**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




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




For
      the
      quarterly period ended September 30, 2008




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
                organization)**
            
            **(I.R.S.
                employer**
              **Identification
                no.)**




**1709
      Route 34**


**Farmingdale,
      New Jersey 07727**


**Telephone
      Number (732) 751-1115**




Indicate
      by checkmark 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




Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer 
         Accelerated filer 
            Non-accelerated
      filer X




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




Yes o No x




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





**Class**
            
            **Outstanding at October
                23,**
              **2008**Common
                stock, $.001 par value per share
            
            2,970,592,594shares





**Allied
        Security Innovations, Inc. and Subsidiary**
 **Formerly
        Digital Descriptor Systems, Inc.**
 **Condensed
        Consolidated Financial Statements**
 **September
        30, 2008**
 
 Condensed
                  Consolidated Financial Statements:Condensed
                  Consolidated Balance Sheets at September 30, 2008 (Unaudited) and
                  December
                  31, 2007 (Audited)
              3Condensed
                  Consolidated Statements of Operations for theNine
                  and Three Months Ended September 30, 2008 and 2007
                  (Unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows for theNine
                  Months Ended September 30, 2008 and 2007 (Unaudited)
              5Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              7
  2
  **ALLIED
        SECURITY INNOVATIONS, INC. AND SUBSIDIARY**
 **FORMERLY
        DIGITAL DESCRIPTOR SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 
 (Unaudited)
              
              (Audited)September 30,
              
              December 31,2008
              
              2007**ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              264,825
              
              $
              386,628Accounts
                  receivable, net of allowance
              
              
              759,610
              
              
              406,655Inventory
              
              
              643,270
              
              
              665,435Prepaid
                  expenses
              
              
              12,873
              
              
              8,241Total
                  Current Assets
              
              
              1,680,578
              
              
              1,466,959Property
                  and equipment, net
              
              
              265,005
              
              
              306,237Other
                  Assets:Deposits
              
              
              14,626
              
              
              14,626Goodwill
              
              
              4,054,998
              
              
              4,054,998Intangible
                  assets, net
              
              
              141,761
              
              
              153,137Total
                  Other Assets
              
              
              4,211,385
              
              
              4,222,761**TOTAL
                  ASSETS**
              
              $
              6,156,968
              
              $
              5,995,957**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****LIABILITIES**Current
                  Liabilities:Accounts
                  payable
              
              $
              401,004
              
              $
              133,113Accrued
                  expenses
              
              
              323,535
              
              
              297,934Accrued
                  payroll
              
              
              72,778
              
              
              93,856Accrued
                  interest
              
              
              499,859
              
              
              1,447,753Deferred
                  income
              
              
              6,384
              
              
              60,577Note
                  payable
              
              
              4,000,000
              
              
              3,500,000Convertible
                  debentures, net of debt discount
              
              
              -
              
              
              5,122,832Derivative
                  liabilities
              
              
              17,306,137
              
              
              22,898,360Total
                  Current Liabilities
              
              
              22,609,697
              
              
              33,554,425Long
                  Term Liabilities:Convertible
                  debentures, net of debt discount
              
              
              14,067,155
              
              
              655,281Total
                  Long Term Liabilities
              
              
              14,067,155
              
              
              655,281**Total
                  Liabilities**
              
              
              36,676,852
              
              
              34,209,706**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, $.001 par value: authorized shares - 1,000,000;issued
                  and outstanding shares - noneCommon
                  stock, par value $.001; 9,999,000,000 shares authorized:
              
              
              -
              
              
              -2,970,592,594
                  and 681,599,825 issued and outstanding at September 30, 2008 and
                  December
                  31, 2007, respectively
              
              
              2,970,593
              
              
              681,600Additional
                  paid in capital
              
              
              16,916,041
              
              
              18,864,882Accumulated
                  deficit
              
              
              (50,406,517
              )
              
              (47,760,231
              )**Total
                  Stockholders' Deficit**
              
              
              (30,519,884
              )
              
              (28,213,749
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              6,156,968
              
              $
              5,995,957
  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 OPERATIONS**
 **FOR
        THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
        2007**
 **(UNAUDITED)**
 
