                                                                                                                                                                                                                                         |   |                          | (6,788,261  | )                                 |   | (6,069,352 | ) |
|                                                                                                                                                                                                                                                                                                     |   |                          |        |                              |   |   |   |
| **TOTAL                  LIABILITIES AND STOCKHOLDERS' DEFICIT**                                                                                                                                                                                                                                         |   | $                             | 1,455,059   |                              | $      | 726,101 |   |

----

| **AIRBEE                  WIRELESS, INC.**                                                      |
|-------------------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF OPERATIONS**                            |
| **FOR                  THE SIX AND THREE MONTHS ENDED JUNE 30, 2008 AND                  2007** |
| **(UNAUDITED)**                                                                                 |

|                                                                |   | **SIX                  MONTHS ENDED** |        | **THREE                  MONTHS ENDED** |   |
|---------------------------------------------------------------------|--------|---------------------------------------|-------------|-----------------------------------------|--------|
|                                                                |   | **JUNE                  30,**         |        | **JUNE                  30,**           |   |
|                                                                |   |                                  |        | **Restated**                            |   |   |   | **Restated** |   |
|                                                                |   | **2008**                              |        | **2007**                                |   | **2008** |   | **2007** |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |
| **OPERATING                  REVENUES**                             |   |                                  |        |                                    |   |   |   |   |   |
| Sales                                                               |   | $                                     | 40,000      |                                    | $      | 23,238 |   | $ | 40,000 |   | $ | 2,448 |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **COST                  OF SALES**                                  |   |                                  | -           |                                    |   | - |   |   | - |   |   | - |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **GROSS                  PROFIT**                                   |   |                                  | 40,000      |                                    |   | 23,238 |   |   | 40,000 |   |   | 2,448 |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **OPERATING                  EXPENSES**                             |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| Compensation                  and professional fees                 |   |                                  | 1,666,246   |                                    |   | 1,786,680 |   |   | 851,456 |   |   | 1,259,565 |   |
| Stock                  option compensation expense                  |   |                                  | 1,521       |                                    |   | 27,965 |   |   | 1,521 |   |   | 27,496 |   |
| Research                  and development                           |   |                                  | 60,000      |                                    |   | 10,432 |   |   | 35,000 |   |   | 5,590 |   |
| Selling,                  general and administrative expenses       |   |                                  | 444,503     |                                    |   | 684,767 |   |   | 285,733 |   |   | 482,673 |   |
| Depreciation                  and amortization                      |   |                                  | 282,173     |                                    |   | 98,989 |   |   | 162,132 |   |   | 43,304 |   |
| **Total                  Operating Expenses**                       |   |                                  | 2,454,443   |                                    |   | 2,608,833 |   |   | 1,335,842 |   |   | 1,818,628 |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **LOSS                  BEFORE OTHER INCOME (EXPENSE)**             |   |                                  | (2,414,443  | )                                       |   | (2,585,595 | ) |   | (1,295,842 | ) |   | (1,816,180 | ) |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **OTHER                  INCOME (EXPENSE)**                         |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| Fair                  value adjustments on derivatives and warrants |   |                                  | 362,063     |                                    |   | 62,008 |   |   | 79,254 |   |   | 352,826 |   |
| Other                  income                                       |   |                                  | 1,420,361   |                                    |   | 18,959 |   |   | 1,398,425 |   |   | - |   |
| Interest                  expense                                   |   |                                  | (485,441    | )                                       |   | (466,289 | ) |   | (186,535 | ) |   | (259,911 | ) |
| **Total                  Other Income (Expense)**                   |   |                                  | 1,296,983   |                                    |   | (385,322 | ) |   | 1,291,144 |   |   | 92,915 |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **LOSS                  BEFORE PROVISION FOR INCOME TAXES**         |   |                                  | (1,117,460  | )                                       |   | (2,970,917 | ) |   | (4,698 | ) |   | (1,723,265 | ) |
| **Provision                  for Income Taxes**                     |   |                                  | -           |                                    |   | - |   |   | - |   |   | - |   |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **NET                  LOSS APPLICABLE TO COMMON SHARES**           |   | $                                     | (1,117,460  | )                                       | $      | (2,970,917 | ) | $ | (4,698 | ) | $ | (1,723,265 | ) |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **NET                  LOSS PER BASIC AND DILUTED SHARES**          |   | $                                     | (0.01       | )                                       | $      | (0.03 | ) | $ | (0.00 | ) | $ | (0.02 | ) |
|                                                                |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                  AVERAGE NUMBER OF COMMON**              |   |                                  |        |                                    |   |   |   |   |   |   |   |   |   |
| **SHARES                  OUTSTANDING**                             |   |                                  | 108,200,055 |                                    |   | 89,270,904 |   |   | 115,147,445 |   |   | 97,825,232 |   |

----

| **AIRBEE                    WIRELESS, INC.**                           |
|------------------------------------------------------------------------|
| **CONDENSED                    CONSOLIDATED STATEMENTS OF CASH FLOWS** |
| **FOR                    THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007** |
| **(UNAUDITED)**                                                        |

|                                                                            |   |     |       | **Restated** |   |
|---------------------------------------------------------------------------------|--------|----------|------------|--------------|--------|
|                                                                            |   | **2008** |       | **2007**     |   |
|                                                                            |   |     |       |         |   |
| **CASH                FLOWS FROM OPERATING ACTIVITIES**                         |   |     |       |         |   |
| Net                loss                                                         |   | $        | (1,117,460 | )            | $      | (2,970,917 | ) |
| Adjustments                to reconcile net loss to net cash                    |   |     |       |         |   |   |   |
| (used                in) operating activities                                   |   |     |       |         |   |   |   |
|                                                                            |   |     |       |         |   |   |   |
| Depreciation                and amortization                                    |   |     | 119,657    |         |   | 98,989 |   |
| Common                stock and warrants issued for services                    |   |     | 545,604    |         |   | 717,229 |   |
| Common                stock and warrants issued for interest payments           |   |     | 84,015     |         |   | - |   |
| Liability                for stock to be issued for services                    |   |     | -          |         |   | 40,000 |   |
| Common                stock issued for penalty returned                         |   |     | (680,000   | )            |   | - |   |
| Forgiveness                of debt                                              |   |     | (740,264   | )            |   | - |   |
| Gain                on valuation of derivatives                                 |   |     | (362,063   | )            |   | (62,008 | ) |
| Amortization                of derivative discounts                             |   |     | -          |         |   | 87,500 |   |
| Stock                option compensation expense 123R                           |   |     | 8,221      |         |   | 27,222 |   |
| Amortization                of financing costs                                  |   |     | 162,516    |         |   | 7,728 |   |
| Gain                (Loss) on foreign currency translations                     |   |     | (33,736    | )            |   | 9,870 |   |
| Amortization                of unearned compensation                            |   |     | 1,105      |         |   | 7,984 |   |
| Extension                and late payment fees on bridge loans                  |   |     | 248,381    |         |   | 213,731 |   |
| Litigation                settlement                                            |   |     | (253,411   | )            |   | 277,969 |   |
| Amortization                of prepaid consulting                               |   |     | 83,333     |         |   | 166,667 |   |
| Excess                tax benefits from share-based payment arrangement         |   |     | (2,877     | )            |   | (9,788 | ) |
|                                                                            |   |     |       |         |   |   |   |
| **Changes                in assets and liabilities**                            |   |     |       |         |   |   |   |
| Decrease                (Increase) in accounts receivable                       |   |     | 49,960     |         |   | (2,448 | ) |
| Decrease                (Increase) in prepaid expenses and other current assets |   |     | (26,936    | )            |   | 18,401 |   |
| (Increase)                in other assets                                       |   |     | (1,741     | )            |   | (8,045 | ) |
| Increase                in accounts payable and accrued expenses                |   |     | 216,284    |         |   | 526,942 |   |
| Total                adjustments                                                |   |     | (581,952   | )            |   | 2,117,943 |   |
|                                                                            |   |     |       |         |   |   |   |
| **Net                cash (used in) operating activities**                      |   |     | (1,699,412 | )            |   | (852,974 | ) |
|                                                                            |   |     |       |         |   |   |   |
| **CASH                FLOWS FROM INVESTING ACTIVITIES**                         |   |     |       |         |   |   |   |
| Acquisitions                of fixed assets                                     |   |     | (30,432    | )            |   | - |   |
| Acquisitions                of intangible assets                                |   |     | (9,984     | )            |   | (69,183 | ) |
|                                                                            |   |     |       |         |   |   |   |
| **Net                cash (used in) investing activities**                      |   |     | (40,416    | )            |   | (69,183 | ) |

