**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 March 31, 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 May 5,**
                **2008**Common
                  stock, $.001 par value per share
              
              **1,379,407,800**shares







**Allied
        Security Innovations, Inc. and Subsidiary**
 **Formerly
        Digital Descriptor Systems, Inc.**
 **Condensed
        Consolidated Financial Statements**
 **March
        31, 2008**
 
 Condensed
                  Consolidated Unaudited Financial Statements:Condensed
                  Consolidated Balance Sheets at March 31, 2008 (Unaudited) and December
                  31,
                  2007 (Audited)
              2Condensed
                  Consolidated Statements of Income for the Three Months Ended March
                  31,
                  2008 and 2007 (Unaudited)
              3Three
                    Months Ended March 31, 2008 and 2007 (Unaudited)Condensed
                  Consolidated Statements of Cash Flows for the Three Months Ended
                  March 31,
                  2008 and 2007 (Unaudited)
              4Three
                  Months Ended March 31, 2008 and 2007 (Unaudited)Notes
                to Condensed Consolidated Financial Statements
              6
  -1-
 
 **ALLIED
        SECURITY INNOVATIONS, INC. AND SUBSIDIARY**
 **FORMERLY
        DIGITAL DESCRIPTOR SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 
 (Unaudited)
              
              (Audited)March
                  31,
              
              December
                  31,2008
              
              2007**ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              265,740
              
              $
              386,628Accounts
                  receivable, net of allowance
              
              
              319,722
              
              
              406,655Inventory
              
              
              686,099
              
              
              665,435Prepaid
                  expenses
              
              
              27,556
              
              
              8,241Total
                  Current Assets
              
              
              1,299,117
              
              
              1,466,959Property
                  and equipment, net
              
              
              296,491
              
              
              306,237Other
                  Assets:Deposits
              
              
              14,626
              
              
              14,626Goodwill
              
              
              4,054,998
              
              
              4,054,998Intangible
                  assets, net
              
              
              149,345
              
              
              153,137Total
                  Other Assets
              
              
              4,218,969
              
              
              4,222,761**TOTAL
                  ASSETS**
              
              $
              5,814,577
              
              $
              5,995,957**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****LIABILITIES**Current
                  Liabilities:Accounts
                  payable
              
              $
              150,574
              
              $
              133,113Accrued
                  expenses
              
              
              352,692
              
              
              297,934Accrued
                  payroll
              
              
              59,037
              
              
              93,856Accrued
                  interest
              
              
              1,519,516
              
              
              1,447,753Deferred
                  income
              
              
              44,362
              
              
              60,577Note
                  payable
              
              
              3,500,000
              
              
              3,500,000Convertible
                  debentures, net of debt discount
              
              
              5,108,969
              
              
              5,122,832Derivative
                  liabilities
              
              
              14,932,773
              
              
              22,898,360Total
                  Current Liabilities
              
              
              25,667,923
              
              
              33,554,425Long
                  Term Liabilities:Convertible
                  debentures, net of debt discount
              
              
              701,396
              
              
              655,281Total
                  Long Term Liabilities
              
              
              701,396
              
              
              655,281**Total
                  Liabilities**
              
              
              26,369,319
              
              
              34,209,706**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, $.001 par value: authorized shares – 1,000,000; issued and
                  outstanding shares – none
              
              
              -
              
              
              -Common
                  stock, par value $.001; 9,999,000,000 shares authorized:1,254,463,400
                  and 681,599,825 issued and outstanding at March 31, 2008 and December
                  31,
                  2007, respectively
              
              
              1,254,463
              
              
              681,600Additional
                  paid in capital
              
              
              18,400,139
              
              
              18,864,882Accumulated
                  deficit
              
              
              (40,209,344
              )
              
              (47,760,231
              )**Total
                  Stockholders' Deficit**
              
              
              (20,554,742
              )
              
              (28,213,749
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              5,814,577
              
              $
              5,995,957
 
 The
        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 INCOME**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(UNAUDITED)**
 
 2008
              
              2007**INCOME**Net
                  Sales
              
              $
              994,054
              
              $
              991,857Cost
                  of Revenue
              
              
              305,432
              
              
              279,761**Gross
                  Profit**
              
              
              688,622
              
              
              712,096**OPERATING
                  EXPENSES**General
                  and administrative
              
              
              647,311
              
              
              528,460Sales
                  and marketing
              
              
              95,301
              
              
              95,026Research
                  and development
              
              
              22,698
              
              
              27,661**Total
                  Operating Expenses**
              
              
              765,310
              
              
              651,147**INCOME
                  (LOSS) BEFORE OTHER INCOME (EXPENSE)**
              
              
              (76,688
              )
              