 Three Months
              
              Three Months
              
              Nine Months
              
              Nine MonthsEnded
              
              Ended
              
              Ended
              
              Ended9/30/2008
              
              9/30/2007
              
              9/30/2008
              
              9/30/2007**INCOME**Net
                  Sales
              
              $
              1,528,479
              
              $
              1,367,040
              
              $
              3,657,487
              
              $
              3,396,372Cost
                  of Revenue
              
              
              521,410
              
              
              320,905
              
              
              1,193,267
              
              
              931,278**Gross
                  Profit**
              
              
              1,007,069
              
              
              1,046,135
              
              
              2,464,220
              
              
              2,465,094**OPERATING
                  EXPENSES**General
                  and administrative
              
              
              534,508
              
              
              685,836
              
              
              1,700,083
              
              
              1,769,079Sales
                  and marketing
              
              
              156,130
              
              
              76,979
              
              
              447,537
              
              
              335,571Research
                  and development
              
              
              23,910
              
              
              24,534
              
              
              68,812
              
              
              77,314**Total
                  Operating Expenses**
              
              
              714,548
              
              
              787,349
              
              
              2,216,432
              
              
              2,181,964**INCOME
                  BEFORE OTHER INCOME (EXPENSE)**
              
              
              292,521
              
              
              258,786
              
              
              247,788
              
              
              283,130**OTHER
                  INCOME (EXPENSE)**Loss
                  on extinguishment of debt
              
              
              -
              
              
              -
              
              
              (7,237,883
              )
              
              -Interest
                  expense
              
              
              (457,386
              )
              
              (172,043
              )
              
              (923,261
              )
              
              (527,067
              )Beneficial
                  interest from debt conversion
              
              
              (79,651
              )
              
              (58,856
              )
              
              (170,673
              )
              
              (245,636
              )Amortization
                  of debt discount and loan cost
              
              
              -
              
              
              (33,960
              )
              
              (91,346
              )
              
              (101,880
              )Change
                  in fair value of derivative liability
              
              
              389,969
              
              
              (3,804,872
              )
              
              5,592,222
              
              
              (4,972,893
              )Depreciation
                  and Amortization
              
              
              (17,286
              )
              
              (24,622
              )
              
              (63,134
              )
              
              (77,518
              )**Total
                  Other Income (Expense)**
              
              
              (164,354
              )
              
              (4,094,353
              )
              
              (2,894,075
              )
              
              (5,924,994
              )**Income
                  (Loss) before provision for income taxes**
              
              
              128,167
              
              
              (3,835,567
              )
              
              (2,646,287
              )
              
              (5,641,864
              )**`****Provision
                  for income taxes**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  INCOME (LOSS) APPLICABLE TO COMMON SHARES**
              
              $
              128,167
              
              $
              (3,835,567
              )
              $
              (2,646,287
              )
              $
              (5,641,864
              )**NET
                  INCOME (LOSS) PER BASIC AND DILUTED SHARES**
              
              $
              0.00
              
              $
              0.03
              
              $
              0.00
              
              $
              0.09**WEIGHTED
                    AVERAGE NUMBER OF COMMON****SHARES
                    OUTSTANDING - BASIC AND DILUTED**
              
              
              9,999,900,000
              
              
              120,304,482
              
              
              1,525,344,211
              
              
              64,536,974
  4
 
 **ALLIED
        SECURITY INNOVATIONS, INC AND SUBSIDIARY**
 **FORMERLY
        DIGITAL DESCRIPTOR SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**
 **(UNAUDITED)**
 
 2008
              
              2007**Cash
                  Flows from Operating Activities:**Net
                  (Loss)
              
              $
              (2,646,287
              )
              $
              (5,641,864
              )**Adjustments
                  to reconcile net (loss) to net cash****used
                  in operating activities:**Depreciation
                  and amortization
              
              
              63,134
              
              
              77,518Amortization
                  of debt discount
              
              
              91,346
              
              
              101,880Beneficial
                  interest
              
              
              170,673
              
              
              245,636Loss
                  on debt extinguishment
              
              
              7,237,883
              
              
              -Change
                  in fair value of derivative liability
              
              
              (5,592,222
              )
              
              4,972,893Bad
                  debt expense
              
              
              52,500
              
              
              (30,531
              )**Changes
                  in operating assets and liabilities:**Accounts
                  receivable
              
              
              (405,456
              )
              