----

| **AIRBEE                  WIRELESS, INC.**                                                       |
|--------------------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF CASH FLOWS,                  CONTINUED** |
| **FOR                  THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**                             |
| **(UNAUDITED)**                                                                                  |

|                                                                                                                                   |   |     |      | **Restated** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|--------------|--------|
|                                                                                                                                   |   | **2008** |      | **2007**     |   |
|                                                                                                                                   |   |     |      |         |   |
| **CASH                FLOWS FROM FINANCING ACTIVITES**                                                                                 |   |     |      |         |   |
| Proceeds                from common stock issuances                                                                                    |   | $        | -         |         | $      | 70,000 |   |
| Proceeds                from convertible debentures                                                                                    |   |     | 1,881,168 |         |   | - |   |
| Proceeds                from notes payable - other                                                                                     |   |     | 80,100    |         |   | 620,064 |   |
| (Payments                of) notes payable - other                                                                                     |   |     | (55,000   | )            |   | - |   |
| Proceeds                from secured convertible debenture                                                                             |   |     | -         |         |   | 150,000 |   |
| Proceeds                from (Payments of) notes payable - related party, net                                                          |   |     | (83,761   | )            |   | 27,960 |   |
| Excess                tax benefits from share-based payment arrangement                                                                |   |     | 2,877     |         |   | 9,788 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **Net                cash provided by financing activities**                                                                           |   |     | 1,825,384 |         |   | 877,812 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **NET                INCREASE (DECREASE) IN**                                                                                          |   |     |      |         |   |   |   |
| **CASH                AND CASH EQUIVALENTS**                                                                                           |   |     | 85,556    |         |   | (44,345 | ) |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **CASH                AND CASH EQUIVALENTS -**                                                                                         |   |     |      |         |   |   |   |
| **BEGINNING                OF PERIOD**                                                                                                 |   |     | 1,925     |         |   | 59,298 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **CASH                AND CASH EQUIVALENTS - END OF PERIOD**                                                                           |   | $        | 87,481    |         | $      | 14,953 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE OF CASH FLOW**                                                                                |   |     |      |         |   |   |   |
| **INFORMATION:**                                                                                                                       |   |     |      |         |   |   |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **CASH                PAID DURING THE PERIOD FOR:**                                                                                    |   |     |      |         |   |   |   |
| Interest                expense                                                                                                        |   | $        | 25,055    |         | $      | 19,547 |   |
| Income                taxes                                                                                                            |   | $        | -         |         | $      | - |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE OF NONCASH**                                                                                  |   |     |      |         |   |   |   |
| **ACTIVITIES:**                                                                                                                        |   |     |      |         |   |   |   |
| Common                stock and warrants issued for services                                                                           |   | $        | 545,604   |         | $      | 717,229 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Common                stock inssued for deferred financing (Mercatus), net of                discount                                  |   | $        | -         |         | $      | 4,216,751 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Stock                options vested during period                                                                                      |   | $        | 8,221     |         | $      | 27,222 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Reverse                issuance of common stock; overruled by court order                                                              |   | $        | -         |         | $      | 131,268 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Common                stock returned upon cancellation of deferred financing, net                of discount                           |   | $        | 4,216,751 |         | $      | - |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Warrants                converted to liability                                                                                         |   | $        | 1,547,992 |         | $      | - |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Warrants                removed from liability                                                                                         |   | $        | -         |         | $      | 59,621 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Conversion                of note payable - other and accrued interest to common                stock                                  |   | $        | 348,000   |         | $      | 60,225 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Use                of pledged collateral for settlement of note payable and accrued                interest                            |   | $        | -         |         | $      | 72,561 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Conversion                of related party notes payable, accrued salaries payable and                accrued interest to common stock |   | $        | -         |         | $      | 40,266 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Liability                for stock to be issued for prepaid consulting fees                                                            |   | $        | -         |         | $      | 500,000 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Liability                for stock to be issued for services                                                                           |   | $        | (10,000   | )            | $      | 40,000 |   |
|                                                                                                                                   |   |     |      |         |   |   |   |
| Conversion                of accrued interest (included in accounts payable and accrued expenses)                to common stock       |   | $        | 18,528    |         | $      | - |   |

----

**AIRBEE      WIRELESS, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE      30, 2008 AND 2007**

**(UNAUDITED)**

**GENERAL**

| **1.** | **Basis                  of Presentation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The                  condensed unaudited interim consolidated financial statements included                  herein have been prepared, without audit, pursuant to the rules                  and                  regulations of the Securities and Exchange Commission. The condensed                  consolidated financial statements and notes are presented as permitted                  on                  Form 10-Q and do not contain information included in the Company’s annual                  statements and notes. Certain information and footnote disclosures                  normally included in financial statements prepared in accordance                  with                  accounting principles generally accepted in the United States of                  America                  have been condensed or omitted pursuant to such rules and regulations,                  although the Company believes that the disclosures are adequate                  to make                  the information presented not misleading. It is suggested that                  these                  condensed consolidated financial statements be read in conjunction                  with                  the December 31, 2007 audited consolidated financial statements                  and the                  accompanying notes thereto. While management believes the procedures                  followed in preparing these condensed consolidated financial statements                  are reasonable, the accuracy of the amounts are in some respects                  dependent                  upon the facts that will exist, and procedures that will be accomplished                  by the Company later in the year. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | These                  condensed unaudited consolidated financial statements reflect all                  adjustments, including normal recurring adjustments, which, in                  the opinion                  of management, are necessary to present fairly the operations and                  cash                  flows for the periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **2.** | **Presentation                  of Financial Statements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The                  condensed consolidated financial statements include the accounts                  of Airbee                  Wireless, Inc. (the “Company”) and its wholly owned subsidiary Airbee                  Wireless (India) Pvt. Ltd., located in India, for the six and three                  months                  ended June 30, 2008 and 2007, respectively. All significant inter-company                  accounts and transactions have been eliminated in consolidation.                  Accounts                  denominated in non-U.S. currencies have been re-measured using                  the U.S.                  Dollar as the functional currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The                  condensed consolidated financial statements have been presented                  on the                  basis that the Company is a going concern, which contemplates,                  among other                  things, the realization of assets, continued success in accessing                  supplemental external financing, and the satisfaction of liabilities                  in                  the normal course of business. The Company has incurred losses                  since its                  inception, and has an accumulated deficit of approximately $18.28                  million                  as of June 30, 2008. The Company's operations have been financed                  primarily                  through a combination of issued equity and debt. For the six months                  ended                  June 30, 2008, the Company had a net loss of approximately $1,117,500                  and                  cash used in operations of approximately $1,699,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **3.** | **Use                  of Estimates**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The                  preparation of the condensed consolidated 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                  disclosures                  of contingent assets and liabilities at the date of the consolidated                  financial statements and the reported amounts of revenues and expenses                  during the reporting period. Actual results could differ from those                  estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **4.** | **Income                  Taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Income                  tax benefit is computed on the pretax loss based on current tax                  law.                  Deferred                  income taxes are recognized for the tax consequences in future                  years of                  differences between the tax basis of assets and liabilities and                  its                  financial reporting amounts at each year-end based on enacted tax                  laws and                  statutory tax rates. No benefit is reflected for the six months                  ended June                  30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **5.** | **Fixed                  Assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Fixed                  assets are stated at cost. Depreciation is computed using the                  straight-line method over the estimated useful lives of the assets;                  two to                  four years for machinery and equipment and four to forty years                  for                  buildings. Reviews are regularly performed to determine whether                  facts and                  circumstances exist that indicate carrying amount of assets may                  not be                  recoverable or the useful life is shorter than originally estimated.                  The                  Company assesses the recoverability of its fixed assets by comparing                  the                  projected undiscounted net cash flows associated with the related                  asset or                  group of assets over their remaining lives against their respective                  carrying amounts. Impairment, if any, is based on the excess of                  the                  carrying amount over the fair value of those assets. If assets                  are                  determined to be recoverable, but the useful lives are shorter                  than                  originally estimated, the net book value of the assets is depreciated                  over                  the newly determined remaining useful lives. When fixed assets                  are retired                  or otherwise disposed of, the cost and related accumulated depreciation                  are removed from the accounts and the resulting gain or loss is                  included                  in operations.                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

----

| **6.** | **Earnings                  (Loss) Per Share of Common Stock**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Historical                  net income (loss) per common share is computed using the weighted                  average                  number of common shares outstanding. Diluted earnings per share                  (EPS)                  includes additional dilution from common stock equivalents, such                  as stock                  issuable pursuant to the exercise of stock options and warrants.                  Common                  stock equivalents were not included in the computation of diluted                  earnings                  per share at June 30, 2008 and 2007 when the Company reported a                  loss                  because to do so would be anti-dilutive for periods presented.                  The Company                  has incurred losses since inception as a result of funding its                  research                  and development, including the development of its intellectual                  property                  portfolio which is key to its core products. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                  following is a reconciliation of the computation for basic and                  diluted                  EPS:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|                                                                |   | June                30, 2008 |        | June                30, 2007 Restated |   |
|---------------------------------------------------------------------|--------|------------------------------|-------------|---------------------------------------|--------|
|                                                                |   |                         |        |                                  |   |
| Net                Loss                                             |   |                         | ($1,117,460 | )                                     |   | ($2,970,917 | ) |
|                                                                |   |                         |        |                                  |   |   |   |
| Weighted-average                common shares outstanding (Basic)   |   |                         | 108,200,055 |                                  |   | 89,270,904 |   |
|                                                                |   |                         |        |                                  |   |   |   |
| Weighted-average                common stock Equivalents:           |   |                         |        |                                  |   |   |   |
| Stock                options                                        |   |                         | -           |                                  |   | - |   |
| Warrants                                                            |   |                         | -           |                                  |   | - |   |
|                                                                |   |                         |        |                                  |   |   |   |
| Weighted-average                common shares outstanding (Diluted) |   |                         | 108,200,055 |                                  |   | 89,270,904 |   |

| **7.** | **Stock-Based                  Compensation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Effective                  December 31, 2005, the Company adopted the provisions of Financial                  Accountings Standards Board Statement of Financial Accounting Standard                  (“SFAS”) No. 123(R), “Share-Based Payments,” which establishes the                  accounting for employee stock-based awards. Under the provisions                  of SFAS                  No. 123(R), stock-based compensation is measured at the grant date,                  based                  on the calculated fair value of the award, and is recognized as                  an expense                  over the requisite employee service period (generally the vesting                  period                  of the grant). The Company adopted SFAS No. 123(R) using the modified                  prospective method and, as a result, periods prior to December                  31, 2005                  have not been restated. The Company recognized stock-based compensation                  awards issued under the Company’s stock option plans in the stock option                  compensation expense line item of the Condensed Consolidated Statement                  of                  Operations. Additionally, no modifications were made to outstanding                  stock                  options prior to the adoption of SFAS No. 123(R), and no cumulative                  adjustments were recorded in the Company’s financial                  statements. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Employee                  stock awards prior to periods beginning January 1, 2006 under the                  Company's compensation plans are accounted for in accordance with                  Accounting Principles Board Opinion No. 25 (“APB 25”), “*Accounting                  for Stock Issued to Employees*”,                  and related interpretations. The Company provides the disclosure                  requirements of SFAS No. 123, “*Accounting                  for Stock-Based Compensation*”                  (“SFAS 123”), and related interpretations. Stock-based awards to                  non-employees are accounted for under the provisions of SFAS 123                  and the                  Company adopted the enhanced disclosure provisions of SFAS No.                  148                  “*Accounting                  for Stock-Based Compensation- Transition and Disclosure*,”                  an amendment of SFAS No. 123.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The                  Company measures compensation expense for its employee stock-based                  compensation using the intrinsic-value method. Under the intrinsic-value                  method of accounting for stock-based compensation, when the exercise                  price                  of options granted to employees is less than the estimated fair                  value of                  the underlying stock on the date of grant, deferred compensation                  is                  recognized and is amortized to compensation expense over the applicable                  vesting period. Amortization expense for the six months ended June                  30,                  2008 and 2007 was $1,105 and $7,984, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