              60,949**OTHERINCOME
                  (EXPENSE)**Interest
                  expense
              
              
              (176,192
              )
              
              (178,389
              )Beneficial
                  interest from conversion
              
              
              (83,525
              )
              
              (90,310
              )Amortization
                  of debt discount
              
              
              (54,231
              )
              
              (33,960
              )Change
                  in fair value of derivative liability
              
              
              7,965,587
              
              
              69,247Depreciation
                  and Amortization
              
              
              (24,064
              )
              
              (21,479
              )**Total
                  Other Income (Expense)**
              
              
              7,627,575
              
              
              (254,891
              )Income
                    (Loss) before provision for income taxes
              
              
              7,550,887
              
              
              (193,942
              )**`****Provision
                  for income taxes**
              
              
              -
              
              
              -**NET
                  INCOME (LOSS) APPLICABLE TO COMMON SHARES**
              
              $
              7,550,887
              
              $
              (193,942
              )**NET
                  INCOME (LOSS) PER BASIC SHARES**
              
              $
              0.01
              
              $
              (0.01
              )**NET
                  INCOME (LOSS) PER DILUTED SHARES**
              
              $
              0.00
              
              $
              (0.01
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC**
              
              
              976,690,778
              
              
              19,001,731**WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARES
                  OUTSTANDING-DILUTED**
              
              
              9,999,000,000
              
              
              19,001,731
 
 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**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(UNAUDITED)**
 
 2008
              
              2007**Cash
                  Flows from Operating Activities:**Net
                  Income (Loss)
              
              $
              7,550,887
              
              $
              (193,942
              )**Adjustments
                  to reconcile net income (loss) to net cash used in provided by
                  operating
                  activities:**Depreciation
                  and amortization
              
              
              24,064
              
              
              21,479Amortization
                  of debt discount
              
              
              54,231
              
              
              33,960Beneficial
                  interest
              
              
              83,525
              
              
              90,310Change
                  in fair value of derivative liability
              
              
              (7,965,587
              )
              
              (69,247
              )Bad
                  debt expense
              
              
              37,500
              
              
              7,500**Changes
                  in operating assets and liabilities:**Accounts
                  receivable
              
              
              49,433
              
              
              77,716Inventory
              
              
              (20,664
              )
              
              (74,020
              )Prepaid
                  expenses, deposits and other assets
              
              
              (19,314
              )
              
              (24,226
              )Accounts
                  payable
              
              
              17,461
              
              
              7,809Accrued
                  expenses
              
              
              19,939
              
              
              (32,689
              )Accrued
                  interest
              
              
              74,378
              
              
              78,259Deferred
                  Income
              
              
              (16,215
              )
              
              (24,044
              )**Net
                  Cash Used In Operating Activities**
              
              
              (110,362
              )
              
              (101,135
              )**Cash
                  Flows from Investing Activities:**Purchase
                  of equipment
              
              
              (10,526
              )
              
              (12,326
              )**Net
                  Cash Used in Investing Activities**
              
              
              (10,526
              )
              
              (12,326
              )**Cash
                  Flows from Financing Activities:**Payment
                  of convertible debentures
              
              
              -
              
              
              (3,000
              )**Net
                  Cash used in Financing Activities**
              
              
              -
              
              
              (3,000
              )**Net
                  Decrease in Cash**
              
              
              (120,888
              )
              
              (116,461
              )**Cash
                  at Beginning of Period**
              
              
              386,628
              
              
              392,719**Cash
                  at End of Period**
              
              $
              265,740
              
              $
              276,258
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -4-
 
 **ALLIED
        SECURITY INNOVATIONS, INC AND SUBSIDIARY**
 **FORMERLY
        DIGITAL DESCRIPTOR SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(UNAUDITED)**
 
 2008
              
              2007**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  Paid For:Interest
                  Expense
              
              $
              -
              
              $
              -Income
                  Taxes
              
              $
              -
              
              $
              -**Supplemental
                        Disclosure of Non-Cash Investingand
                        Financing Activities:**Common
                  stock issued in conversion of convertible debentures
              
              $
              572,863
              
              $
              10,573Beneficial
                  interest in conjunction with issuance of convertible
                  debentures
              
              $
              83,525
              
              $
              90,310Common
                  stock issued in conversion of accrued interest
              
              $
              2,615
              
              $
              5,791
 
 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.


Notes
      to
      the Condensed Consolidated Financial Statements (Unaudited)


March
      31,
      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
      July
      1, 2007 the offices of Allied Security Innovations, Inc. and the Somerset office
      of CGM Applied Security Technologies, Inc., (“CGM-AST”) the Company’s wholly
      owned subsidiary, 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.





On
      October 9, 2007 the companies 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 $44,362 for the three months ended
      March
      31, 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.


