**FORM
      10-QSB**




**U.S.
      SECURITIES AND EXCHANGE COMMISSION**




Washington,
      D.C. 20549




x
      Quarterly Report
      Pursuant to Section 13 or 15(d) of the


Securities
      Exchange Act of 1934




For
      the
      quarterly period ended March 31, 2007




OR




o
      Transition Report
      Pursuant to Section 13 or 15(d)


of
      the
      Securities Exchange Act of 1934




For
      the
      transition period from _______________ to _______________




*Commission
      file number 0-21384*




**Allied
      Security Innovations, Inc.**


**Formerly
      Digital Descriptor Systems, Inc.**


(Exact
      name of registrant as specified in its charter)




Delaware
            23-2770048(State or other jurisdiction of incorporation or
                organization)
            (I.R.S. employer identification
                number)




2150
                Highway 35, Sea Girt, New Jersey
            08750(Address of principal executive offices)
            (Zip Code)




Registrant's
      Telephone number, including area code: (732) 359-0260




Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o




State
      the
      number of shares outstanding of each of the Registrant's classes of common
      stock, as of the latest practicable date.




Class
                of Common Stock
            Outstanding
                at April 27, 2007$.001 par value
            41,374,290Shares




**Transitional
      Small Business Disclosure Format Yes o No x**











**Allied
                  Security Innovations, Inc. and Subsidiary****Formerly
                  Digital Descriptor Systems, Inc.****Condensed
                  Consolidated Financial Statements****For
                  the Three Months Ended March 31, 2007 and 2006****(Unaudited)**
  Condensed
                  Consolidated Unaudited Financial Statements:
              
              1Condensed
                  Consolidated Balance Sheet at March 31, 2007
              
              2Condensed
                  Consolidated Statements of Operations for theThree
                  Months Ended March 31, 2007 and March 31, 2006
              
              3Condensed
                  Consolidated Statements of Cash Flows for theThree
                  Months Ended March 31, 2007 and March 31, 2006
              
              4Notes
                  to Condensed Consolidated Financial Statements
              
              5








**ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONDENSED
                  CONSOLIDATED BALANCE SHEET****AT
                  MARCH 31, 2007****(UNAUDITED)**




**March
                  31****2007****ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              276,258Accounts
                  receivable, less allowances of $125,555
              
              
              473,937Inventory
              
              
              612,385Prepaid
                  expenses
              
              
              4,226Total
                  Current Assets
              
              
              1,366,806Property
                  and equipment, net
              
              
              312,595Other
                  AssetsDeposits
              
              
              1,730Officer's
                  Loan
              
              
              20,000Goodwill
              
              
              4,054,998Intangible
                  assets, net
              
              
              164,513Total
                  Other Assets
              
              
              4,241,241**TOTAL
                  ASSETS**
              
              $
              5,920,642**LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)****LIABILITIES**Current
                  Liabilities:Accounts
                  payable
              
              $
              123,369Accrued
                  expenses
              
              
              330,518Accrued
                  payroll
              
              
              25,539Accrued
                  interest
              
              
              1,513,943Deferred
                  income
              
              
              110,351Liability
                  for stock to be issued
              
              
              20,554Note
                  payable
              
              
              3,500,000Derivative
                  liabilities
              
              
              7,695,991Total
                  Current Liabilities
              
              
              13,320,265Long
                  Term LiabilitiesConvertible
                  debentures, net of debt discount
              
              
              5,446,769Total
                  Long Term Liabilities
              
              
              5,446,769**Total Liabilities**
              
              
              18,767,034**STOCKHOLDERS'
                  (DEFICIT)**Preferred
                  stock, $.001 par value: authorized shares – 1,000,000;issued
                  and outstanding shares – noneCommon
                  stock, par value $.001; authorized 9,999,000,000 shares at March
                  31,200727,655,375
                  issued and outstanding at March 31, 2007
              
              
              27,655Additional
                  paid in capital
              
              
              18,814,582Accumulated
                  deficit
              
              
              (31,688,629
              )**Total
                  Stockholders' (Deficit)**
              
              
              (12,846,392
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' (DEFICIT)**
              
              $
              5,920,642The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.




1


**ALLIED
        SECURITY INNOVATIONS, INC AND SUBSIDIARY**
 **FORMERLY
        DIGITAL DESCRIPTOR SYSTEMS INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**


**THREE
                  MONTHS ENDED****MARCH
                  31,****2007**
              
              **2006****INCOME**Net
                  Sales
              
              $
              991,857
              
              $
              870,964Cost
                  of Revenue
              
              
              279,761
              
              
              293,342**Gross
                  Profit**
              
              
              **712,096**
              
              
              **577,622****OPERATING
                  EXPENSES**General
                  and administrative
              
              
              528,460
              
              
              618,892Sales
                  and marketing
              
              
              95,026
              
              
              44,806Research
              
              
              27,661
              
              
              26,524**Total
                  Operating Expenses**
              
              
              **651,147**
              
              
              **690,222****INCOME
                  (LOSS) BEFORE OTHER INCOME (EXPENSE)**
              
              
              **60,949**
              
              
              **(112,600**
              **)****OTHER
                  INCOME (EXPENSE)**Interest
              
              
              (268,699
              )
              
              (732,194
              )Amortization
                  of deferred financing cost
              
              
              0
              
              
              (37,225
              )Amortization
                  of debt discount
              
              
              (33,960
              )
              
              (323,029
              )Change
                  in fair market value of derivative liability
              
              
              69,247
              
              
              (661,020
              )Other
                  income and expenses
              
              
              (21,479
              )
              
              (31,804
              )**Total
                  Other Income (Expense)**
              
              
              **(254,891**
              **)**
              
              **(1,785,272**
              **)****(Loss)
                  before provision for income taxes**
              
              
              **(193,942**
              **)**
              
              **(1,897,872**
              **)****`****Provision
                  for income taxes**
              
              
              **0**
              
              
              **0****NET
                  (LOSS) APPLICABLE TO COMMON SHARES**
              
              
              **($193,942**
              **)**
              
              **($1,897,872**
              **)****NET
                  (LOSS) PER BASIC AND DILUTED SHARES**
              
              $
              (0.01
              )
              $
              (0.24
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON****SHARES
                  OUTSTANDING**
              
              
              21,047,807
              
              
              7,902,169The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.