              (15,076
              )Inventory
              
              
              22,165
              
              
              (6,189
              )Prepaid
                  expenses, deposits and other assets
              
              
              (4,632
              )
              
              (41,654
              )Accounts
                  payable
              
              
              267,891
              
              
              35,204Accrued
                  expenses
              
              
              4,523
              
              
              (10,743
              )Accrued
                  interest
              
              
              671,398
              
              
              407,551Deferred
                  income
              
              
              (54,193
              )
              
              (52,329
              )Total
                  Adjustments
              
              
              2,525,010
              
              
              5,684,160**Net
                  Cash Provided by (Used In) Operating Activities**
              
              
              (121,277
              )
              
              5,726,456**Cash
                  Flows from Investing Activities:**Purchase
                  of equipment
              
              
              (10,526
              )
              
              (54,078
              )**Net
                  Cash Used in Investing Activities**
              
              
              (10,526
              )
              
              (54,078
              )**Cash
                  Flows from Financing Activities:**Proceeds
                  from convertible debentures
              
              
              510,000
              
              
              -Payment
                  on note payable
              
              
              (500,000
              )
              
              (2,000
              )**Net
                  Cash provided by (used in) Financing Activities**
              
              
              10,000
              
              
              (2,000
              )**Net
                  Decrease in Cash**
              
              
              (121,803
              )
              
              5,670,378**Cash
                  at Beginning of Period**
              
              
              386,628
              
              
              392,719**Cash
                  at End of Period**
              
              $
              264,825
              
              $
              6,063,097
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  5
 
 **ALLIED
        SECURITY INNOVATIONS, INC AND SUBSIDIARY**
 **FORMERLY
        DIGITAL DESCRIPTOR SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**
 **(UNAUDITED)**
 
 2008
              
              2007**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  Paid For:Interest
                  Expense
              
              $
              -
              
              $
              -Income
                  Taxes
              
              $
              -
              
              $
              -**Supplemental
                  Disclosure of Non-Cash Investing****and
                  Financing Activities:**Common
                  stock issued in conversion ofconvertible
                  debentures
              
              $
              2,288,993
              
              $
              51,172Beneficial
                  interest in conjunction withissuance
                  of convertible debentures
              
              $
              170,673
              
              $
              186,781Common
                  stock issued in conversion ofaccrued
                  interest
              
              $
              4,682
              
              $
              19,735**Supplemental
                  Schedule of May 16, 2008 Debt Refinancing:**Convertible
                  debentures at September 30, 2008
              
              $
              14,165,899Convertible
                  debentures satisfied May 16, 2008
              
              
              (5,832,483
              )Loss
                  on extinguishment
              
              
              (7,237,883
              )Accrued
                  interest capitalized to debt
              
              
              (1,595,533
              )Cash
                  payment of convertible debentures at settlement
              
              $
              (500,000
              )
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  6




Allied
      Security Innovations, Inc. and Subsidiary


Formerly
      Digital Descriptor Systems, Inc.


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


September
      30, 2008 and 2007





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





The
      unaudited condensed interim financial information included has been prepared
      by
      Allied Security Innovations, Inc. (the “Company” or “ASII”) 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, 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.





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
      October 9, 2007 the company’s stock began trading on the NADAQ-over-the-counter
      market. Previously, the Company’s common stock traded on Pink
      Sheets.





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 prison 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-AST subsidiary derives its’ 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 collectability 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 $20,025 for the nine months ended
      September 30 2008. Revenue allocable to other services is recognized as the
      services are provided. The CGM-AST subsidiary recognizes it revenue upon
      shipment of the product to the customer.


7


**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 $68,812
      and $77,314, respectively, for the nine months ended September 30, 2008 and
      2007, respectively.





**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 $759,610
      on
      September 30, 2008 and $406,655 at December 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 that will not be collected. The allowance for doubtful accounts
      is $141,562 on September 30, 2008 and $89,062 at December 31, 2007.





**Fixed
      Assets**


Fixed
      assets are stated at cost. Depreciation is computed primarily using the
      straight-line method over the estimated useful life of the assets.





Machinery
                and equipment
            7
                yearsFurniture
                and fixtures
            7
                yearsComputers
            3
                yearsLeasehold
                improvements
            39
                years





**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.





**Net
      Income (Loss) Per Common Share**


Basic
      Income (loss) per share is calculated by dividing the net income (loss) by
      the
      weighted average common shares outstanding for the period. Diluted income (loss)
      per share is calculated by dividing the net income (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 because to do so would be antidilutive
      in the period with a loss..