-6-





**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 $22,698
      and $27,661, respectively, for the three months ended March 31, 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 $319,722
      on
      March 31, 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 $126,562 on March 31, 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
      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
      for the quarter ended March
      31,
      2007 because to do so would be antidilutive for the period
      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.





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 $100,000
      per
      bank. Any amounts over $100,000 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.




-7-




**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 $16,304 and $32,324 for the three months ended
      March
      31, 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 March 31, 2008, the
      fair value of derivatives was $14,932,773, a decrease of $7,965,587 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.




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





In
      February 2008, FASB Staff Position ("FSP") FAS No. 157-2, "Effective
      Date of FASB Statement No. 157" ("FSP No. 157-2") was issued. FSP
      No. 157-2 defers the effective date of SFAS No. 157 to fiscal years
      beginning after December 15, 2008, and interim periods within those fiscal
      years, for all nonfinancial assets and liabilities, except those that are
      recognized or disclosed at fair value in the financial statements on a recurring
      basis (at least annually). Examples of items within the scope of FSP
      No. 157-2 are nonfinancial assets and nonfinancial liabilities initially
      measured at fair value in a business combination (but not measured at fair
      value
      in subsequent periods), and long-lived assets, such as property, plant and
      equipment and intangible assets measured at fair value for an impairment
      assessment under SFAS No. 144.




The
      partial adoption of SFAS No. 157 on January 1, 2008 with respect to
      financial assets and financial liabilities recognized or disclosed at fair
      value
      in the financial statements on a recurring basis did not have a material impact
      on the Company's consolidated financial statements. See Note 12 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.




-8-





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 consolidated financial position and results of operations.





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 Consolidated Financial Statements.





**Note
      5 - Intangible Assets**





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





**March
                31, 2008**
            ****
            **December
                31, 2007**Licenses
            
            $
            222,076
            
            $
            222,076Accumulated
                amortization
            
            
            72,731
            
            
            68,939Total
            
            $
            149,345
            
            $
            153,137





Licenses
      are being amortized over its estimated useful life of 15 years. Amortization
      expense for the three months ended March 31, 2008 and 2007 was $3,792 and
      $3,792, 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




**Note
      6- Property and Equipment**





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





**March
                31, 2008**
            
            **December
                31, 2007**Furniture
                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
            
            
            (907,397
            )
            
            (887,125
            )Net
            
            
            296,491
            
            
            306,237




-9-





Depreciation
      expense for the years three
      months ended March 31, 2008 and 2007 was $20,272 and $17,687,
      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.**





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 40% 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 income.





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 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 40% 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 income.


-10-





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).





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 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 40%
      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 income.





In
      September 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 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 income.





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 is included in the accompanying condensed consolidated financial
      statements.


-11-





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 income.




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 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 income.




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 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.


-12-


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 income.




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 September 30, 2004. Quarterly
      interest was not paid and accordingly accrued interest 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 income.





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 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 income.


-13-


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 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 income.




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 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 income.




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 were due in November, 2005. Quarterly interest was not paid
      and
      accordingly accrued interest 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, $5,250, 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.


-14-





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. In September 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 income.





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 income.





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 income.





In
      December of 2007 the Company converted $568,730 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 2010. 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 $243,246 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 income.




**Note
      8 - Commitments and Contingencies**





Operating
      Lease


CGM-AST
      has a lease in Staten Island, New York under non-cancelable lease agreements
      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.





**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.


-15-




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 March 31, 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.


-16-


**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 March 31,
      2008.




Fair
      Value Measurements on a Recurring Basis as of March 31, 2008


Assets
              
              Level
                  I
              
              Level II
              
              Level III
              
              TotalAssets
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Total
                  Assets
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Liabilities
              
              
              -
              
              $
              24,243,138
              
              
              -
              
              $
              24,243,138Total
                  Liabilities
              
              $
              -
              
              $
              24,243,138
              
              $
              -
              
              $
              24,243,138




**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.


-17-


**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 March 31, 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.


-18-


**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, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31,
      2007**




Revenues
      for the three months ended March 31, 2008 were $994,054 compared to $991,857
      for
      the three months ended March 31, 2007, an increase of $2,197. 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 March 31, 2008 was $305,432 compared to
      $279,761 for the three months ended March 31, 2007 an increase of $25,671 or
      9%.
      Cost of revenue sold as a percentage of revenue for the three months ended
      March
      31, 2008 was 31% of total revenues.




Operating
      expenses for the three months ended March 31, 2008 were $765,310 compared to
      $651,147 for the three months ended March 31, 2007, an increase of $114,163
      or
      17.5%. This increase was mainly attributable to an increase in investor relation
      and legal expenses.