2


**ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(UNAUDITED)**





**THREE
                  MONTHS ENDED****MARCH
                  31,****2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  (loss)
              
              
              ($193,942
              )
              $
              (1,897,872
              )Adjustments
                  to reconcile net (loss) to net cash(used
                  in) operating activities:Depreciation
                  and amortization
              
              
              21,479
              
              
              11,770Amortization
                  of deferred financing cost
              
              
              0
              
              
              37,225Amortization
                  of debt discount
              
              
              33,960
              
              
              323,029Amortization
                  of benefical interest
              
              
              90,310
              
              
              732,194Change
                  in fair market value of derivatives
              
              
              (69,247
              )
              
              661,020Bad
                  debt expense
              
              
              7,500
              
              
              7,500**Changes
                  in operating assets and liabilities:**Accounts
                  receivable
              
              
              77,716
              
              
              (75,465
              )Inventory
              
              
              (74,020
              )
              
              (11,908
              )Prepaid
                  expense, deposits and other assets
              
              
              (24,226
              )
              
              (2,435
              )Accounts
                  payable
              
              
              7,809
              
              
              60,216Accured
                  expenses
              
              
              (32,689
              )
              
              (64,594
              )Accured
                  interest
              
              
              78,259
              
              
              7,723Deferred
                  Income
              
              
              (24,044
              )
              
              16,495Total
                  adjustments
              
              
              92,807
              
              
              1,702,770**Net
                  cash (used in) operating activities**
              
              
              (101,135
              )
              
              (195,102
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of Property and Equipment
              
              
              (12,326
              )
              
              -**Net
                  cash (used in) investing activities**
              
              
              (12,326
              )
              
              -





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




3


**ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (CONTINUED)****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(UNAUDITED)**




**THREE
                  MONTHS ENDED****MARCH

                  31,****2007**
              
              **2006****CASH
                  FLOWS FROM FINANCING ACTIVITES**Payment
                  of convertible debentures
              
              
              (3,000
              )
              
              -**Net
                  cash (used in) financing activities**
              
              
              (3,000
              )
              
              -**NET
                  (DECREASE) IN****CASH
                  AND CASH EQUIVALENTS**
              
              
              (116,461
              )
              
              (195,102
              )**CASH
                  AND CASH EQUIVALENTS -****BEGINNING
                  OF PERIOD**
              
              
              392,719
              
              
              295,811**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              276,258
              
              $
              100,709The
                  accompanying notes are an integral part of the condensed consolidated
                  financial statements.




4




Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006




**Note
      1 - Organization and Basis of Presentation**





The
      unaudited interim financial information included has been prepared by Allied
      Security Innovations, Inc (the “Company”) without audit, pursuant to the rules
      and regulations of the Security and Exchange Commission (the “SEC”). Certain
      information and footnote disclosures normally included in the financial
      statements prepared in accordance with accounting principles generally accepted
      in the United States of America have been condensed or omitted as allowed by
      such rules and regulations, and 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, 2006 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.





The
      management of the Company believes that the accompanying unaudited condensed
      consolidated financial statements contain all adjustments necessary to present
      fairly the operations for the periods presented.





**Note
      2 - Description of Business and Recent Developments**





On
      December 19, 2006 a special meeting of the shareholders was held and at the
      meeting the shareholders passed a resolution to change the name of the company
      from Digital Descriptor Systems, Inc. to Applied Security Innovations, Inc.
      The
      shareholders also passed a resolution to authorize a 1 for 500 reverse stock
      split. Both of these actions were completed on February 5, 2007. In addition
      the
      2006 Incentive Stock Option Plan adopted by The Board of Directors on October
      12, 2006 was approved by the shareholders.





Allied
      Security Innovations, Inc., incorporated in Delaware in 1994, develops,
      assembles and markets computer installations consisting of hardware and
      software, which capture video and scanned images, link the digitized images
      to
      test and store the images and text on a computer database and transmit this
      information to remote locations. The principal product of the Company is the
      Compu-Capture Law Enforcement Program, which is marketed to law enforcement
      agencies and jail facilities and generates the majority of the Company's
      revenues. Substantially all of the Company's revenues are derived from
      governmental agencies in the United States.





CGM
      is a
      manufacturer and distributor of indicative and barrier security seals, security
      tapes and related packaging security systems, protective security products
      for
      palletized cargo, physical security systems for tractors, trailers and
      containers as well as a number of highly specialized authentication
      products.




**Note
      3 - Summary of Significant Accounting Policies**





Significant
      accounting policies followed by the Company in the preparation of the
      accompanying condensed consolidated financial statements are summarized
      below:





Use
      of
      Estimates




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





Revenue
      Recognition




The
      Company derives revenue from the sale of hardware, software, post customer
      support, and other related services. Post customer support includes telephone
      support, bug fixes, and rights to upgrades. Other related services include
      basic
      training. The CGM subsidiary derives it revenue from the sale of its tape,
      labels and other security devices.





The
      Company recognizes revenue upon delivery of the product to the end-user, when
      the fee is determinable and collectibility is probable. Revenue allocable to
      post customer support is recognized on a straight-line basis over the period
      which the service is to be provided. Revenue collected for future services
      is
      recorded as deferred income and totaled $110,351 and $188,968, respectively,
      for
      the three months ended March 31, 2007 and 2006. Revenue allocable to other
      services is recognized as the services are provided. The CGM subsidiary
      recognizes it revenue upon shipment of the product to the customer.





Software
      Development Costs




All
      costs
      incurred in the research and development of new software products and costs
      incurred prior to the establishment of a technologically feasible product are
      expensed as incurred. Research and development of software costs were $
      27,661  and
      $26,524 , respectively, for the three months ended March 31, 2007 and 2006.





Cash
      and
      Cash Equivalents




For
      the
      purpose of the statement of cash flows, cash and cash equivalents include time
      deposits, certificates of deposits, restricted cash, and all highly liquid
      debt
      instruments with original maturities or three months or less.





Accounts
      Receivable




Accounts
      receivable are uncollateralized customer obligations due under normal trade
      terms requiring payment within 30 days from the invoice date. No interest is
      charged on any past due accounts. Accounts receivable are stated at the amount
      billed to the customer. Accounts receivable, net of allowance was $ 473,937
      for
      the three months ended March 31, 2007.





The
      carrying amount of accounts receivable is reduced by a valuation allowance
      that
      reflects management's best estimate of the amount that will not be collected.
      Management reviews all accounts receivable balances that exceed 90 days from
      invoice date and based on assessment of current creditworthiness, estimates
      the
      portion, if any, of the balance that will not be collected. The allowance for
      doubtful accounts was $125,555 for the three months ended March 31, 2007.




5





Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006





Income
      Taxes




The
      Company provides for income taxes under the liability method. Deferred income
      taxes reflect the net tax effects of temporary differences between carrying
      amounts of assets and liabilities for financial reporting purposes and the
      amounts used for income tax purposes. Such differences result from differences
      in the timing of recognition by the Company of net operating loss carry
      forwards, certain expenses, and differences in the depreciable lives and
      depreciation methods for certain assets.





Accounting
      for Stock Options




Financial
      Accounting Standards Board issued Statement No. 123 (SFAS 123), "Accounting
      for
      Stock-Based Compensation" which provides companies with a choice to follow
      the
      provisions of SFAS 123 in determination of stock-based compensation expense
      or
      to continue with the provisions of Accounting Principles Board Opinion No.
      25
      (APB 25). The Company has elected to follow the provisions of APB 25. Under
      APB
      25, if the exercise price of the Company stock options equals or exceeds the
      market price of the underlying Common Stock on the date of grant, no
      compensation expense is recognized. The effect of applying SFAS 123 to the
      Company's stock-based awards results in net loss and net loss per common share
      that are disclosed on a pro forma basis in Note 8.