----

|   | The                  Company measures compensation expense for its non-employee stock-based                  compensation under the Financial Accounting Standards Board (FASB)                  Emerging Issues Task Force (EITF) Issue No. 96-18, “*Accounting                  for Equity Instruments that are Issued to Other Than Employees                  for                  Acquiring, or in Conjunction with Selling, Goods or                  Services*”.                  The fair value of the option issued is used to measure the transaction,                  as                  this is more reliable than the fair value of the services received.                  Fair                  value is measured as the value of the Company’s common stock on the date                  that the commitment for performance by the counterparty has been                  reached                  or the counterparty’s performance is complete. The fair value of the                  equity instrument is charged directly to compensation expense and                  additional paid-in capital. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The                  following table summarizes the stock option activity for the six                  months                  ended June 30, 2008:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|                                              |   | Shares |      | Weighted                Average                Exercise                Price |   | Weighted                Average                Contractual                Term                (Years) |   |
|---------------------------------------------------|--------|--------|-----------|------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|
| Outstanding,                December 31, 2007     |   |   | 1,728,000 |                                                                         |   | 0.2995                                                                                                |   |   | 4.69 |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Options                granted                    |   |   | -         |                                                                         |   | -                                                                                                     |   |   | - |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Options                reinstated                 |   |   | -         |                                                                         |   | -                                                                                                     |   |   | - |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Options                exercised                  |   |   | -         |                                                                         |   | -                                                                                                     |   |   | - |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Options                cancelled                  |   |   | 33,000    |                                                                         |   | 0.2995                                                                                                |   |   | 3.70 |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Options                forfeited or expired       |   |   | -         |                                                                         |   | -                                                                                                     |   |   | - |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Outstanding,                June 30, 2008         |   |   | 1,695,000 |                                                                         |   | 0.3037                                                                                                |   |   | 3.54 |   |
|                                              |   |   |      |                                                                         |   |                                                                                                  |   |   |   |   |
| Options                exercisable, June 30, 2008 |   |   | 1,378,125 |                                                                         |   | 0.2964                                                                                                |   |   | 3.15 |   |

| **8.** | **Goodwill                and Other Intangible Assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The                identifiable intangible assets presented on the condensed consolidated                balance sheet represent the intellectual property that was capitalized                post-technological feasibility. Management will continue to monitor                and                assess any impairment charges against those assets in accordance                with the                provisions of SFAS No. 142 and SFAS No. 144, “*Accounting                for the Impairment or Disposal of Long-Lived Assets*.”                Beginning with the second quarter of 2005, the Company began amortizing                its intellectual property costs over a five year period. The amortization                amount for the current quarter is calculated based upon the ending                balance                of intellectual property from the preceding quarter. The amount amortized                for the six months ended June 30, 2008 and 2007 was $15,100 and $15,100,                respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The                capitalized research and development costs pertain to the development                of                the Company’s software stack to meet the ZigBee 1.0 standard, which was                superseded by ZigBee standard 2006 in September 2006. The ZigBee                2006                standard was not 100% backwards-compatible with the ZigBee 1.0 standard.                The Company determined that 30% of its ZigBee 1.0 compatible stack                was not                transferable to the newer standard and wrote off $173,294 in the                fourth                quarter. In addition, the Company wrote-off $34,071 of other research                and                development costs capitalized in the fourth quarter. The Company                began                amortizing its capitalized research and development costs in the                fourth                quarter of 2006 over a three-year period, or $33,696 per                quarter.                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

----

|   | The                main components of intangible assets are as                follows: |
|--------|----------------------------------------------------------------------------------------|

|                                                    |   | Six                  Months Ended June 30, 2008 |    |
|---------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                    |   | Gross                  Amount                   |    | Accumulated                  Amortization |   | Net                  Carrying Amount |   |
| Intellectual                  Property                  |   | $                                               | 116,090 |   | $ | 98,150 |   | $ | 17,940 |   |
| Patent                                                  |   |                                            | 10,449  |   |   | - |   |   | 10,449 |   |
| Capitalized                  Research & Development |   |                                            | 403,888 |   |   | 235,872 |   |   | 168,016 |   |
| Total                  Intangible Assets                |   | $                                               | 530,427 |   | $ | 334,022 |   | $ | 196,405 |   |

|                                                    |   | Year                  Ended December 31, 2007 |    |
|---------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                    |   | Gross                  Amount                 |    | Accumulated                  Amortization |   | Net                  Carrying Amount |   |
| Intellectual                  Property                  |   | $                                             | 116,090 |   | $ | 83,050 |   | $ | 33,040 |   |
| Patent                                                  |   |                                          | 464     |   |   | - |   |   | 464 |   |
| Capitalized                  Research & Development |   |                                          | 403,888 |   |   | 168,479 |   |   | 235,409 |   |
| Total                  Intangible Assets                |   | $                                             | 520,442 |   | $ | 251,529 |   | $ | 268,913 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Amortization                    expense for the next five years ending June 30 are expected to                    be as                    follows: $152,724 in 2009; $33,696 in 2010, and $0 in 2011 through                    2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **9.** | **Recent                    Accounting Pronouncements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In                    September 2006, the Financial Accounting Standards Board ("FASB")                    issued SFAS No. 157, *“Fair                    Value Measurements”*                    (“SFAS No. 157”), which clarifies the definition of fair value whenever                    another standard requires or permits assets or liabilities to                    be measured                    at fair value. Specifically, the standard clarifies that fair                    value should                    be based on the assumptions market participants would use when                    pricing the                    asset or liability, and establishes a fair value hierarchy that                    prioritizes the information used to develop those assumptions.                    SFAS No.                    157 does not expand the use of fair value to any new circumstances,                    and                    must be applied on a prospective basis except in certain cases.                    The                    standard also requires expanded financial statement disclosures                    about fair                    value measurements, including disclosure of the methods used                    and the                    effect on earnings.                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In                    February 2008, FASB Staff Position (“FSP”) FAS No. 157-2, *“Effective                    Date of FASB Statement No. 157”*                    (“FSP No. 157-2”) was issued. FSP No. 157-2 defers the effective date of                    SFAS No. 157 to fiscal years beginning after December 15, 2008,                    and                    interim periods within those fiscal years, for all nonfinancial                    assets and                    liabilities, except those that are recognized or disclosed at                    fair value                    in the financial statements on a recurring basis (at least annually).                    Examples of items within the scope of FSP No. 157-2 are nonfinancial                    assets and nonfinancial liabilities initially measured at fair                    value in a                    business combination (but not measured at fair value in subsequent                    periods), and long-lived assets, such as property, plant and                    equipment and                    intangible assets measured at fair value for an impairment assessment                    under SFAS No. 144.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The                    partial adoption of SFAS No. 157 on January 1, 2008 with respect                    to                    financial assets and financial liabilities recognized or disclosed                    at fair                    value in the financial statements on a recurring basis did not                    have a                    material impact on the Company's consolidated financial statements.                    See                    Note 13 for the fair value measurement disclosures for these                    assets and                    liabilities. The Company is in the process of analyzing the potential                    impact of SFAS No. 157 relating to its planned January 1, 2009                    adoption of                    the remainder of the standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | On                    January 1, 2008 (the first day of fiscal 2008), the Company adopted                    SFAS                    No. 159, *“The                    Fair Value Option for Financial Assets and Financial Liabilities,                    Including an amendment of FASB Statement No. 115”*                    (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many                    financial instruments and certain other items at fair value,                    which are not                    otherwise currently required to be measured at fair value. Under                    SFAS No.                    159, the decision to measure items at fair value is made at specified                    election dates on an instrument-by-instrument basis and is irrevocable.                    Entities electing the fair value option are required to recognize                    changes                    in fair value in earnings and to expense upfront costs and fees                    associated                    with the item for which the fair value option is elected. The                    new standard                    did not impact the Company's Condensed Consolidated Financial                    Statements                    as the Company did not elect the fair value option for any instruments                    existing as of the adoption date. However, the Company will evaluate                    the                    fair value measurement election with respect to financial instruments                    the                    Company enters into in the future. |
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|    | In                    December 2007, the FASB issued SFAS No. 160, *“Noncontrolling                    Interests in Consolidated Financial Statements - An Amendment                    of ARB No.                    51.”*                    SFAS No. 160 establishes new accounting and reporting standards                    for the                    noncontrolling interest in a subsidiary and for the deconsolidation                    of a                    subsidiary. SFAS No. 160 is effective for fiscal years beginning                    on or                    after December 15, 2008. The Company believes that SFAS No. 160                    should not                    have a material impact on the condensed consolidated financial                    position or                    results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|    | In                    March 2008, the FASB issued SFAS No. 161, *“Disclosures                    about Derivative Instruments and Hedging Activities,”*                    SFAS No. 161 requires companies with derivative instruments to                    disclose                    information that should enable financial statement users to understand                    how                    and why a company uses derivative instruments, now derivative                    instruments                    and related hedged items are accounted for under SFAS No. 133*“Accounting                    for Derivative Instruments and Hedging Activities”*                    and how derivative instruments and related hedged items affect                    a company’s                    financial position, financial performance and cash flows. SFAS                    No. 161 is                    effective for financial statements issued for fiscal years and                    interim                    periods beginning after November 15, 2008. The adoption of this                    statement                    is not expected to have a material effect on the Company’s future                    financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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| **10.** | **Debt**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|    | ***Notes                    Payable - Other***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|    | In                    September 2005, a former director loaned the Company $100,000                    in return                    for an unsecured demand promissory note. The terms of the note                    provided                    for interest at 6.5% per annum. Payment of the note was guaranteed                    by an                    affiliate of the Company. On September 19, 2006, the Company                    issued its                    promissory note for $100,000 due December 31, 2006 to replace                    the prior                    note. The terms of the note provided for interest at 10.0% per                    annum. The                    note was secured by 555,555 pledged shares of stock which are                    held by an                    escrow agreement pursuant to a written escrow agreement. The                    parties have                    engaged in discussions extending the due date but have not reached                    agreement and the Company has been served with a summons and                    complaint.                    The negotiations between the parties are continuing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|    | On                    May 18, 2006, Henry and Catherine Zimmer (the “Zimmers”), two accredited                    investors, accepted the Company’s term sheet for senior secured bridge                    loans by providing $385,000 cash to the Company. The terms of                    this bridge                    loan were: interest at 12% per annum, compounded monthly; payable                    in                    ninety (90) days, the Company having the option of extending                    for another                    30 days for a fee of 8% of the amount provided the Company. The                    indebtedness is secured by the Company’s assets. The Company exercised its                    option to extend the term for an additional thirty (30) days.                    If the loan                    was not repaid by the end of its term plus the optional extension,                    the                    Company agreed to pay a penalty of 10% of the dollar value of                    the amount                    outstanding; the Company further agreed to pay an additional                    10% penalty                    for each quarter thereafter that the loan remained unpaid. These                    accredited investors also received 577,500 warrants to purchase                    common                    stock at the ratio of 1.5 common shares for each $1.00 loaned.                    The                    warrants have a three year term and an exercise price of $0.50                    per share.                    These accredited investors made subsequent loans to the Company                    totaling                    $215,000 which were added to this bridge loan on the same terms                    and                    conditions between December 15, 2006 and February 28, 2007. In                    addition,                    the Company issued a total of 2,022,500 warrants to purchase                    common stock.                    These warrants have an exercise price of $0.40 per share and                    expire at                    various dates through January 29, 2009. As a result of its failure                    to make                    timely payment, the Company issued 3,200,000 shares of its restricted                    common stock pursuant to the terms of the loan documents. As                    of April 15,                    2008 the total amount due the Zimmers for outstanding principal,                    interest                    and penalties was $1,411,368. On April 15, 2008, the Company                    entered into                    a Note and Settlement Agreement (“Note”) with the Zimmers. The new Note                    replaces all prior Bridge Note documents and has a face value                    of $700,000                    at 8.5% simple interest payable monthly in cash or stock at discrete                    times                    at the Company’s option. The Zimmers have the option of converting up to                    $200,000 of the Note to common stock at a conversion rate of                    $0.044 per                    share. The term of the Note is two years. The Zimmers returned                    to the                    Company the 3,200,000 shares issued pursuant to the Bridge Note                    and the                    Company agreed to reprice the outstanding warrants strike price                    to $0.17                    per share. The parties also executed a full mutual release for                    any and all                    actions prior to the date of the                    Note. |