**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.





The
      Company maintains cash and cash equivalents in various financial institutions
      that, in the aggregate, exceed the limit insured by the Federal Deposit
      Insurance Corporation (FDIC). The FDIC insures cash deposits up to $250,000
      per
      bank. Any amounts over $250,000 represent an uninsured risk to the
      Company.





**Principles
      of Consolidation and Basis of Presentation**


The
      condensed consolidated financial statements include the accounts of the Company
      and CGM-AST.  All inter-company accounts have been eliminated.


8


**Inventory**


Inventories
      consist principally of inks, adhesives, film and finished goods held in the
      Company’s warehouse. Inventory is stated at the lower of cost or market,
      utilizing the first-in, first-out method. The cost of finished goods includes
      the cost of raw materials, packaging supplies, direct and indirect labor and
      other indirect manufacturing costs. On a quarterly basis, management reviews
      inventory for unsalable or obsolete inventory. Obsolete or unsalable inventory
      write-offs have been immaterial to the financial statements.




**Advertising**


The
      Company’s policy is to expense the costs of advertising as incurred. The Company
      had advertising expenses of $93,285and $26,059 for the nine months ended
      September 30, 2008 and 2007, respectively.


****


**Fair
      Value of Financial Instruments**


The
      carrying amount reported in the condensed consolidated balance sheet for cash
      and cash equivalents, accounts payable and accrued expenses approximates fair
      value because of the immediate or short-term maturity of these financial
      instruments. The carrying amount reported for the convertible debentures
      and notes payable approximates fair value because, in general, the interest
      on
      the underlying instruments fluctuates with market rates.




**Goodwill
      and Other Intangible Assets**


In
      June
      2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 142
“Goodwill and Other Intangible Assets”. This statement addresses financial
      accounting and reporting for acquired goodwill and other intangible assets
      and
      supersedes APB Opinion No. 17, “Intangible Assets”. It addresses how intangible
      assets that are acquired individually or with a group of other assets (but
      not
      those acquired in a business combination) should be accounted for in financial
      statements upon their acquisition. This Statement also addresses how goodwill
      and other intangible assets should be accounted for after they have been
      initially recognized in the financial statements. Goodwill was acquired upon
      the
      purchase of its wholly-owned subsidiary of CGM Security Solutions, Inc. totaling
      $4,054,998 (see footnote 11).




In
      addition, the Company has acquired licenses, which are included as other
      intangible assets. The licenses are being amortized over a period of 15 years
      based on the expected benefits to be consumed or otherwise used up. Goodwill
      and
      other intangible assets are tested annually for impairment in the fourth
      quarter, and are tested for impairment more frequently if events and
      circumstances indicate that the asset might be impaired. An impairment loss
      is
      recognized to the extent that the carrying amount exceeds the asset’s fair
      value. The Company assesses the recoverability of its goodwill and other
      intangible assets by comparing the projected undiscounted net cash flows
      associated with the related asset, over their remaining lives, in comparison
      to
      their respective carrying amounts. Impairment, if any, is based on the excess
      of
      the carrying amount over the fair value of those assets.




**Derivative
      Instruments**


The
      Company has an outstanding convertible debt instrument that contains
      free-standing and embedded derivative features. The Company accounts for these
      derivatives in accordance with SFAS No. 133, *“Accounting
      for Derivative Instruments and Hedging Activities”* ,
      and
      EITF Issue No. 00-19, *“Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock”* .
      In
      accordance with the provisions of SFAS No. 133 and EITF Issue No. 00-19, the
      embedded derivatives are required to be bifurcated from the debt instrument
      and
      recorded as a liability at fair value on the condensed consolidated balance
      sheet. Changes in the fair value of the derivatives are recorded at each
      reporting period and recorded in net gain (loss) on derivative, a separate
      component of the other income (expense). As of September 30, 2008, the fair
      value of derivatives was $17,306,137, a decrease of $5,593,825 from December
      31,
      2007.