Net
      Loss
      Per Common Share




Basic
      loss per share is calculated by dividing the net loss by the weighted average
      common shares outstanding for the period. Diluted loss per share is calculated
      by dividing the net loss by the weighted average common shares outstanding
      of
      the period plus the dilutive effect of common stock equivalents. Common stock
      equivalents were not included in the computation of diluted earnings per share
      when the Company reported a loss because to do so would be antidilutive for
      the
      periods presented.





Concentration
      of Credit Risk




Financial
      instruments which potentially subject the company to a concentration of credit
      risk principally consist of cash and accounts receivable. Concentration of
      credit risk, with respect to accounts receivable, is limited due to the
      Company's credit evaluation process. The Company does not require collateral
      from its customers. The Company sells its principal products to end users and
      distributors principally in the United States.





Fair
      Value of Financial Instruments




The
      carrying value of cash and cash equivalents, accounts receivable, accounts
      payable, accrued expenses and convertible debentures approximates their fair
      value based on the liquidity of these financial instruments and based on their
      short-term nature.




**Note
      4 - Impact of Recent Accounting Pronouncements**





In
      December of 2004 the FASB issued a revision to Statement No. 123, Accounting
      for
      Stock-Based Compensation. This Statement supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees, and its related implementation
      guidance. This Statement establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. It also addresses transactions in which an entity incurs liabilities
      in exchange for goods or services that are based on the fair value of the
      entity's equity instruments or that may be settled by the issuance of those
      equity instruments. This Statement focuses primarily on accounting for
      transactions in which an entity obtains employee services in share-based payment
      transactions. This Statement does not change the accounting guidance for
      share-based payment transactions with parties other than employees as provided
      in Statement 123 as originally issued and 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." This Statement does not address
      the accounting for employee share ownership plans, which are subject to AICPA
      Statement of Position 93-6, Employers Accounting for Employee Stock Ownership
      Plans. The revisions of this statement did not have a material impact upon
      the
      Company's consolidated financial statements.




The
      Company reviews the carrying value of intangibles and other long-lived assets
      for impairment at least annually or whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
 Recoverability of long-lived assets is measured by comparison of its
      carrying amount to the undiscounted cash flows that the asset or asset group
      is
      expected to generate.  If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the carrying
      amount of the property, if any, exceeds its fair market value.  Goodwill
      represents the excess of the cost of the Company’s acquired subsidiaries or
      assets over the fair value of their net assets at the date of acquisition.
       Under Statement of Financial Accounting Standards (“SFAS”) No. 142,
      goodwill is no longer subject to amortization over its estimated useful life;
      rather, goodwill is subject to at least an annual assessment for impairment
      applying a fair-value based test.





6





Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006




**Note
      5 - Convertible Debentures**





**Based
      on the guidance in SFAS133 and EITF00-19, the Company concluded that the
      conversion features of its’ convertible debentures were required to be accounted
      for as derivatives. The imbedded derivative feature was bi-furcated and the
      fair
      market value was determined using a convertible bond valuation model. The
      derivative instruments are recorded at fair market value with changes in value
      recognized during the period of change.**





During
      May 2001, the Company issued three convertible notes for an aggregate amount
      of
      $20,000. The debentures are collateralized by substantially all of the company's
      assets. The debentures accrue interest at the rate of 10% per
      annum.





The
      holders have the right to convert the principal amount plus accrued interest
      into shares of the Company's common stock. The conversion price in effect on
      any
      Conversion Date shall be an amount equal to 50% of the mean average price of
      the
      common stock for the ten trading days prior to notice of
      conversion.





We
      recorded a derivative liability related to this convertible debenture. The
      initial fair market value of the conversion option in the amount of $4,992
      was
      recorded as a debt discount and is being amortized over the stated maturities
      of
      the notes using the effective interest method. The fair market value of the
      conversion feature is also shown as a derivative liability on the company’s
      balance sheet and is being adjusted to fair market value each reporting period
      with the change being reported as “other income and expenses” in the statement
      of operations.





During
      September 2001, the Company issued two convertible debentures for an aggregate
      amount of $400,000. The debentures are collateralized by substantially all
      of
      the company's assets. These debentures are in default as they were due on
      September 30, 2002. The debentures accrue interest at the rate of 12% per annum.
      A late fee equal to 15% of the accrued and unpaid interest is also assessed
      during the default period. Interest on the debentures was not paid quarterly
      and
      accordingly accrued interest and late fees payable related to the notes totaling
      $187,600 is included in the accompanying condensed consolidated financial
      statements.





The
      holders have the right to convert the principal amount plus accrued interest
      into shares of the Company's common stock at anytime after issuance. The
      conversion price in effect on any Conversion Date shall be the lesser of $.08
      per share or 50% of the average of the lowest three inter-day sales prices
      during the ten trading days immediately preceding the applicable Conversion
      Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      800,000 shares of common stock (1,600 shares after stock split in February
      2007)
      of the Company at an exercise price per share equal to the lesser of $.36 or
      the
      average of the lowest three closing sales prices for the common stock during
      the
      twenty Trading Days immediately prior to exercise. The estimated fair value
      of
      the warrants of $48,000 was allocated to paid-in capital. This resulting debt
      discount plus $90,000 of financing charges were amortized on a straight-line
      basis over the term of the debentures, and were fully amortized at December
      31,
      2002.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 59,407 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





7





Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006




During
      2004, $10,500 of the debenture was converted into 35,000,000 shares of common
      stock (70,000 shares after stock split in February 2007) and during 2003; $3,164
      of the debenture was converted into 15,818,010 shares of common
      stock.





In
      December, 2001 the Company issued three convertible debentures for an aggregate
      amount of $500,000. The debentures are collateralized by substantially all
      of
      the company's assets. The debentures are in default as they were due December
      31, 2002. Interest accrues at the rate of 12% per annum through maturity, and
      increased to 15% per annum during the default period. Quarterly interest
      payments were not made, and accordingly accrued interest payable related to
      the
      notes totaling $210,000 is included in the accompanying condensed consolidated
      financial statements.





The
      holders have the right to convert the principal amount plus accrued interest
      into shares of the Company's common stock at any time. The conversion price
      in
      effect on any Conversion Date shall be the lesser of $.043 per share or 50%
      of
      the average of the lowest three inter-day sales prices during the twenty Trading
      Days immediately preceding the applicable Conversion Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      1,500,000 shares of common stock (3,000 shares after stock split in February
      2007) of the Company at an exercise price per share equal to the lesser of
      $.02
      or the average of the lowest three inter-day sales prices during the twenty
      Trading Days immediately prior to exercise. The estimated fair value of the
      warrants of $90,000 was allocated to paid-in capital. This resulting debt
      discount plus $77,500 of financing charges were amortized on a straight-line
      basis over the term of the debentures, and were fully amortized at December
      31,
      2002.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 388,800 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





In
      June
      2002, a 12% convertible promissory note for $75,000 was issued to two investors.
      The debentures are collateralized by substantially all of the company's assets.
      The debentures are in default as they were due in August 2003. The debentures
      accrue interest at the rate of 12% per annum. A late fee equal to 15% of the
      accrued and unpaid interest is also assessed during the default period.
      Quarterly interest on the debentures was not paid and accordingly accrued
      interest and late fees payable related to the notes totaling $29,071 is included
      in the accompanying condensed consolidated financial statements.