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|   | On                    April 3, 2007 the Company executed a promissory note for $100,000                    to                    Memphis Scale Works, Inc. The note bears interest at the rate                    of 12% per                    annum. As an inducement to make the loan the Company issued 200,000                    restricted shares of its common stock to maker. The note was                    due May 2,                    2007 but is still outstanding. The parties have engaged in discussions                    extending the due date but have not reached agreement as of August                    12,                    2008 although no notice of default has been issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | On                    May 11, 2007 the Company executed a promissory note for $20,000                    to Larry                    Watkins. The note bore interest at the rate of 10% per annum                    for the first                    fifteen days, increasing to 15% per annum thereafter. As an inducement                    to                    make the loan the Company issued 20,000 warrants to purchase                    restricted                    shares of its common stock to maker exercisable over 18 months                    at an                    exercise price of $0.50 per share. The note was due September                    30, 2007 but                    is still outstanding. The parties have engaged in discussions                    extending                    the due date but have not reached agreement as of June 30, 2008.                    See Note                    16 - Subsequent Events for additional details.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | On                    May 11, 2007 the Company executed a promissory note for $20,000                    to Robert                    Noone. The note bore interest at the rate of 12% per annum. As                    an                    inducement to make the loan the Company issued 100,000 warrants                    to                    purchase restricted shares of its common stock to maker exercisable                    over                    18 months at an exercise price of $0.50 per share. The note was                    due                    September 30, 2007 but is still outstanding. The parties have                    engaged in                    discussions extending the due date but have not reached agreement                    as of                    July 28, 2008 although no notice of default has been                    issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | On                    May 11, 2007 the Company executed a promissory note for $30,000                    to Henry                    Zimmer. The note was interest-free for the first 30 days of its                    term and                    subsequently bore interest at the rate of 12% per annum. The                    note was due                    with 72 hours of receipt of any new significant financing and                    is still                    outstanding and is not part of the Note and Settlement Agreement                    dated                    April 15, 2008 between the Company and Henry and Catherine                    Zimmer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   | On                    June 1, 2007 the Company executed a promissory note for $10,000                    to Shekar                    Viswanathan. The note bore interest at the rate of 10% per annum.                    The note                    was due July 6, 2007 but remained outstanding until April 30,                    2008 when                    the Company issued 272,917 shares of common stock in full payment                    of                    principal and accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | On                    November 26, 2007 the Company executed a promissory note for                    $112,000 to                    Jerry Michie. The note bears interest at the rate of 12% per                    annum. As an                    inducement to make the loan the Company issued 400,000 restricted                    shares                    of its common stock to Mr. Michie. The note is convertible at                    holder’s                    option; the conversion price is the five day weighted average                    closing                    price of the Company’s stock for the five trading days preceding                    conversion. The note is due 90 days after date. If the Company                    fails to                    repay the note within the time allotted, the Company will issue                    1 million                    shares to the holder and the interest rate will increase to 22%                    per annum                    from the due date until the note is repaid. The parties have                    engaged in                    discussions extending the due date but have not reached agreement                    as of                    August 12, 2008 although no notice of default has been                    issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|   | On                    December 10, 2007 the Company executed a promissory note for                    $44,500 to                    Marcus Perez. The note bore no interest, the Company having issued                    400,000                    restricted shares of its common stock and issued 400,000 three-year                    warrants with an exercise price of $0.05 per share and 300,000                    three-year                    warrants with an exercise price of $0.12 per share. The note                    is                    convertible at holder’s option; the conversion price is the five day                    weighted average closing price of the Company’s stock for the five trading                    days preceding conversion. The note is due within five business                    days after                    the Company receives any funding from an investment group or                    from                    generated revenue, whichever first occurs. On January 4, 2008,                    the Company                    executed a promissory note for $60,000 to Marcus Perez. The promissory                    note was due within five business days after receipt of any funding                    from                    an investment group or from generated revenue and bore interest                    at the                    rate of 12% per annum. The note had a conversion feature exercisable                    at                    the holder’s option. On January 25, 2008 the Company issued 1,000,000                    shares of common stock in partial payment of $24,151 of principal.                    On June                    23, 2008 the Company issued 1,442,448 shares of common stock                    in partial                    payment of $26,349 of principal and $5,042 of accrued interest.                    The                    remaining principal balance on Mr. Perez’s notes is                    $54,000. |
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|   | On                    January 10, 2008, the Company executed a promissory note for                    $10,100 to                    Rudolph Cane, Jr. The note bears interest at the rate of 12%                    per annum and                    is due July 9, 2008. The note has a conversion feature exercisable                    at the                    holder’s option. In further consideration of the note, the Company issued                    50,000 warrants to purchase common shares of its restricted common                    stock                    exercisable for three years at $0.25 per share. The parties have                    engaged                    in discussions extending the due date but have not reached agreement                    as of                    July 28, 2008 although no notice of default has been                    issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|   | On                    January 15, 2008, the Company executed a promissory note for                    $10,000 to                    Dave Brubaker. The note bears interest at the rate of 12% per                    annum and is                    due July 16, 2008. The note has a conversion feature exercisable                    at the                    holder’s option. In further consideration of the note, the Company issued                    50,000 warrants to purchase common shares of its restricted common                    stock                    exercisable for three years at $0.25 per share. The parties have engaged                    in discussions extending the due date but have not reached agreement                    as of                    July 28, 2008 although no notice of default has been                    issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   | ***Convertible                    Debentures***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|   | On                    December 29, 2005, the Company executed a convertible debenture                    for                    $500,000 to Montgomery Equity Partners Ltd. (“Montgomery”). The                    convertible debenture is secured by substantially all of the                    assets of the                    Company, pledged shares of stock of three affiliates of the Company,                    and                    13.5 million pledged shares of stock (which are not counted as                    outstanding                    shares until converted pursuant to the terms of the Stock Purchase                    Agreement and Escrow Agreement that were part of this transaction).                    The                    pledged shares are held by an escrow agent, who is Montgomery’s general                    counsel, a partner of Montgomery’s general partner and Montgomery’s                    attorney for this transaction, pursuant to a written escrow agreement.                    Pursuant to the terms of the convertible debenture, Montgomery                    disbursed                    $350,000 upon the date the debenture was executed and the remaining                    $150,000 was disbursed on April 8, 2007. The debenture is convertible                    at                    the option of the holder into common shares of the Company at                    a price per                    share equal to 80% of the lowest closing value 10 days prior                    to the                    closing date or 10 days prior to the conversion date. In addition,                    the                    Company issued 2,000,000 freestanding warrants exercisable over                    three                    years as follows: 1,000,000 warrants at a strike price of the                    lesser of                    80% of the average closing bid price for the 5 trading days preceding                    exercise or $0.20 per share; 500,000 warrants at a strike price                    of the                    lesser of 80% of the average closing bid price for the 5 trading                    days                    preceding exercise or $0.30 per share; and 500,000 warrants at                    a fixed                    strike price of $0.001. Montgomery has exercised all 2,000,000                    warrants in                    cashless exercises and received a total of 1,337,009 shares of                    common                    stock. During 2007, Montgomery converted $380,000 of the debentures                    and                    received 4,134,615 shares, leaving a balance due upon maturity                    of                    $120,000. The Company was unable to pay the outstanding debentures                    on                    December 29, 2007 and was in default under the terms of the debentures.                    After negotiations, Montgomery converted an additional $66,700                    of the                    debentures on January 28, 2008, receiving 5,210,938 shares, sold                    $13,300                    of the debentures to BARTFAM LP on January 30, 2008, and retained                    $40,000                    for its own account. The purchase price of the January 30th                    transaction was $98,842, consisting of $13,300 for the debentures,                    outstanding and accrued interest of $35,012, a redemption fee                    of $1,330                    and liquidated damages of $49,200. Montgomery also assigned its                    security                    interest to BARTFAM LP, which also took possession of the 15,318,833                    pledge shares held in escrow. On April 5, 2008, Montgomery converted                    the                    remaining $40,000 of its debentures and received 1,666,667 shares                    of                    common stock. |
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|   | On                    October 5, 2007, the Company executed a $350,000 convertible                    debenture                    with Golden Gate Investors, Inc. (“Golden Gate”). Pursuant to its terms,                    Golden Gate disbursed $350,000 to the Company upon execution.                    The                    convertible debenture was due October 4, 2008 and accrued interest                    at                    8.75% per year. In addition, the Company issued 2,000,000 warrants                    to                    purchase common stock exercisable at $0.12 per share. The warrants                    expire                    on October 4, 2010. When a condition of default occurred Golden                    Gate                    accelerated the note in December 2007. When the Company was unable                    to                    repay the note, Golden Gate began selling 10 million pledged                    shares, which                    it completed in February 2008. On April 24, 2008, Golden Gate                    converted                    $20,000 of its remaining debentures and received 1,015,486 shares                    of                    common stock. On June 13, 2008, Golden Gate converted $14,000                    of its                    remaining debentures and received 911,874 shares of common stock.                    As of                    June 30, 2008, the remaining balance owed to Golden Gate is approximately                    $12,800 plus accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|   | On                    February 6, 2008 and effective as of January 30, 2008, the Company                    entered                    into a Debenture and Warrant Purchase Agreement, as amended,                    with Bartfam                    LP, et al (“Bartfam”) by which Bartfam agreed to purchase and the Company                    agreed to sell approximately $1.4 million of secured convertible                    debentures in three tranches convertible at $0.02 per share.                    In addition,                    the Company agreed to issue 37,364,667 warrants to purchase common                    stock                    exercisable as follows: 12,454,889 warrants at $0.10 per share;                    12,454,889                    warrants at $0.20 per share; and 12,454,889 warrants at $0.30                    per share.                    The warrants expire on the fifth anniversary of the date of issuance.                    The                    first tranche of $500,000 was disbursed to the Company on February                    6, 2008                    upon the Company’s execution of a two-year 12% secured convertible                    debenture with interest payable quarterly. The second tranche                    of $500,000                    was disbursed to the Company on April 15, 2008 upon the execution                    of a                    two-year 12% secured convertible debenture with interest payable                    quarterly. The third tranche of $401,158 was disbursed to the                    Company on                    May 29, 2008 upon the execution of a two-year 12% secured convertible                    debenture with interest payable quarterly. With the funding of                    the first                    tranche, the Company issued 4,444,500 warrants exercisable at                    $0.10,                    4,444,500 warrants exercisable at $0.20, and 4,444,500 warrants                    exercisable to $0.30. With the funding of the second tranche,                    the Company                    issued 4,444,500 warrants exercisable at $0.10, 4,444,500 warrants                    exercisable at $0.20, and 4,444,500 warrants exercisable to $0.30.                    With                    the funding of the third tranche, the Company issued 3,565,889                    warrants                    exercisable at $0.10, 3,565,889 warrants exercisable at $0.20,                    and                    3,565,889 warrants exercisable to $0.30.