**Limitations**


Fair
      value estimates are made at a specific point in time, based on relevant market
      information and information about the financial statement. These estimates are
      subjective in nature and involve uncertainties and matters of significant
      judgment and therefore cannot be determined with precision. Changes in
      assumptions could significantly affect the estimates.





Reclassifications


Certain
      reclassifications have been made to the September 30, 2007 financial statements
      to conform to the September 30, 2008 presentation. These changes had no impact
      on net loss for the nine months period ended September 30, 2007.





**Note
      4 - Recent Accounting Pronouncements**





In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the
      sources of accounting principles and the framework for selecting principles
      used
      in the preparation of financial statements.  SFAS No. 162 is effective
      60 days following the SEC’s approval of the Public Company Accounting Oversight
      Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
      with Generally Accepted Accounting Principles”. The implementation of this
      standard will not have a material impact on Consolidated Financial
      Statements.


9


In
      March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
      Instruments and Hedging Activities: an amendment of FASB Statement No. 133"
      ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for
      derivative instruments and hedging activities. The Company is reviewing the
      provisions of SFAS No. 161, which is effective the first quarter of fiscal
      2009, and currently does not anticipate that this new accounting standard will
      have a significant impact on the Condensed Financial Statements.





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 condensed financial statements. See Note 10 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.




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.





In
      December 2007, the FASB issued SFAS No. 141R, *“Business
      Combinations”* and
      SFAS
      No. 160, *“Non
      controlling Interests in Consolidated Financial Statements - an amendment to
      ARB
      No. 51.”* SFAS
      Nos.
      141R and 160 require most identifiable assets, liabilities, non controlling
      interests, and goodwill acquired in a business combination to be recorded at
      “full fair value” and require non controlling interests (previously referred to
      as minority interests) to be reported as a component of equity, which changes
      the accounting for transactions with non controlling interest holders. Both
      statements are effective for periods beginning on or after December 15,
      2008, and early adoption is prohibited. Accordingly, SFAS No. 141R will be
      applied by the Company to business combinations occurring on or after
      January 1, 2009. SFAS No. 160 will be applied prospectively to all non
      controlling interests, including any that arose before the effective date.
      The
      adoption of SFAS No. 160 is not expected to have any impact on the
      Company’s condensed financial position and results of operations.





**Note
      5 - Intangible Assets**





Intangible
      assets consist of the following at September 30, 2008 and December 31,
      2007.





(Unaudited)
            
            (Unaudited)September 30, 2008
            
            December 31, 2007Licenses
            
            $
            222,076
            
            $
            222,076Accumulated
                amortization
            
            
            80,315
            
            
            68,939Total
            
            $
            141,761
            
            $
            153,137





Licenses
      are being amortized over their estimated useful lives of 15 years. Amortization
      expense for the nine months ended September 30, 2008 and 2007 was $11,376 and
      $11,376, respectively.




The
      following is a listing of the estimated amortization expense for the next five
      years:





Year
      ended December 31,


2008
            
            $
            15,1682009
            
            
            15,1682010
            
            
            15,1682011
            
            
            15,1682012
            
            
            15,168


10


**Note
      6- Property and Equipment**





Fixed
      assets consist of the following at September 30, 2008 and December 31,
      2007:





(Unaudited)
            
            (Unaudited)September 30, 2008
            
            December 31, 2007Furniture
                and Fixtures
            
            $
            72,115
            
            $
            71,367Leasehold
                Improvements
            
            
            159,607
            
            
            159,607Computers
            
            
            209,179
            
            
            209,179Machinery
                and Equipment
            
            
            762,987
            
            
            753,2091,203,888
            
            
            1,193,362Less:
                Accumulated depreciation
            
            
            (938,883
            )
            
            (887,125
            )Net
            
            $
            265,005
            
            $
            306,237





Depreciation
      expense for the years nine
      months ended September 30, 2008 and 2007 was $51,758 and $66,142,
      respectively.





**Note
      7 - 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.**





On
      May
      16, 2008 convertible debentures in the net amount of $5,832,481 were
      satisfied.





During
      May 2008, the Company issued sixteen convertible notes for an aggregate amount
      of $14,165,897. Each note has terms of three years due on May 16, 2011. The
      debentures are collateralized by substantially all of the Company's assets.
      The
      debentures accrue interest at the rate of 6% per annum.





The
      holders have the right to convert the principal amount plus accrued interest
      into shares of the Company's common stock based on the terms set forth in the
      debentures.