The
      holders have the right to convert the principal amount plus unpaid accrued
      interest into shares of the Company's common stock at any time through
      repayment. The conversion price is equal to fifty percent of the average of
      the
      lowest three (i) inter-day trading prices, or (ii) if the common stock is traded
      on the OTC Bulletin Board or Pink Sheets, the prices asked by any person or
      entity acting as a market maker in the common stock during the twenty trading
      days immediately preceding the relevant date upon which a conversion is
      effected.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 59,430 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





In
      September 2002, the Company issued secured convertible debentures in the
      aggregate principal amount of $100,000. The debentures are collateralized by
      substantially all of the company's assets. The debentures are in default as
      they
      were due on September 30, 2003. The debentures accrue interest at the rate
      of
      12% per annum. A late fee equal to 15% of the accrued and unpaid interest is
      also assessed during the default period. Quarterly interest on the debentures
      was not paid, and accordingly accrued interest and late fees payable related
      to
      the notes totaling $30,000 are included in the accompanying condensed
      consolidated financial statements.





8





Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of common stock. The conversion price in effect
      on
      any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
      of the lowest three inter-day sales prices of the common stock during the twenty
      Trading Days immediately preceding the applicable conversion date.





The
      Company also issued common stock purchase warrants for the right to purchase
      300,000 shares of common stock (600 shares after stock split in February 2007)
      of the Company at an exercise price per share equal to $.01. The estimated
      fair
      value of the warrants was zero. Debt issuance costs of $27,500 were also
      amortized on a straight-line basis over the term of the debentures and were
      fully amortized at December 31, 2003.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 79,190 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.




In
      January, 2003 the Company issued three convertible debentures for an aggregate
      amount of $250,000, with simple interest accruing at the annual rate of 10%.
      The
      debentures are collateralized by substantially all of the company's assets.
      These debentures are in default as they were due January 10, 2004. Quarterly
      interest was not paid and accordingly, accrued interest of $61,415 is included
      in the condensed consolidated financial statements.





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of common stock. The conversion price in effect
      on
      any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
      of the lowest three inter-day sales prices of the common stock during the twenty
      Trading Days immediately preceding the applicable Conversion Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      750,000 shares of common stock of the Company (1,500 shares after stock split
      in
      February 2007) at an exercise price per share equal to $0.01. The estimated
      fair
      value of the warrants was zero. Financing costs incurred of $56,750 were fully
      amortized at December 31, 2003.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 92,225 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.




In
      February, 2003, the Company issued three convertible debentures for an aggregate
      amount of $125,000, with simple interest accruing at the annual rate of 10%.
      The
      debentures are collateralized by substantially all of the company's assets.
      The
      debentures are in default as they were due February 27, 2004. Quarterly interest
      due was not paid and accordingly accrued interest of $28,125 is included in
      the
      condensed consolidated financial statements.





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of common stock. The conversion price in effect
      on
      any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
      of the lowest three inter-day sales prices of the common stock during the twenty
      Trading Days immediately preceding the applicable Conversion Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      375,000 shares of common stock (750 shares after stock split in February 2007)
      of the Company at an exercise price per share equal to $0.01. The estimated
      fair
      value of the warrants was zero. Debt issuance costs of $10,843 were also
      amortized on a straight-line basis over the term of the debentures. Amortization
      expense during 2004 was $24,307 and the costs were fully amortized as of
      December 31, 2004.





9





Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 47,850 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.




In
      April,
      2003, The Company issued three convertible debentures for an aggregate amount
      of
      $125,000, with simple interest accruing at the annual rate of 10%. The
      debentures are collateralized by substantially all of the company's assets.
      The
      debentures are in default as they were due March 31, 2004. Quarterly interest
      was not paid and accordingly accrued interest of $15,834 is included in the
      condensed consolidated financial statements.





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of common stock. The conversion price in effect
      on
      any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
      of the lowest three inter-day sales prices of the common stock during the twenty
      Trading Days immediately preceding the applicable Conversion Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      375,000 shares of common stock (750 shares after stock split in February 2007)
      of the Company at an exercise price per share equal to $0.01. The estimated
      fair
      value of the warrants was zero. Debt issuance costs of $20,844 were also
      amortized on a straight-line basis over the term of the debentures. Amortization
      expense during 2004 was $38,591 and the costs were fully amortized as of
      December 31, 2004.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 68,250 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





In
      October, 2003, the Company issued two convertible debentures for an aggregate
      amount of $165,000, with simple interest accruing at the annual rate of 12%.
      The
      debentures are collateralized by substantially all of the company's assets.
      The
      debentures are in default as they were due October 1, 2004. Quarterly interest
      was not paid and accordingly accrued interest of $25,988 is included in the
      condensed consolidated financial statements.





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of the Company's common stock. The conversion price
      in effect on any Conversion Date shall be the lesser of (1) $.005 or (2) 40%
      of
      the average of the lowest three inter-day sales prices of the common stock
      during the twenty Trading Days immediately preceding the applicable Conversion
      Date.





The
      debenture holders also received warrants to purchase 1,505,000 shares (3,010
      shares after stock split in February 2007) at an exercise price of $0.01 per
      share. The estimated fair value of the warrants was zero. Amortization expense
      during 2004 was $147,469 and the costs were fully amortized as of December31,
      2004.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 326,733 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.




10


Allied
        Security Innovations, Inc. and Subsidiary
 Formerly
        Digital Descriptor Systems, Inc
 Notes
        to
        the Condensed Consolidated Financial Statements (Unaudited)
 For
        the
        Three Months Ended March 31, 2007 and 2006




In
      November, 2003, the Company issued two convertible debentures for an aggregate
      amount of $45,000, with simple interest accruing at the annual rate of 10%.
      The
      debentures are in default as they were due November 27, 2004. Quarterly interest
      was not paid and accordingly accrued interest of $9,453 is included in the
      condensed consolidated financial statements.





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of the Company's common stock. The conversion price
      in effect on any Conversion Date shall be the lesser of (1) $.005 or (2) 40%
      of
      the average of the lowest three inter-day sales prices of the common stock
      during the twenty Trading Days immediately preceding the applicable Conversion
      Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      315,000 shares of common stock of the Company(630 shares after stock split
      in
      February 2007) at an exercise price per share equal to $0.01. The estimated
      fair
      value of the warrants was zero. Amortization expense during 2004 was $47,469
      and
      the costs were fully amortized as of December 31, 2004.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 72,572 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.