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|   | Effective                    as of January 31, 2008, the Company entered into a series of                    Debenture and                    Warrant Purchase Agreements with six investors (the “Empire Financial                    Investors”) by which the Empire Financial Investors agreed to purchase                    and                    the Company agreed to sell $280,000 of secured convertible debentures                    convertible at $0.05 per share. The debentures have a two-year                    term with                    interest payable quarterly at 12% per annum. In addition, the                    Company                    agreed to issue 2,800,000 warrants to purchase common stock exercisable                    at                    $0.10 per share. The warrants expire on January 30,                    2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | Effective                    as of April 17, 2008, the Company entered into a Debenture and                    Warrant                    Purchase Agreement with Anita Green (“Green”) by which Green agreed to                    purchase and the Company agreed to sell $200,000 of secured convertible                    debentures convertible at $0.05 per share. The debentures have                    a two-year                    term with interest payable quarterly at 10% per annum. In addition,                    the                    Company agreed to issue 3,200,000 warrants to purchase common                    stock                    exercisable at $0.10 per share. The warrants expire on April                    17,                    2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | ***Bridge                    Loan Derivatives***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|   | Between                    April 16, 2006 and May 5, 2006, five accredited investors accepted                    the                    Company’s term sheet for convertible senior secured bridge loans by                    providing a total of $115,000 cash to the Company. The terms                    of these                    bridge loans are: interest at 12% per annum, compounded monthly;                    repayable                    in ninety (90) days but the Company has the option of extending                    for                    another 30 days for a fee of 8% of the amount provided the Company;                    these                    five accredited investors have the option to convert their bridge                    loans to                    restricted shares of common stock at an exercise price of the                    lower of the                    average closing bid price of the Company’s stock for the five trading days                    preceding the date of the conversion or the market price of the                    stock on                    the trading day preceding the conversion. The Company exercised                    its option                    to extend the term for an additional thirty (30) days for these                    five                    loans. If the bridge loans are not repaid or converted by the                    end of their                    terms plus the optional extension, the Company will pay a penalty                    of 10%                    of the dollar value of the amount outstanding; the Company will                    pay an                    additional 10% penalty for each quarter thereafter that the bridge                    loans                    remain unpaid. These five accredited investors also received                    warrants to                    purchase common stock at the ratio of one common share for each                    $2.00                    loaned. All warrants have a three year term and an exercise price                    of $0.50                    per share. The warrants and any shares converted have piggyback                    registration rights. The Company has not repaid the bridge loans                    and the                    outstanding balance including accrued interest and penalties                    is $344,537.                    As a result of the conversion rights associated with these bridge                    loans,                    the Company recorded these bridge loans as a derivative liability                    valued                    at $350,587. The loss on this derivative for the three months                    ended June                    30, 2008 was $6,050. |
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|   | ***Notes                    Payable - Related Parties***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | The                    Company entered into promissory notes with some of its officers.                    There are                    amounts outstanding under these notes. These amounts accrue interest                    at                    varying rates between 6.0% and 12.0% annually. In February 2008,                    the                    Company repaid $83,761 in full payment of principal and accrued                    interest                    on an officer’s notes. As of June 30, 2008, the Company has $55,389                    outstanding under these notes plus $2,369 in accrued interest.                    Because the                    remaining notes are demand notes, they are therefore reflected                    as current                    liabilities on the condensed consolidated balance sheets. The                    notes relate                    to services rendered or funds loaned to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Principal                    payments on all notes payable for the next five years ending                    June 30 are                    due as follows: $887,824 in 2009, $3,046,168 in 2010, and $0                    in 2011                    through 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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| **11.** | **Stockholders’                    Equity** |
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|   | The                    Company has 200,000,000 shares of common stock, par value $0.00004,                    authorized at June 30, 2008, with 137,975,797 common shares issued,                    14,142,511 shares held in escrow, 1,660,036 shares in treasury,                    and                    123,833,286 shares outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|   | The                    following stock transactions occurred in the three months ended                    June 30,                    2008:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|   | On                    April 11, 2008, the Company issued 1,666,667 restricted shares                    to                    Montgomery Equity Partners, Ltd. for the conversion of $40,000                    of the                    $500,000 secured convertible debentures due December 29, 2007.                    The                    securities were issued pursuant to the exemption from registration                    provided by Section 4(2) of the Securities Act and contain the                    appropriate                    legends restricting their transferability absent registration                    or                    applicable exemption. The organization received information concerning                    the                    Company and had the ability to ask questions about the                    Company.                                                                                                                                                                                                                                                                                                                  |
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|   | On                    April 15, 2008, the Company issued 13,333,500 warrants to purchase                    our                    common stock to Bartfam in connection with their $500,000 convertible                    debenture of even date. The warrants expire April 15, 2013 and                    were issued                    as follows: 4,444,500 warrants are exercisable at $0.10 per share,                    4,444,500 warrants are exercisable at $0.20 per share, and 4,444,500                    warrants are exercisable at $0.30 per share. The securities were                    issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company.                                           |
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|   | On                    April 15, 2008, the Company cancelled 3,900,000 warrants to purchase                    common stock incorrectly issued to Allen & Associates LLC on February                    6, 2008 due to a clerical error and issued 2,500,000 warrants                    to purchase                    common stock to Allen & Associates LLC as part of a success fee                    pursuant to a management and financial consulting agreement.                    The warrants                    are exercisable at $0.02 per share and expire on April 15, 2013.                    The                    securities were issued pursuant to the exemption from registration                    provided by Section 4(2) of the Securities Act and contain the                    appropriate                    legends restricting their transferability absent registration                    or                    applicable exemption. The organization received information concerning                    the                    Company and had the ability to ask questions about the                    Company.                        |
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|   | On                    April 15, 2008, the Company issued 560,000 warrants to purchase                    common                    stock to Steve Barnes as part of a success fee pursuant to a                    financial                    consulting agreement. The warrants are exercisable at $0.05 per                    share and                    expire on April 15, 2013. The securities were issued pursuant                    to the                    exemption from registration provided by Section 4(2) of the Securities                    Act                    and contain the appropriate legends restricting their transferability                    absent registration or applicable exemption. The organization                    received                    information concerning the Company and had the ability to ask                    questions                    about the Company.                                                                                                                                                                                                                                                    |
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|   | On                    April 15, 2008, the Company issued 3,200,000 warrants to purchase                    common                    stock to Anita Green in connection with her $200,000 convertible                    debenture                    of even date. The warrants are exercisable at $0.10 per share                    and expire                    on April 15, 2013. The securities were issued pursuant to the                    exemption                    from registration provided by Section 4(2) of the Securities                    Act and                    contain the appropriate legends restricting their transferability                    absent                    registration or applicable exemption. The organization received                    information concerning the Company and had the ability to ask                    questions                    about the Company.                                                                                                                                                                                                                                                      |
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|   | On                    April 16, 2008, the Company issued 2,500,000 warrants to purchase                    common                    stock to Allen & Associates LLC as part of a success fee pursuant to a                    management and financial consulting agreement. The warrants are                    exercisable at $0.02 per share and expire on April 15, 2013.                    The                    securities were issued pursuant to the exemption from registration                    provided by Section 4(2) of the Securities Act and contain the                    appropriate                    legends restricting their transferability absent registration                    or                    applicable exemption. The organization received information concerning                    the                    Company and had the ability to ask questions about the                    Company.                                                                                                                                                                                                                                        |
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|   | On                    April 16, 2008, the Company issued 2,841,667 warrants to purchase                    our                    common stock to Richard Sommerfeld in connection with his $465,000                    convertible debenture of even date. The warrants expire April                    16, 2013 and                    were issued as follows: 1,550,000 warrants are exercisable at                    $0.10 per                    share, 775,000 warrants are exercisable at $0.20 per share, and                    516,667                    warrants are exercisable at $0.30 per share. The securities were                    issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company. |
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|   | On                    April 17, 2008, the Company issued 400,000 warrants to purchase                    common                    stock to Allen & Associates LLC as part of a success fee pursuant to a                    management and financial consulting agreement. The warrants are                    exercisable at $0.05 per share and expire on April 17, 2013.                    The                    securities were issued pursuant to the exemption from registration                    provided by Section 4(2) of the Securities Act and contain the                    appropriate                    legends restricting their transferability absent registration                    or                    applicable exemption. The organization received information concerning                    the                    Company and had the ability to ask questions about the                    Company. |
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|   | On                    April 25, 2008, the Company issued 1,015,486 restricted shares                    to Golden                    Gate Investors, Inc. for the conversion of $20,000 of the $350,000                    secured                    convertible debentures issued October 5, 2007. The securities                    were issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    organization received information concerning the Company and                    had the                    ability to ask questions about the Company.                                                                             |
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|   | On                    April 28, 2008, the Company cancelled 3,200,000 restricted shares                    previously issued as a non-payment penalty to Henry and Catherine                    Zimmer,                    these shares being returned to the Company as part of the Promissory                    Note                    and Settlement Agreement dated April 15, 2008 more fully described                    in Note                    10, above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | On                    April 30, 2008, the Company issued 272,917 restricted shares                    of stock to                    Shekar Viswanathan, an accredited investor, to settle a note                    payable                    totaling $10,915 including accrued interest. The securities were                    issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investor received information concerning the Company                    and had                    the ability to ask questions about the Company.                                                                              |
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|   | On                    April 30, 2008, the Company issued 334,783 restricted shares                    to Allen                    & Associates LLC for corporate finance and strategic counsel services                    worth $12,500 when incurred. The securities were issued pursuant                    to the                    exemption from registration provided by Section 4(2) of the Securities                    Act                    and contain the appropriate legends restricting their transferability                    absent registration or applicable exemption. The organization                    received                    information concerning the Company and had the ability to ask                    questions                    about the Company.                                                                                                                                         |
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|   | On                    May 1, 2008, the Company issued 5,750,000 restricted shares to                    Bartfam                    pursuant to the anti-dilution provisions of the Debenture and                    Warrant                    Purchase Agreement dated January 30, 2008. The securities were                    issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company.                                                                                |
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|   | On                    May 15, 2008, the Company issued 176,865 restricted shares to Catherine                    Zimmer in payment of $4,958 in interest due pursuant to the Promissory                    Note and Settlement Agreement dated April 15, 2008. The securities                    were                    issued pursuant to the exemption from registration provided by                    Section                    4(2) of the Securities Act and contain the appropriate legends                    restricting                    their transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company.                                                                                                           |
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|   | On                    May 15, 2008, the Company issued 182,558 restricted shares to                    the Empire                    Financial Investors in payment of $5,264 in interest due pursuant                    to the                    Debenture and Warrant Purchase Agreements dated January 30, 2008.                    The                    securities were issued pursuant to the exemption from registration                    provided by Section 4(2) of the Securities Act and contain the                    appropriate                    legends restricting their transferability absent registration                    or                    applicable exemption. The accredited investors received information                    concerning the Company and had the ability to ask questions about                    the                    Company.                                                    |
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|   | On                    May 15, 2008, the Company issued 349,508 restricted shares to                    Bartfam in                    payment of $10,028 in interest due pursuant to the Debenture                    and Warrant                    Purchase Agreements dated January 30, 2008. The securities were                    issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the                    Company.                                                       |