We
      recorded a derivative liability related to these convertible debentures.





**Note
      8 - Commitments and Contingencies**





Operating
      Lease


CGM-AST
      has a lease in Staten Island, New York under non-cancelable lease agreement
      that
      ends December 2008.





On
      July
      1, 2007 the offices of Allied Security Innovations, Inc. and the Somerset office
      of CGM-AST were combined into a new office located at 1709 Route 34,
      Farmingdale, NJ in a 6,000 square foot combination warehouse /office space.
      The
      reason for this was cost savings and improved operational efficiencies. The
      new
      lease is a five year lease that ends in May 2012.


11


**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 $227,900
      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 One Thousand Dollars ($1,000) along with related car
      expenses.


12




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
      $185,500 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
      One Thousand Dollars ($1,000) and related car expenses.





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





Effective
      November 13, 2006, Allied Security Innovations, Inc. ("ASII") 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 will vest in five equal monthly installments and will be issued at the
      discretion of Mr. Shupin and Mr. Pellegrino. These share have not been issued
      as
      of September 30, 2008. 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.


13


**Note
      10 - 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 our market assumptions. SFAS 157 classifies
      these inputs into the following hierarchy:




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 September
      30,
      2008.




Fair
      Value Measurements on a Recurring Basis as of September 30, 2008




Assets
            
            Level
                I
            
            Level II
            
            Level III
            
            TotalAssets
            
            $
            -
            
            
            -
            
            $
            -
            
            $
            -Total
                Assets
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Liabilities
            
            
            -
            
            $
            31,373,292
            
            
            -
            
            $
            31,373,292Total
                Liabilities
            
            $
            -
            
            $
            31,373,292
            
            $
            -
            
            $
            31,373,292





**Note
      11 - Acquisitions and Note Payable**





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 Security Solutions,
      Inc. were acquired pursuant to an Asset Purchase Agreement among the Company
      and
      CGM Security Solutions, Inc. dated as of February 25, 2005. In connection with
      the acquisition, the Company and CGM-AST each entered into an employment
      agreement with Erik Hoffer (the "Employment Agreement"). CGM Security Solutions,
      Inc 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 three year Note is subject to adjustment based upon
      the
      average of (i) the gross revenues of CGM-AST for the fiscal year ending December
      31, 2007 and (ii) an independent valuation of CGM-AST Sub based upon the audited
      consolidated financial statements of the Company and CGM-AST Sub for the fiscal
      years ending December 31, 2006 and 2007. In addition, the Company has granted
      CGM-AST a secondary security interest in substantially all of its assets and
      intellectual property. If the Company is unable to fulfill its obligations
      pursuant to the Asset Purchase Agreement and the Note, there is a likelihood
      that CGM Security Solutions, Inc. can declare default and attempt to take back
      the asset. As of March 31, 2008 the Company did not secure sufficient funding
      but was in negotiations with private investors in an attempt to obtain
      same.





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 September 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.





Whereas
      the Company did not have sufficient funds to satisfy this obligation and was
      not
      able to raise the required payment when due the Company came to an agreement
      to
      pay CGM Security Solutions, Inc. and it’s owner Mr. Erik Hoffer Five Hundred
      Thousand Dollars ($500,000) and signed a new note with him raising the purchase
      price by One Million Dollars (1,000,000).The new note for Four Million Dollars
      is a three year note carrying an annual interest rate of 7% of which the
      interest is due quarterly.


14


**Note
      12 - 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 recurring losses and has accumulated a significant deficit
      as of September 30, 2008. 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. Each objective is contingent upon a number of factors
      and
      the Company does not represent that any or all of these objectives will occur.
      The accompanying condensed consolidated financial statements do not include
      any
      adjustments that might result from the eventual outcome of the risks and
      uncertainties described above.


15


**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 SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
      2007**




Revenues
      for the three months ended September 30, 2008 were $1,528,479 compared to
      $1,367,040 for the three months ended September 30, 2007, an increase of
      $161,439. ASII generates its revenues through software licenses, hardware,
      post
      customer support arrangements and other services. CGM-AST 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 September 30, 2008 was $521,410 compared
      to
      $320,905 for the three months ended September 30, 2007 an increase of $200,505
      or 62.4%. Cost of revenue sold as a percentage of revenue for the three months
      ended September 30, 2008 was 34% of total revenues.