In
      December, 2003, the Company issued three convertible debentures for an aggregate
      amount of $45,000, with simple interest accruing at the annual rate of 12%.
      The
      debentures are collateralized by substantially all of the company's assets.
      These debentures are in default as they were due by December 3, 2004. Quarterly
      interest was not paid and accordingly accrued interest of $5,694 is included
      in
      the condensed consolidated financial statements.




The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of the Company's common stock. The conversion price
      in effect on any Conversion Date shall be the lesser of (1) $.005 or (2) 40%
      of
      the average of the lowest three inter-day sales prices of the common stock
      during the twenty Trading Days immediately preceding the applicable Conversion
      Date.





The
      Company also issued common stock purchase warrants for the right to purchase
      750,000 shares of common stock of the Company (1,500 shares after stock split
      in
      February 2007) at an exercise price per share equal to $0.01. The estimated
      fair
      value of the warrants was zero. Amortization expense during 2004 was $42,349
      and
      the costs were fully amortized as of December 31, 2004.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 72,527 was recorded as a debt discount and is being amortized over the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.




In
      November, 2004, the Company issued four convertible debentures for an aggregate
      amount of $3,500,000, with simple interest accruing at the annual rate of 12%.
      The debentures are collateralized by substantially all of the company's assets.
      These debentures are due in November, 2005. Quarterly interest was not paid
      and
      accordingly accrued interest of $36,151 is included in the condensed
      consolidated financial statements.





The
      holders have the right to convert the principal amount and interest due under
      the debentures into shares of the Company's common stock. The conversion price
      in effect on any conversion date shall be the lesser of (1) $.0005 or (2) 67%
      of
      the average of the lowest three inter-day sales prices of the common stock
      during the twenty trading days immediately preceding the applicable conversion
      date. In addition the debenture holders also received warrants to purchase
      10,500,000 shares at an exercise price of $0.005 per share anytime before
      November 30, 2009. The estimated fair value of the warrants was $5,250, which
      was also recorded as a debt discount. The total debt discount is being amortized
      on a straight line basis which approximates the effective interest method;
      over
      the life of the note $71,828 of this amount was charged to interest expense
      during 2004.





11




Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006





Additional
      costs of $391,569 with the issuance of the convertible debentures were recorded
      as deferred financing cost and are being amortized on a straight-line basis
      which approximates the effective interest method, over the term of the
      debentures. Unamortized costs as of December 31, 2004 amounted to $376,509.
      In
      March 2005, $513,431 was repaid on convertible debentures from the proceeds
      of
      this debenture.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $ 2,519,300 was recorded as a debt discount and is being amortized over
      the
      stated maturities of the notes using the effective interest method. The fair
      market value of the conversion feature is also shown as a derivative liability
      on the company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





In
      October of 2005 the Company converted $643,340 of accrued interest into four
      convertible debentures; with simple interest accruing at the annual rate of
      2%.
      The debentures are collateralized by substantially all of the company's assets.
      These debentures are due in October, 2008. Quarterly interest is accrued
      interest and is included in the condensed consolidated financial
      statements.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $97,402 was recorded as debt discount and is being amortized over the stated
      maturities of the notes using the effective interest method. The fair market
      value of the conversion feature is also shown as a derivative liability on
      the
      company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





In
      December of 2006 the Company converted $536,546 of accrued interest into four
      convertible debentures; with simple interest accruing at the annual rate of
      2%.
      The debentures are collateralized by substantially all of the company's assets.
      These debentures are due December 2009. Quarterly interest is accrued interest
      and is included in the condensed consolidated financial statements.





In
      addition, we recorded a derivative liability related to this convertible
      debenture. The initial fair market value of the conversion option in the amount
      of $310,124 was recorded as debt discount and is being amortized over the stated
      maturities of the notes using the effective interest method. The fair market
      value of the conversion feature is also shown as a derivative liability on
      the
      company’s balance sheet and is being adjusted to fair market value each
      reporting period with the change being reported as “other income and expenses”
in the statement of operations.





**Note
      6 - Deferred Financing Costs**





Deferred
      financing costs represent cost incurred in connection with the issuance of
      the
      convertible debentures. Deferred financing costs are being amortized over the
      life of the convertible debentures on the straight-line basis, which
      approximates the effective interest method. The net financing costs were $0
      and
      $227,213 for the Three Months ended March 31, 2007 and 2006,
      respectively.




**Note
      7 - Commitments and Contingencies**





Operating
      Lease




The
      Company rents office facilities under a rental agreement that is automatically
      renewable every four months. The most recent renewal period will expire on
      June
      30, 2007.





CGM
      leases two facilities, one in Somerset NJ and the other in Staten Island, New
      York under non-cancelable lease agreements that end in December 2007 and
      December 2008, respectively.





**Employment
      Agreements**





Anthony
      R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin was
      re-appointed as Chairman, President and Chief Executive Officer effective
      February, 2005. On February 25, 2005, ASII entered into a five-year employment
      agreement with Mr. Shupin, which entitled him to a base salary of $215,000
      per
      year, which may at the Board of Directors discretion adjust his base salary
      (but
      not below $215,000 per year). Mr. Shupin is also entitled to participate in
      the
      Annual Management Bonus Plan. As a participant in the Annual Management Bonus
      Plan, Mr. Shupin will be eligible to receive bonuses, based on performance,
      in
      any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall
      participate in the Management Equity Incentive Plan. As a participant in the
      Management Equity Plan, Mr. Shupin will be eligible to receive options, which
      vest over a period of time from the date of the option's issue, to purchase
      common shares of ASII. The Company may grant Mr. Shupin, following the first
      anniversary of the date hereof and at the sole discretion of the Board of
      Directors, options to purchase common shares of the Company (subject to the
      vesting and the satisfaction of the other terms and conditions of such options).
      Mr. Shupin will be entitled to 25 vacations days per year at such times as
      may
      be mutually agreed with the Board of Directors. ASII will provide Mr. Shupin
      a
      monthly car allowance of Six Hundred Dollars ($600.00) along with related car
      expenses.





12




Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006




Michael
      J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr. Pellegrino
      was appointed as Senior Vice President and Chief Financial Officer effective
      February 25, 2005. On February 25, 2005, ASII entered into a five-year
      employment agreement with Mr. Pellegrino, which entitled him to a base salary
      of
      $175,000 per year which may at the Board of Directors discretion adjust his
      base
      salary (but not below $175,000 per year). Mr. Pellegrino is also entitled to
      participate in the Annual Management Bonus Plan. As a participant in the Annual
      Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses,
      based
      on performance, in any amount from 10% to 200% of the Base Salary. In addition,
      Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As
      a
      participant in the Management Equity Incentive Plan, Mr. Pellegrino will be
      eligible to receive options, which vest over a period of time from the date
      of
      the option's issue, to purchase common shares of ASII. ASII may also grant
      to
      the Employee, following the first anniversary of the date of the Agreement
      and
      at the sole discretion of the Board of Directors, options to purchase common
      shares of the Company (subject to the vesting and the satisfaction of the other
      terms and conditions of such options). Mr. Pellegrino will be entitled to 25
      vacation days per year at such times as may be mutually agreed with the Board
      of
      Directors. ASII shall also furnish Mr. Pellegrino with monthly car allowance
      of
      Six Hundred Dollars ($600.00) and related car expenses.