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|   | On                    May 15, 2008, the Company issued 11,621 restricted shares to                    Bartfam in                    payment of interest due pursuant to the convertible debenture                    acquired                    from Montgomery on January 30, 2008. The securities were issued                    pursuant                    to the exemption from registration provided by Section 4(2) of                    the                    Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company.                                                                                                                                                                                                                                                                               |
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|   | On                    May 29, 2008, the Company issued 10,697,667 warrants to purchase                    our                    common stock to Bartfam in connection with their $500,000 convertible                    debenture of even date. The warrants expire May 29, 2013 and                    were issued                    as follows: 3,565,889 warrants are exercisable at $0.10 per share,                    3,565,889 warrants are exercisable at $0.20 per share, and 3,565,889                    warrants are exercisable at $0.30 per share. The securities were                    issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company. |
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|   | On                    May 29, 2008, the Company issued 2,005,788 warrants to purchase                    common                    stock to Allen & Associates LLC as part of a success fee pursuant to a                    management and financial consulting agreement. The warrants are                    exercisable at $0.02 per share and expire on May 29, 2013. The                    securities                    were issued pursuant to the exemption from registration provided                    by                    Section 4(2) of the Securities Act and contain the appropriate                    legends                    restricting their transferability absent registration or applicable                    exemption. The organization received information concerning the                    Company                    and had the ability to ask questions about the Company.                                                                                                                                                                                                                 |
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|   | On                    May 31, 2008, the Company issued 300,280 restricted shares to                    Allen &                    Associates LLC for corporate finance and strategic counsel services                    worth                    $12,500 when incurred. The securities were issued pursuant to                    the                    exemption from registration provided by Section 4(2) of the Securities                    Act                    and contain the appropriate legends restricting their transferability                    absent registration or applicable exemption. The organization                    received                    information concerning the Company and had the ability to ask                    questions                    about the Company.                                                                                                                                                                                                                                                                                                                   |
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|   | On                    June 13, 2008, the Company issued 911,874 restricted shares to                    Golden Gate                    Investors, Inc. for the conversion of $14,000 of the $350,000                    secured                    convertible debentures issued October 5, 2007. The securities                    were issued                    pursuant to the exemption from registration provided by Section                    4(2) of                    the Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    organization received information concerning the Company and                    had the                    ability to ask questions about the Company.                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                    June 23, 2008, the Company issued 1,442,448 restricted shares                    of stock to                    an accredited investor to partially settle $31,391 of notes payable                    and                    accrued interest. The securities were issued pursuant to the                    exemption                    from registration provided by Section 4(2) of the Securities                    Act and                    contain the appropriate legends restricting their transferability                    absent                    registration or applicable exemption. The accredited investor                    received                    information concerning the Company and had the ability to ask                    questions                    about the Company.                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                    June 24, 2008, the Company issued 1,000,000 restricted shares                    of stock to                    Memphis Scale Works, Inc. pursuant to the default provisions                    of a                    promissory note made in 2007. The securities were issued pursuant                    to the                    exemption from registration provided by Section 4(2) of the Securities                    Act                    and contain the appropriate legends restricting their transferability                    absent registration or applicable exemption. The accredited investor                    received information concerning the Company and had the ability                    to ask                    questions about the Company.                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                    June 30, 2008, the Company issued 458,792 restricted shares to                    the Empire                    Financial Investors in payment of $8,377 in interest due pursuant                    to the                    Debenture and Warrant Purchase Agreements dated January 30, 2008.                    The                    securities were issued pursuant to the exemption from registration                    provided by Section 4(2) of the Securities Act and contain the                    appropriate                    legends restricting their transferability absent registration                    or                    applicable exemption. The accredited investors received information                    concerning the Company and had the ability to ask questions about                    the                    Company.                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                    June 30, 2008, the Company issued 1,725,652 restricted shares                    to Bartfam                    in payment of $31,508 in interest due pursuant to the Debenture                    and                    Warrant Purchase Agreements dated January 30, 2008. The securities                    were                    issued pursuant to the exemption from registration provided by                    Section                    4(2) of the Securities Act and contain the appropriate legends                    restricting                    their transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company.                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