Operating
      expenses for the three months ended September 30, 2008 were $714,548 compared
      to
      $787,349 for the three months ended September 30, 2007, a decrease of $72,801
      or
      9.2%. In 2007 the corporate office moved to Farmingdale New Jersey along with
      the Somerset office and warehouse. The decrease in operating expense is due
      to
      the completion of this move.




General
      and Administrative expenses for the three months ended September 30, 2008 were
      $534,508 compared to $685,836 for the three months ended September 30, 2007
      for
      a decrease of $151,328 or 22.1%. This decrease was mainly attributable to the
      completion of the move to Farmingdale which allows better control on
      spending.




Sales
      and
      Marketing expenses for the three months ended September 30, 2008 were $156,130
      compared $76,979 for the three months ended September 30, 2007 for an increase
      of $79,151 or 102.8%. This increase in sale expenses is due to increase in
      commission expense because of increased revenue and in the third quarter of
      2008
      we hired two new salespeople.




Research
      and development expenses for the three months ended September 30, 2008 were
      $23,910 compared to $24,534 for the three months ended September 30, 2007 for
      a
      decrease of $624 or 2.5%.





**NINE
      MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
      2007**




Revenues
      for the nine months ended September 30, 2008 were $3,657,487 compared to
      $3,396,372 for the nine months ended September 30, 2007, an increase of
      $261,115. ASII generates its revenues through software licenses, hardware,
      post
      customer support arrangements and other services. CGM-AST 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 nine months ended September 30, 2008 was $1,193,267 compared
      to
      $931,278 for the nine months ended September 30, 2007 an increase of $261,989
      or
      28.1%. Cost of revenue sold as a percentage of revenue for the nine months
      ended
      September 30, 2008 was 33% of total revenues.


16


Operating
      expenses for the nine months ended September 30, 2008 were $2,216,432 compared
      to $2,181,964 for the nine months ended September 30, 2007, an increase of
      $34,468 or 1.6%. This increase was mainly attributable to an increase in
      investor relation and legal expenses.




General
      and Administrative expenses for the nine months ended September 30, 2008 were
      $1,700,083 compared to $1,769,079 for the nine months ended September 30, 2007
      for a decrease of $68,996 or 3.9%.




Sales
      and
      Marketing expenses for the nine months ended September 30, 2008 were $447,537
      compared $335,571 for the nine months ended September 30, 2007 for an increase
      of $111,966 or 33.4%. This increase in sale expenses is due to increase in
      commission expense because of increased revenue and in the third quarter of
      2008
      we hired two new salespeople.




Research
      and development expenses for the nine months ended September 30, 2008 were
      $68,812 compared to $77,314 for the nine months ended September 30, 2007 for
      a
      decrease of $8,502 or 11.1%. This decrease was due to the termination of the
      part-time support employee.




ASII
      had
      a net loss for the nine months ended September 30, 2008 of $2,646,287 and a
      net
      loss for the nine months ended September 30, 2007 of $5,641,864. This is a
      decrease in net loss of $2,995,577. This loss was primarily due to the
      restructure of the security purchase agreement for CGM-AST.





Net
      cash
      provided by (used in) operating activities for the nine months ended September
      30, 2008 was $(121,277) and the nine months ended September 30, 2007 was
      $42,296. The decrease in cash provided by operating activities for the nine
      months ended September 30, 2008 compared to September 30, 2007 was
      $163,573.




Net
      cash
      used in investing activities was $10,526 and $54,078 for the nine months ended
      September 30, 2008 and the nine months ended September 30, 2007 respectively.
      This decrease was $43,552.





Net
      cash
      provided by (used in) financing activities was $10,000 and ($2,000) for the
      nine
      months ended September 30, 2008 and the nine months ended September 30, 2007,
      respectively.


17


**LIQUIDITY
      AND CAPITAL RESOURCES**




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.





Over
      the
      next twelve months, management is hopeful that sufficient working capital may
      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
      September 30, 2008, ASII had assets of $6,156,968 compared to $5,995,957 on
      December 31, 2007 an increase of $161,011 and shareholder (deficit) of $
      (50,406,517) on September 30, 2008 compared to shareholder (deficit) of
      $(47,760,231) on December 31, 2007, an increase of $2,646,286. This increase
      in
      shareholder (deficit) for the nine months ended September 30, 2008 resulted
      from
      the net loss for the nine months ended September 30, 2008.