ASII
      has
      an employment agreement with Erik Hoffer, pursuant to which Mr. Hoffer will
      be
      employed as Executive Vice President of the Company for an initial term of
      three
      years, which may be extended, and President of CGM Sub for an initial term
      of
      one year, which may be renewed for successive one-year terms. Pursuant to the
      Employment Agreement, Mr. Hoffer will receive a base salary of $200,000, a
      bonus
      of 5% of the gross margin sales increase over the prior year's gross margin
      sales of CGM products and customary benefits and
      reimbursements.





**Note
      8 - Stock Option and Other Plans**





Effective
      November 13, 2006, Digital Descriptor Systems, Inc. (the "Company") granted
      to
      each of Anthony Shupin, its President and Chief Executive Officer and Michael
      Pellegrino, its Chief Financial Officer, 10,000 shares of newly created Series
      A
      Preferred Stock ("A Preferred") as recognition for services.




The
      shares vest in five equal monthly installments commencing November 1, 2007.
      Each
      share of A Preferred is convertible into 480 shares of common stock of the
      Company starting three years from the date of issuance, provided that the
      closing bid price of the Company's common stock is then $2.00 per share. The
      shares of A Preferred may be voted with the Company's common stock on an as
      converted basis on any matters that the common stock is entitled to vote on
      as a
      class.




Unconverted
      shares of A Preferred will automatically cease to exist, and all rights
      associated therewith will be terminated upon the earlier of (i) that person's
      termination of employment with the Company for any reason, or (ii) five years
      from the date of issuance.




On
      November 13, 2006, the Company filed with the Secretary of State of Delaware
      a
      Certificate of Designation of Preferences, Rights and Limitations of Series
      A
      Preferred Stock.





The
      Company maintains the 1994 Restated Stock Option Plan (the 1994 Plan) pursuant
      to which the Company reserved 5,000,000 shares of common stock. The options
      granted have a term of ten years and are issued at or above the fair market
      value of the underlying shares on the grant date. The Company also maintains
      the
      1996 Director Option Plan (the Director Plan) pursuant to which the Company
      reserved 200,000 shares of common stock. Options granted under the Director
      Plan
      are issued at or above the fair market value of the underlying shares on the
      grant date. A portion of the first option vests at the six-month anniversary
      of
      the date of the grant and continues over a four-year period. Subsequent options
      vest on the first anniversary of the grant date. The options expire ten years
      from the date of the grant or 90 days after termination of employment, whichever
      comes first.





The
      following is a summary of option activity under all plans:





1994
                Plan
            
            1996
                Director Plan
            
            Nonqualified
            
            Total
                Number of Options
            
            Weighted
                Average Exercise PriceOutstanding
                at March 31, 2006
            
            
            33,000
            
            
            —
            
            
            —
            
            
            33,000
            
            $
            .10
                - $.365Outstanding
                at March 31, 2007
            
            
            33,000
            
            
            
            
            
            
            
            
            33,000
            
            $
            .10-.365




Net
      loss
      and net loss per common share determined as if the Company accounted for stock
      options granted under the fair value method of SFAS 123 would result in the
      same
      amounts reported.





13





Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


For
      the
      Three Months Ended March 31, 2007 and 2006




**Note
      9 - Contingency**





There
      were two holders of convertible notes dated December 31, 2001 who could
      potentially seek similar damages from the Company. Should they seek these
      damages, the Company could incur additional expense of $71,668. Management
      feels
      however, that the likelihood that the other holders will seek the damages is
      remote, and therefore, no provision for this expense has been made in the
      accompanying condensed consolidated financial statements.





On
      October 16, 2003, a judgment was entered against the Company by its landlord,
      BT
      Lincoln L.P. for breach of lease in the amount of $184,706.76.





**Note
      10 - Purchase of CGM Applied Security Technology, Inc.**





On
      March
      1, 2005, the Company acquired substantially all of the assets of CGM Security
      Solutions, Inc., a Florida corporation ("CGM"), for (i) $1,500,000 in cash
      and
      (ii) a 2.86% promissory note (the "Note") in the principal amount of $3,500,000,
      subject to adjustment (the "Acquisition"). The assets of CGM were acquired
      pursuant to an Asset Purchase Agreement among the Company and CGM dated as
      of
      February 25, 2005. In connection with the acquisition, the Company and CGM
      each
      entered into an employment agreement with Erik Hoffer (the "Employment
      Agreement"). CGM is a manufacturer and distributor of barrier security seals,
      security tapes and related packaging security systems, protective security
      products for palletized cargo, physical security systems for tractors, trailers
      and containers.





The
      principal amount of the Note is subject to adjustment based upon the average
      of
      (i) the gross revenues of CGM for the fiscal year ending December 31, 2007
      and
      (ii) an independent valuation of CGM Sub based upon the consolidated audited
      consolidated financial statements of the Company and CGM Sub for the fiscal
      years ending December 31, 2006 and 2007. In addition, the Company has granted
      CGM a secondary security interest in substantially all of its assets and
      intellectual property.





In
        connection with the Acquisition, the Company entered into a letter agreement
        with certain of its investors (the "Investors") which extended the maturity
        date
        of debt instruments issued on November 30, 2004 until March 1, 2008, and
        amended
        the conversion price of the debt that is held by the Investors to the lower
        of
        (i) $0.0005 or (ii) 40% of the average of the three lowest intraday trading
        prices for the Company's common stock during the 20 trading days before,
        but not
        including, the conversion date. In addition, the exercise price of the warrants
        held by the Investors was amended to $.001 per share.
  **Note
        11 - Going Concern**
  The
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America, which contemplates continuation of the Company as a going concern.
        The
        Company has sustained operating losses and has accumulated large deficits
        for
        the Three Months ended March 31, 2007 and 2006. These factors raise substantial
        doubt about its ability to continue as a going concern.
  Management
        has formulated and is in the process of implementing its business plan intended
        to develop steady revenues and income, as well as reducing expenses in the
        areas
        of operations. This plan includes the following management
        objectives:
  · Soliciting
        new customers in the U.S.
  · Expanding
        sales in the international market
  · Expanding
        sales through E-commerce
  · Adding
        new distributor both in the U.S and
        internationally
  · The
        introduction of new products into the market
  ·  Seeking
        out possible merger candidates
  Presently,
        the Company cannot ascertain the eventual success of management’s plan with any
        degree of certainty. The accompanying consolidated financial statements do
        not
        include any adjustments that might result from the eventual outcome of the
        risks
        and uncertainties described above.
  14




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





**Forward-Looking
      Statements**




The
      information in this report contains forward-looking statements. All statements
      other than statements of historical fact made in report are forward looking.
      In
      particular, the statements herein regarding industry prospects and future
      results of operations or financial position are forward-looking statements.
      These forward-looking statements can be identified by the use of words such
      as
“believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,”
“projects,” “expects,” “may,” “will,” or “should” or other variations or similar
      words. No assurances can be given that the future results anticipated by the
      forward-looking statements will be achieved. Forward-looking statements reflect
      management’s current expectations and are inherently uncertain. Our actual
      results may differ significantly from management’s expectations.