----

|    | On                    June 30, 2008, the Company issued 27,241 restricted shares to                    Bartfam in                    payment of interest due pursuant to the convertible debenture                    acquired                    from Montgomery on January 30, 2008. The securities were issued                    pursuant                    to the exemption from registration provided by Section 4(2) of                    the                    Securities Act and contain the appropriate legends restricting                    their                    transferability absent registration or applicable exemption.                    The                    accredited investors received information concerning the Company                    and had                    the ability to ask questions about the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | On                    June 30, 2008, the Company issued 547,681 restricted shares to                    Allen &                    Associates LLC for corporate finance and strategic counsel services                    worth                    $12,500 when incurred. The securities were issued pursuant to                    the                    exemption from registration provided by Section 4(2) of the Securities                    Act                    and contain the appropriate legends restricting their transferability                    absent registration or applicable exemption. The organization                    received                    information concerning the Company and had the ability to ask                    questions                    about the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **12.** | **Commitments                      and Contingencies**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | ***Repayment                    Agreement***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | MindTree                    provided services to the Company under a Time and Materials Contract                    dated                    March 30, 2005 (the T&M Contract”). On a monthly basis, MindTree                    invoiced the Company for work it performed. Payment terms were                    net 30. The                    Company was unable to pay the invoices as they became due and,                    by informal                    agreement, extended the repayment terms monthly. On December                    15, 2005, the                    Company entered into a written agreement with MindTree by which                    it agreed                    to pay MindTree $200,000 on or before December 23, 2005 and $100,000                    per                    month on the last business day of each succeeding month until                    the                    outstanding indebtedness of approximately $580,000 was fully                    paid. The                    Company’s performance was secured by the software code MindTree developed                    under the T&M Contract. If the Company defaulted in making any payment                    when due and such default was not cured within five business                    days after                    receipt of a notice of default, MindTree would be entitled to                    co-own the                    software code, with any revenue the Company realized from the                    software                    code during the co-ownership period to be split 50-50 with MindTree.                    If                    full payment is made, full ownership of the software code reverts                    to the                    Company.                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | To                    date, the Company has paid MindTree $275,000 pursuant to this                    agreement.                    MindTree has not yet issued any notice of default. By a series                    of                    additional agreements, the payment deadline has been extended                    to September                    30, 2008. The Company expects to complete or substantially complete                    the                    repayment by the new deadline. MindTree has indicated that if                    repayment of                    the indebtedness is substantially complete it will agree to an                    additional                    extension of the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | ***Litigation***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | On                    October 3, 2005, Richard Sommerfeld, Jr., the Company’s former chief                    financial officer (“Sommerfeld”) filed suit against the Company. Pursuant                    to the settlement agreement, plaintiff entered a consent judgment                    for                    $700,000 on September 26, 2007 and commenced judgment enforcement                    proceedings against the Company. The amount of the judgment plus                    statutory                    interest and costs is carried in the current liabilities section                    of the                    balance sheet. The parties reached a settlement on April 16,                    2008. The                    Company agreed to pay Sommerfeld $350,000 which was allocated                    between                    salary, interest and legal fees. The Company also issued a Subordinated                    Secured Convertible Debenture to Sommerfeld in the amount of                    $465,000 at                    12% interest and convertible at $0.05 per share. The debenture                    matures two                    years from the date of the agreement. In addition, the Company                    issued                    Sommerfeld 2,841,667 warrants to purchase common stock at various                    rates of                    $0.10, $0.20 and $0.30 per share. Sommerfeld agreed to have the                    judgment                    marked “Paid and Satisfied” and joined in a consent motion for the return                    of the Company’s property seized under judgment enforcement proceedings.                    Sommerfeld also executed an inter-creditor agreement with the                    Company and                    its senior creditors.                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | ***Accounting                  Treatment of Stock Based Compensation***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | A                    special committee of the Company’s Board of Directors is conducting                    an investigation, for which it has retained special counsel,                    into tax and                    accounting issues arising out of the issuance, in 2006, of common                    stock to certain officers of the Company in payment for compensation                    deferred in prior years. The investigation is not complete. As                    a result,                    the Company cannot determine (a) whether it or any of its directors                    or                    officers at the time of such issuance have any liability in connection                    with the issuance and/or characterization for tax and accounting                    purposes of such issuance; or, (b) in the event that there is                    such                    liability, its nature or extent; or (c) whether any such liability                    would                    be considered material to the Company. Based on information currently                    available to the special committee and the Company, however,                    it is                    anticipated that any financial impact (i) will not be material                    to the                    Company’s statement of operations for fiscal year 2006; (ii) will not                    affect the net loss per share ($.07) reported for 2006; and (iii)                    will not materially affect the Company’s financial condition as a whole.                    At the conclusion of the investigation, the Company will both                    report on                    its results and determine whether it is necessary or appropriate                    to                    restate its financial statements for 2006 or any subsequent                    year.  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **13.** | **Fair                      Value Measurements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | On                    January 1, 2008, the Company adopted SFAS No. 157 *“Fair                    Value Measurements”*                    (“SFAS 157”). SFAS 157 defines fair value, provides a consistent framework                    for measuring fair value under Generally Accepted Accounting                    Principles                    and expands fair value financial statement disclosure requirements.                    SFAS                    157’s valuation techniques are based on observable and unobservable                    inputs. Observable inputs reflect readily obtainable data from                    independent                    sources, while unobservable inputs reflect market assumptions.                    SFAS 157                    classifies these inputs into the following                    hierarchy:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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| ·   | Level                      1 Inputs- Quoted prices for identical instruments in active                      markets. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|
| ·   | Level                      2 Inputs- Quoted prices for similar instruments in active markets;                      quoted                      prices for identical or similar instruments in markets that                      are not                      active; and model-derived valuations whose inputs are observable                      or whose                      significant value drivers are observable. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Level                      3 Inputs- Instruments with primarily unobservable value                      drivers. |
|--------------------|------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                         |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The                  following table represents the fair value hierarchy for those financial                  assets and liabilities measured at fair value on a recurring basis                  as of                  June 30, 2008. |
|   |                                                                                                                                                                                                                                         |

| Fair                  Value Measurements on a Recurring Basis as of June 30,                  2008 |   |                     |   |                      |   |                       |   |   |   |
|----------------------------------------------------------------------------------------------------|--------|--------------------------|--------|---------------------------|--------|----------------------------|--------|--------|--------|
|                                                                                               |   |                     |   |                      |   |                       |   |   |   |
|                                                                                               |   | Level                  I |   | Level                  II |   | Level                  III |   | Total  |   |
| Assets                                                                                             |   | $                        | -      |                      | $      | -                          |   | $      | -      |   | $ | - |   |
| Total                  Assets                                                                      |   | $                        | -      |                      | $      | -                          |   | $      | -      |   | $ | - |   |
|                                                                                               |   |                     |   |                      |   |                       |   |   |   |   |   |   |   |
| Liabilities                                                                                        |   | $                        | -      |                      | $      | 5,120,083                  |   | $      | -      |   | $ | 5,120,083 |   |
| Total                  Liabilities                                                                 |   | $                        | -      |                      | $      | 5,120,083                  |   | $      | -      |   | $ | 5,120,083 |   |
|                                                                                               |   |                     |   |                      |   |                       |   |   |   |   |   |   |   |

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **14.** | **Going                  Concern**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | As                  shown in the accompanying condensed consolidated financial statements,                  as                  is typical of companies going through early-stage development of                  intellectual property, and products and services, the Company incurred                  net                  losses for the years ended December 31, 2007 and 2006 and for the                  six                  months ended June 30, 2008. There is no guarantee whether the Company                  will                  be able to generate enough revenue and/or raise capital to support                  current                  operations and expand sales. This raises substantial doubt about                  the                  Company’s ability to continue as a going concern. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | Management                  believes that the Company’s capital requirements will depend on many                  factors including the success of the Company’s sales efforts. The Company                  has been successful in recent months in raising capital to fund                  its                  operating costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | The                  Company has also been enhancing its business processes to account                  for the                  significant development that has occurred in the past year, and                  believes                  that with the proper bridge financing and potential permanent financing                  they anticipate, the viability of the Company remains very positive                  in                  excess of one year.                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | The                  condensed consolidated financial statements do not include any                  adjustments                  relating to the recoverability or classification of recorded assets                  and                  liabilities that might result should the Company be unable to continue                  as                  a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **15.** | **Restatement**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | The                  Company amended its previously issued condensed consolidated financial                  statement for the three months ended June 30, 2007 to recognize                  additional                  compensation and professional fees of $155,000. The effect of these                  changes resulted in an increase of the loss for the three month                  period                  ended June 30, 2007 of $155,000 to a net loss of $1,723,265 and                  an                  increase in the accumulated deficit to $14,363,558.                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