The
      Company had net (loss) of ($2,646,287) and ($5,641,864) during the nine months
      ended September 30, 2008 and 2007, respectively. As of September 30, 2008, we
      had a cash balance in the amount of $264,825 and current liabilities of
      $22,608,095. The total amount of notes payable and debentures is $18,067,155.
      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 $19,364,331, as of September 30, 2008.
      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
            
            
            797,317
            
            
            797,317
            
            
            0Accrued
                interest on loans
            
            
            499,859
            
            
            499,859
            
            
            0Note
                payable
            
            
            4,000,000
            
            
            0
            
            
            4,000,000Convertible
                Debentures
            
            
            14,067,155
            
            
            0
            
            
            14,067,155Total
                Contractual Obligations
            
            $
            19,364,331
            
            $
            1,297,176
            
            $
            18,067,155




**Off
      Balance Sheet Arrangements**




We
      do not
      have any off balance sheet arrangements as of September 30, 2008 or as of the
      date of this report.




**Plan
      of Operations**




The
      short-term objective of ASII is the following:




o
      The
      short-term objective of ASII is to increase the market penetration of the
      product line of its CGM-AST subsidiary as the Company believes this is the
      area
      where the greatest revenue growth exists.




o
      Additionally, ASII plans to execute an acquisition strategy based upon fund
      availability.




ASII's
      long-term objective is as follows:




o
      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.


18




ASII
      believes that it will not reach profitability in the foreseeable future. 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:




o
      Cut
      costs in areas that add the least value to ASII.




o
      Concentrate on increasing the sales of the CGM-AST product line.




o
      Derive
      funds through investigating business alliances with other
      companies.




o
      Acquire
      and effectively add management support to profitable companies complementary
      to
      its broadened target markets





**Item
      4T. Control and Procedures**




(a)
      Evaluation of Disclosure Controls and Procedures




The
      Securities and Exchange Commission defines the term “disclosure controls and
      procedures” to mean a company’s controls and other procedures that are designed
      to ensure that information required to be disclosed in the reports that it
      files
      or submits under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms. Based on the evaluation of the
      effectiveness of our disclosure controls and procedures by our management,
      with
      the participation of our Chief Executive Officer and our Chief Financial
      Officer, as of the end of the period covered by this report, our Chief Executive
      Officer and our Chief Financial Officer have concluded that our disclosure
      controls and procedures at the end of the period covered by this report were
      effective to ensure that information required to be disclosed in the reports
      that we file or submit under the Securities Exchange Act of 1934 is
      (i) recorded, processed, summarized and reported, within the time periods
      specified in the Commission’s rules and forms, and (ii) accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate to allow timely decisions regarding
      disclosure.





Changes
      in internal controls.





Management
      of the Company has also evaluated, with the participation of the Chief Executive
      Officer and Chief Financial Officer of the Company, any change in the Company's
      internal control over financial reporting (as defined in Rules 13a-15(f) and
      15d-15(f) under the Exchange Act) that occurred during the fiscal quarter
      covered by this Quarterly Report on Form 10-Q. There was no change in the
      Company's internal control over financial reporting identified in that
      evaluation that occurred during the fiscal quarter covered by this Quarterly
      Report on Form 10-Q that has materially affected, or is reasonably likely to
      materially affect, the Company's internal control over financial
      reporting.


19


**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:**




None





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




None.





**Item
      5. Other Information**




On
      October 9, 2007 the companies stock trading moved from the Pink Sheets to NASDAQ
      Bulletin Board.





**Item
      6. Exhibits**





No.31.1
            
            Certification
                of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation
                S-K,
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation
                S-K,
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes- Oxley Act of
                2002


20


**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:
                November 5, 2008
            By:
            /s/
                ANTHONY SHUPINAnthony
                Shupin(President,
                Chief Executive Officer)
              (Chairman)




Date:
                November 5, 2008
            By:
            /s/
                MICHAEL J. PELLEGRINOMichael
                J. PellegrinoSenior
                Vice President & CFO
              (Principal
                Financial and Accounting
                Officer)


21