General
      and Administrative expenses for the three months ended March 31, 2008 were
      $647,311 compared to $528,460 for the three months ended March 31, 2007 for
      an
      increase of $118,851 or 22%. This increase was mainly attributable to an
      increase in investor relation and legal expenses.




Sales
      and
      Marketing expenses for the three months ended March 31, 2008 were $95,301
      compared $95,026 for the three months ended March 31, 2007 for an increase
      of
      $275.




Research
      and development expenses for the three months ended March 31, 2008 were $22,698
      compared to $27,661 for the three months ended March 31, 2007 for a decrease
      of
      $4,963 or 18%. This decrease was due to the termination of the part-time support
      employee.




ASII
      had
      a net income for the three months ended March 31, 2008 of $7,550,887 and a
      net
      loss for the three months ended March 31, 2007 of $(193,942). This is an
      decrease in net (loss) of $(7,744.839) . This was primarily due to the change
      fair value of derivative liability.





Net
      cash
      used in operating activities for the three months ended March 31, 2008 and
      the
      three months ended March 31, 2007 was $110,362 and $101,135, respectively.
      The
      increase in cash used in operating activities for the three months ended March
      31, 2008 was $9,227.




Net
      cash
      used in investing activities was $10,526 and $12,326 for the three months ended
      March 31, 2008 and the three months ended March 31, 2007 respectively. This
      increase was due in part to updating computers and computer software operating
      systems.





Net
      cash
      used in financing activities was $(0) and ($3,000) for the three months ended
      March 31, 2008 and the three months ended March 31, 2007,
      respectively.


-19-


**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
      March
      31, 2008, ASII had assets of $5,814,577 compared to $5,995,957 on December
      31,
      2007 a decrease of $181,380 and shareholder (deficit) of $ (40,209,344) on
      March
      31, 2008 compared to shareholder (deficit) of $(47,760,231) on December 31,
      2007, a decrease of $7,550,887. This decrease in shareholder (deficit) for
      the
      three months ended March 31, 2008 resulted from the net income for the three
      months ended March 31, 2008.





The
      Company had net income of $7,550,887 and net (loss) of ($193,942) during the
      three months ended March 31, 2008 and 2007, respectively. As of March 31, 2008,
      we had a cash balance in the amount of $265,740 and current liabilities of
      $25,667,923. The total amount of notes payable and debentures is $9,310,365.
      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 $11,333,147 as of March 31, 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
            
            
            503,266
            
            
            503,266
            
            
            0Accrued
                interest on loans
            
            
            1,519,516
            
            
            1,848,989
            
            
            0Note
                payable
            
            
            3,500,000
            
            
            3,500,000Convertible
                Debentures
            
            
            5,810,365
            
            
            5,108,969
            
            
            701,396Total
                Contractual Obligations
            
            $
            11,333,147,
            
            $
            10,631,751
            
            $
            701,396




The
      Company is currently in default on several of the convertible debentures that
      are included in current liabilities.




**Off
      Balance Sheet Arrangements**




We
      do not
      have any off balance sheet arrangements as of March 31, 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.


-20-




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




Management
      of the Company has evaluated, with the participation of the Chief Executive
      Officer and Chief Financial Officer of the Company, the effectiveness of the
      Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
      and
      15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act")) as of the end of the fiscal year covered by this Annual Report on Form
      10-KSB. Based on that evaluation, the Chief Executive Officer and Chief
      Financial Officer of the Company have concluded that the Company's disclosure
      controls and procedures as of the end of the fiscal year covered by the Annual
      Report on Form 10-KSB were effective to provide reasonable assurance that
      information required to be disclosed by the Company in the reports that it
      files
      or submits under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the rules and forms of the
      Securities and Exchange Commission and that the information required to be
      disclosed in the reports is accumulated and communicated to management,
      including our Chief Executive Officer and Chief Financial Officer, to allow
      timely decisions regarding required 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.


-21-


**PART
      II. OTHER INFORMATION**





**Item
      1. Legal Proceedings**




On
      March
      28, 2008 a lawsuit was file against Allied Security Innovations Inc. from Med
      Gen Inc., in the amount of $100,000. The Complaint pleads that the Company
      breached a contract by failing to pay for alleged services rendered. Management
      believes this lawsuit is without merit and does not need to accrue for future
      damages.





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




None.





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




The
      Company is in default of $5,108,969 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**




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





**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


-22-


**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 20, 2008
            By:
            /s/
                ANTHONY SHUPINAnthony
                Shupin(President,
                Chief Executive Officer)
              (Chairman)Date:
                May 20, 2008
            By:
            /s/
                MICHAEL J. PELLEGRINOMichael
                J. PellegrinoSenior
                Vice President & CFO
              (Principal
                Financial and Accounting Officer)





-23-