The
      following discussion and analysis should be read in conjunction with our
      financial statements, included herewith. This discussion should not be construed
      to imply that the results discussed herein will necessarily continue into the
      future, or that any conclusion reached herein will necessarily be indicative
      of
      actual operating results in the future. Such discussion represents only the
      best
      present assessment of our management.




**RESULTS
      OF OPERATIONS**




**THREE
      MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31,
      2006**




Revenues
      for the three months ended March 31, 2007 were $991,857 compared to $870,964
      for
      the three months ended March 31, 2006 , an increase of $120,893 or 13%. ASII
      generates its revenues through software licenses, hardware, post customer
      support arrangements and other services. CGM generates its revenue through
      the
      manufacture and distribution of indicative and barrier security seals, security
      tapes and related packaging security systems, protective security products
      for
      palletized cargo, physical security systems for tractors, trailers and
      containers as well as a number of highly specialized authentication products.




Cost
      of
      revenue for the three months ended March 31, 2007 was $279,761 compared to
      $293,342 for the three months ended March 31, 2006 a (decrease) of ($13,581)
      or
      (4.5%). The decrease was attributable to more efficient purchasing procedures
      of
      raw material and more efficient production procedures put into place. Cost
      of
      revenue sold as a percentage of revenue for the three months ended March 31,
      2007 was 28% of total revenues.




Operating
      expenses for the three months ended March 31, 2007 were $651,147 compared to
      $690,222 for the three months ended March 31, 2006, a decrease of $39,075 or
      5.5%. This decrease was mainly attributable to management’s controls over
      spending.




General
      and Administrative expenses for the three months ended March 31, 2007 were
      $528,460 compared to $618,892 for the three months ended March 31, 2006 for
      an
      (decrease) of ($90,432) or (14.6%). This decrease was mainly attributable
      management’s controls over spending and new accounting policies to reclass some
      expenses into sales and marketing.




Sales
      and
      Marketing expenses for the three months ended March 31, 2007 were $95,026
      compared $44,806 for the three months ended March 31, 2006 for an increase
      of
      $50,220 or 112%. This increase was mainly attributable to the company increasing
      its advertising budget due to the purchase of CGM Applied Security Technologies,
      Inc, increase in presence at trade events which in turn increased travel
      expenses, and instituting a commission program for sales personal and the
      reclassification of some expense from general and administrative.




Research
      and development expenses for the three months ended March 31, 2007 were $27,661
      compared to $26,524 for the three months ended March 31, 2006 for an increase
      of
      $1,137 or 4%. This increase was due in part to upgrades necessary to keep
      current.




ASII
      had
      a net (loss) for the three months ended March 31, 2007 of $(193,942) and a
      net
      loss for the three months ended March 31, 2006 of $(1,897,872). This is a
      decrease in net (loss) of $(1,703,930) or (90%). This was primarily due to
      the
      change in accounting procedures in which convertible debentures are treated
      as
      derivative according to the guidance of SFAS133 and EITF00-19.





Net
      cash
      (used in) operating activities for the three months ended March 31, 2007 and
      the
      three months ended March 31, 2006 was $(101,135) and ($195,102), respectively.
      The decrease in cash (used in) operating activities for the three months ended
      March 31, 2007 was $93,967. This decrease was due in part to less expenditures
      for infrastructure necessary after the purchase of CGM Applied Security
      Technology, Inc. in March 2005.




Net
      cash
      (used in) investing activities was ($12,326) and ($-0) for the three months
      ended March 31, 2007 and the three months ended March 31, 2006 respectively.
      This increase was due in part to updating computers and computer software
      operating systems.





Net
      cash
      (used in) financing activities was $(3,000) and $($-0) for the three months
      ended March 31, 2007 and the three months ended March 31, 2006, respectively.
      This increase was due to repayment of convertible debentures.




15




**LIQUIDITY
      AND CAPITAL RESOURCES**




ASII's
      revenues have been insufficient to cover the cost of revenues and operating
      expenses. Therefore, ASII has been dependent on private placements of its common
      stock and issuance of convertible notes in order to sustain operations. In
      addition, there can be no assurances that the proceeds from private or other
      capital will continue to be available, or that revenues will increase to meet
      ASII's cash needs, or that a sufficient amount of ASII's common stock or other
      securities can or will be sold or that any common stock purchase
      options/warrants will be exercised to fund the operating needs of
      ASII.




Over
      the
      next twelve months, management is of the opinion that sufficient working capital
      will be obtained from operations and external financing to meet ASII's
      liabilities and commitments as they become payable. ASII has in the past relied
      on private placements of common stock securities, and loans from private
      investors to sustain operations. However, if ASII is unable to obtain additional
      funding in the future, it may be forced to curtail or terminate operations. At
      March
      31, 2007, ASII had assets of $5,920,642 compared to $5,906,744 on March 31,
      2006
      an increase of $13,898 and shareholder (deficit) of $(31,688,629) on March
      31,
      2007 compared to shareholder (deficit) of $(27,402,830) on March 31, 2006,
      an
      increase of ($4,285,799). This increase in shareholder (deficit) for the three
      months ended March 31, 2007 resulted from the net loss for the Three months
      ended March 31, 2007.




**Plan
      of Operations**




**Acquisition
      of CGM**




On
      March
      1, 2005, ASII and CGM Sub acquired substantially all of the assets of CGM,
      for
      (i) $1,500,000 in cash and (ii) a 2.86% promissory note (the "Note") in the
      principal amount of $3,500,000, subject to adjustment (the "Acquisition").
      The
      assets of CGM were acquired pursuant to an Asset Purchase Agreement among ASII,
      CGM Sub and CGM dated as of February 25, 2005.





16





The
      principal amount of the Note is subject to adjustment based upon the average
      of
      (i) the gross revenues of CGM Sub for the fiscal year ending December 31, 2007
      and (ii) an independent valuation of CGM Sub based upon the consolidated audited
      condensed consolidated financial statements of the Company and CGM Sub for
      the
      fiscal years ending December 31, 2006 and 2007. In addition, the Company has
      granted CGM a secondary security interest in substantially all of its assets
      and
      intellectual property.




In
      connection with the Acquisition, the Company entered into a letter agreement
      with certain of its investors (the "Investors") which extended the maturity
      date
      of debt instruments issued on November 30, 2004 until March 1, 2008, and amended
      the conversion price of the debt that is held by the Investors to the lower
      of




(i)
      $0.0005 or (ii) 60% of the average of the three lowest intraday trading prices
      for the Company's common stock during the 20 trading days before, but not
      including, the conversion date. In addition, the exercise price of the warrants
      held by the Investors was amended to $.001 per share.