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| **16.** | **Subsequent                  Events** |
|---------|----------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | On                  July 10, 2008, the Company issued 971,131 restricted shares of                  stock to                  Larry Watkins, an accredited investor, to settle a note payable                  totaling                  $23,501 including accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | On                  July 18, 2008, the Company issued 415,921 restricted shares of                  stock to                  Rudolph Cane, Jr., an accredited investor, to settle a note payable                  totaling $10,731 including accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                  July 24, 2008, Satya Akula commenced an action in the United States                  District Court for the Eastern District of Virginia by serving                  a summons                  and complaint on the Company and Sundaresan Raja (“Raja”). The complaint                  alleges that the Company and Raja are in default pursuant to the                  terms of                  September 19, 2006 promissory note in the principal amount of $100,000.                  Plaintiff seeks a judgment for the outstanding principal, accrued                  interest, collection costs and expenses and reasonable attorneys                  fees.                  Defendants answer is due August 13, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On                  July 31, 2008, Bartfam and the Company executed Amendment No. 1                  to                  Security Agreement and Amendment No. 3 to Debenture and Warrant                  Purchase                  Agreement by which Bartman Bros., a California General Partnership,                  was                  added to the participating investors under the January 30, 2008                  Debenture                  and Warrant Purchase Agreement and the third tranche of said Debenture                  and                  Warrant Purchase Agreement was increased by $500,000 to                  $901,158.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In early                  September, 2008, a special committee of the Company’s Board of Directors                  began an investigation, for which it has retained special counsel,                  into                  tax and accounting issues arising out of the issuance, in 2006,                  of common                  stock to certain officers of the Company in payment for compensation                  deferred in prior years. The investigation is not complete. As                  a result,                  the Company cannot determine (a) whether it or any of its directors                  or                  officers at the time of such issuance have any liability in connection                  with the issuance and/or characterization for tax and                  accounting purposes of such issuance; or, (b) in the event that there                  is such liability, its nature or extent; or (c) whether any such                  liability                  would be considered material to the Company. Based on information                  currently available to the special committee and the Company,                  however, it is anticipated that any financial impact (i) will                  not be material to the Company’s statement of operations for fiscal year                  2006; (ii) will not affect the net loss per share ($.07) reported                  for                  2006; and (iii) will not materially affect the Company’s financial                  condition as a whole. At the conclusion of the investigation, the                  Company                  will both report on its results and determine whether it is necessary                  or                  appropriate to restate its financial statements for 2006 or any                  subsequent                  year. |

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**Item      2. Management’s Discussion and Analysis of Financial Condition and      Results**
**of      Operations**

**Forward      Looking Statements**

**Executive      Summary**

|   | **•** | During                the first half of 2008, our software engineers were engaged in                demonstrating to our clients that our ZigBee-compliant ZigBee Pro                software                works on their hardware platforms in advance of signing licensing                or                application development agreements with them. |
|--------|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | We                had a $1,117,460 net loss before provision for income taxes in the                first                six months of 2008 on revenue of $40,000. We recorded a $362,063                gain in                other income (expense) from the re-valuation of derivatives required                under                SFAS 133 and had other income of $1,420,361 from compromised debts.                We                raised $1,881,168 from the sale of convertible debentures to accredited                investors and $80,100 in shareholder notes payable                . |
|--------|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |
|--------|--------|--------|
|   | **•** | Liquidity                    and capital resources issues continue to constrain growth but                    given signs                    of an emerging marketplace for our software and our track record                    of                    raising capital, we believe we will be able to obtain sufficient                    funds to                    continue operations until we can generate increased revenues                    from our                    license agreements. |
|--------|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Risk                    factors include - |
|--------|-------------|-------------------------------------------|

| ·   | Royalties                from the license agreements are dependent on our customers’ ability to                create demand and market acceptance for their                product. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                international operations involve inherent risks that include currency                controls and fluctuations, tariff and import regulations, and regulatory                requirements that may limit our or our customers’ ability to manufacture,                assemble and test, design, develop or sell products in particular                countries. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                ability to continue as a going concern is dependent upon our obtaining                adequate capital to fund losses until we become                profitable. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                developmental stage of the industry in general may create delays                as chip                and radio manufacturers re-engineer their products to accommodate                ZigBee-compliant software. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Overview**

*Organizational      History*

*Our      Business*

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**      - **

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**Results      of Operations**

***Six      Months Ended June 30, 2008 Compared to the Six Months Ended June 30,      2007***

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***Three      Months Ended June 30, 2008 Compared to the Three Months Ended June 30,      2007***

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**Liquidity      and Capital Resources**

----

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**Critical      Accounting Estimates**

***General***

*“Summary        of Significant Accounting Policies” *

***Revenue      Recognition***

----

*Accounting      for Contingencies*

**Factors      That May Affect Future Results**

*Our      business faces significant risks. The risks described below may not be the      only      risks we face. Additional risks that we do not yet know of or that we currently      think are immaterial may also impair our business operations. If any of the      events or circumstances described in the following risks actually occurs, our      business, financial condition or results of operations could suffer, and the      trading price of our common stock could decline.*

**Because      a significant portion of our revenue will be derived from software licenses,      we      are dependent upon the ability of our customers to develop and penetrate new      markets successfully.**

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**Numerous      factors may cause our total revenues and operating results to fluctuate      significantly from period to period. These fluctuations increase the difficulty      of financial planning and forecasting and may result in decreases in our      available cash and declines in the market price of our      stock.**

| ·   | Acceptance                by our customers of our Airbee embedded software platforms and/or                the slow                acceptance by the market of the ZigBee global standard for short-range                wireless voice and data                communications; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                number and timing of orders we receive, including disproportionately                higher receipt and shipment of orders in the last month of a                quarter; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Changes                in the length of our products sales cycles, which increases as our                customers’ purchase decisions become more strategic and are made at higher                management levels; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                success of our customers’ products from which we derive our production                license revenue; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                mix of our revenues between sales of products and lower-margin sales                of                services; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                ability to control our operating expenses and fully realize the impact                of                the restructuring plans we have                implemented; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                ability to continue to develop, introduce and ship competitive new                products and product enhancements                quickly; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Possible                deferrals of orders by customers in anticipation of new product                introductions; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   | Announcements,                product introductions and price reductions by                competitors; |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | The                impact of, and our ability to react to, natural disasters and/or                terrorist                actions; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Changes                in business cycles that affect the markets in which we sell our products                and services; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | Economic,                political and other conditions in the United States and                internationally; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | Foreign                currency exchange rates; and |
|--------------------|-----------------------------------------------------|

| ·   | The                impact of any stock-based compensation charges arising from the issuance                of stock options, stock appreciation rights or any other stock-based                awards. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**The      Company’s excessive liabilities may make it difficult to continue operations if      it is unable to pay its debts as they become due. It may also have a negative      impact on our ability to raise needed capital since potential investors will      want new investment reserved for working capital and not applied to pre-existing      liabilities.**

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**Off-Balance      Sheet Arrangements**

**Tax      and Accounting Treatment of Stock Based Compensation**

**Contractual      Obligations**

**Item      3. Quantitative and Qualitative Disclosures About Market      Risk**

**Item      4. Controls and Procedures**

**Evaluation      of Disclosure Controls and Procedures**

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**Changes      in Internal Controls**

**Item      4T. Controls and Procedures**

**Management’s      Report on Internal Control over Financial Reporting**

*Internal      Control - Integrated Framework*

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**PART      II OTHER INFORMATION**

**Item      1. Legal Proceedings.**

**Item      2. Unregistered Sales of Equity Securities and Use of      Proceeds.**

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----

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**Item      3. Defaults upon Senior Securities.**

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

*de      minimus*

| PROPOSAL                  1 - ELECTION OF BOARD OF DIRECTORS |   |    |   |   |   |       |   |
|--------------------------------------------------------------|--------|---------|--------|--------|--------|------------|--------|
|                                                         |   |    |   |   |   |       |   |
|                                                         |   | Nominee |   | For    |   | Withheld   |   |
| Sundaresan                  Raja                             |   |    |   |   |   | 90,694,480 |   |   | 5,845,784 |   |
| E.                  Eugene Sharer                            |   |    |   |   |   | 90,704,105 |   |   | 5,836,159 |   |
| Mal                  Gurian                                  |   |    |   |   |   | 90,966,246 |   |   | 5,574,018 |   |

|                                                                                               |   |   |       |    |   |      |   |
|----------------------------------------------------------------------------------------------------|--------|--------|------------|---------|--------|-----------|--------|
| PROPOSAL                  2 - RATIFY BAGELL, JOSEPHS, LEVINE & CO. LLC AS INDEPENDENT AUDITORS |   |   |       |    |   |      |   |
|                                                                                               |   |   |       |    |   |      |   |
|                                                                                               |   | For    |       | Against |   | Abstain   |   |
|                                                                                               |   |   | 90,979,427 |    |   | 393,749   |   |   | 5,167,087 |   |
|                                                                                               |   |   |       |    |   |      |   |   |   |   |
| PROPOSAL                  3 - APPROVE SECOND AMENDED & RESTATED CERTIFICATE OF INCORPORATION   |   |   |       |    |   |      |   |   |   |   |
|                                                                                               |   |   |       |    |   |      |   |   |   |   |
|                                                                                                    |   |   | For        |    |   | Against   |   |   | Abstain |   |
|                                                                                               |   |   | 91,968,013 |    |   | 4,568,351 |   |   | 3,900 |   |

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**Item      5. Other Information.**

**Item      6. Exhibits.**

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**SIGNATURES**

|   |                                                    |
|--------|---------------------------------------------------------|
| By:    | /s/                  Sundaresan Raja     |
|   | Sundaresan                  Raja                        |
|   | Chief                  Executive Officer                |
|   | (Principal                  Executive Officer)          |
|   |                                                    |
|   |                                                    |
| By:    | /s/                  E. Eugene Sharer    |
|   | E.                  Eugene Sharer                       |
|   | Interim                  Principal Financial Officer    |

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