The
      short-term objective of ASII is the following:




The
      Company plans to spend the majority of it's time and efforts on increasing
      the
      revenue and marketplace of its wholly owned subsidiary, CGM Applied Security
      Technologies, as it feels that there is a much greater potential for growth
      of
      the product line of CGM. In order to accomplish this, the Company has hired
      additional sales people and is increasing its marketing budget in order to
      expand the awareness of CGM's product line. In addition, the Company has begun
      a
      complete revamping of the company's infrastructure in order to make it better
      able to respond to the need of its customers and to give management the
      reporting it needs on a timely basis.




Additionally,
      ASII plans to execute an acquisition strategy based upon the availability of
      financing.




We
      also
      plan to add additional product lines as a Value Added Reseller. Technologies
      related to ASII's core business can bring additional cash flow with relatively
      small internal development capital outlay.




ASII's
      long-term objective is as follows:




To
      enhance its sales of the product line acquired with the acquisition of CGM
      both
      domestically and internationally, though the addition of sales representative
      and distributors




To
      seek
      additional products to sell into its basic business market - Criminal Justice
      -
      so that ASII can generate sales adequate enough to allow for
      profits.




ASII
      believes that it will not reach profitability in the foreseeable future due
      to
      its debt service. Over the next twelve months, management is of the opinion
      that
      sufficient working capital will be obtained from operations and external
      financing to meet ASII's liabilities and commitments as they become payable.
      ASII has in the past successfully relied on private placements of common stock
      securities, bank debt, loans from private investors and the exercise of common
      stock warrants in order to sustain operations. If ASII is unable to obtain
      additional funding in the future, it may be forced to curtail or terminate
      operations.




ASII
      is
      doing the following in its effort to reach profitability:




·
            The
                Company is putting a great deal of effort to increase the sales of
                the CGM
                subsidiary. The Company believes at this time that the most significant
                growth in revenue will come from CGM and its product
                lines.·
            Cutting
                costs in areas that add the least value to ASII.·
            Deriving
                funds through investigating business alliances with other companies
                who
                may wish to license the FMS SDK (software developer's
                kit).·
            Increasing
                revenues through the introduction of Compu-Capture(R), specifically
                towards kindergarten through twelfth grades, for the creation of
                ID
                cards.




17




·
            Increasing
                revenues through the introduction of a scaled down version of our
                Compu-Capture(R) product.·
            Increasing
                revenues through the addition of innovative technologies as a Value
                Added
                Seller.·
            Acquiring
                and effectively adding management support to profitable companies
                complementary to its broadened target
                markets.




**Liquidity
      and Capital Resources**




We
      had
      net losses of ($193,942) and ($1,897,872) during the three months ended March
      31, 2007 and 2006, respectively. As of March 31, 2007, we had a cash balance
      in
      the amount of $276,258 and current liabilities of $13,320,265. The total amount
      of notes payable and debentures is $8,946,769. We may not have sufficient cash
      or other assets to meet our current liabilities. In order to meet these
      obligations, we may need to raise cash from the sale of securities or from
      borrowings.




The
      Company's revenues have been insufficient to cover the cost of revenues and
      operating expenses. Therefore, the Company has been dependent on private
      placements of its Common Stock and issuance of convertible notes in order to
      sustain operations. In addition, there can be no assurances that the proceeds
      from private placements or other capital will continue to be available, or
      that
      revenues will increase to meet the Company's cash needs, or that a sufficient
      amount of the Company's Common Stock or other securities can or will be sold
      or
      that any Common Stock purchase options/warrants will be exercised to fund the
      operating needs of the Company.




The
      Company has contractual obligations of $10,940,138 as of March 31, 2007. These
      contractual obligations, along with the dates on which such payments are due
      are
      described below:





Contractual
                Obligations
            
            Total
            
            One
                Year or Less
            
            More
                Than One YearDue
                to Related Parties
            
            $
            0
            
            $
            0
            
            $
            0Accounts
                Payable and Accrued Expenses
            
            
            479,426
            
            
            479,426
            
            
            0Accrued
                interest on loans
            
            
            1,513,943
            
            
            1,513,943
            
            
            0Note
                payable
            
            
            3,500,000
            
            
            3,500,0000Convertible
                Debentures
            
            
            5,446,769
            
            
            0
            
            
            5,446,769Total
                Contractual Obligations
            
            $
            10,940,138
            
            $
            5,493,369
            
            $
            5,446,769




The
      Company is currently in default on several of the convertible debentures that
      are included in current liabilities. Below is a discussion of our sources and
      (uses) of funds For the Three Months ended March 31, 2007 and 2006 (Restated),
      respectively.




**Off
      Balance Sheet Arrangements**




We
      do not
      have any off balance sheet arrangements as of March 31, 2007 or as of the date
      of this report.





**Item
      3. Control and Procedures**




(a)
      Evaluation of Disclosure Controls and Procedures




As
      of
      March 31, 2007, we carried out an evaluation, under the supervision and with
      the
      participation of our Chief Executive Officer and Chief Financial Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures. Based on this evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective in ensuring that information required to be disclosed by us in our
      periodic reports is recorded, processed, summarized and reported, within the
      time periods specified for each report and that such information is accumulated
      and communicated to our management, including our principal executive and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required
      disclosure.




(
      b)
      Changes in Internal Controls.




There
      was
      no change in our internal controls over financial reporting that has materially
      affected, or is reasonable likely to materially affect, our internal
      control  over financial reporting during the quarter covered by this
      Report.




18





**PART
      II. OTHER INFORMATION**





**Item
      1. Legal Proceedings**




None.





**Item
      2. Changes in Securities and Use of Proceeds**




None.





**Item
      3. Defaults Upon Senior Securities:**




The
      Company is in default of $5,787,867 of outstanding debentures. Although the
      debenture holders have not pursued their rights under such debentures, there
      can
      be no assurances that such rights will not be exercised.





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




None.





**Item
      5. Other Information**




None.





**Item
      6. Exhibits**





31.1
            
            Certification
                by Chief Executive Officer pursuant to Sarbanes-Oxley Section
                30231.2
            
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section
                30232.1
            
            Certification
                by Chief Executive Officer pursuant to 18 U.S.C., Section
                135032.2
            
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section
                1350





19




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**ALLIED
                SECURITY INNOVATIONS, INC.**
              (Registrant)Date:
                May 14, 2007
            By:
            /s/
              ANTHONY SHUPINAnthony
                Shupin(President,
                Chief Executive Officer)
              (Chairman)




Date:
                May 14, 2007
            By:
            /s/
              MICHAEL J. PELLEGRINOMichael
                  J. PellegrinoSenior
                  Vice President & CFO
                  (Principal
                    Financial and Accounting
                    Officer)





20