**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **WASHINGTON,
D** . **C** . **20549**
 
 **FORM
10-KSB/A**
 **ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)**
 **OF
THE SECURITIES EXCHANGE ACT OF 1934**
 **FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2004**
 **COMMISSION
FILE NUMBER 000-21295**
 
  **GVI
Security Solutions, Inc.**
 (Name of
Small Business Issuer in Its Charter)
 **Delaware**
      (State
      or Other Jurisdiction of Incorporation or Organization)
    **77-0436410**
      (I.R.S.
      Employer identification number)
 **2801
Trade Center Drive, Suite 120**
 **Carrollton,
Texas 75007**
 **(972)
245-7353**
 (Address,
including zip code, and telephone number,
 including
area code, of registrant’s principal executive offices)
 
 **Securities
registered pursuant to Section 12(b) of the Act: None**
 
 **Securities
registered pursuant to Section 12(g) of the Act: Common Stock
$0** . **001
par value**
 
 Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
 þ Yes   ̈ No
  Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. þ
  The
issuer had revenues of $66,206,000 for its fiscal year ended December 31,
2004.
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 22, 2005 was approximately
$60,910,059. The number of shares outstanding of the registrant’s Common Stock
as of March 31, 2005 was 49,047,946.
 
 Transitional
Small Business Disclosure Format:  ̈ Yes  þ No
  
   
   **PART
I** **II**
  **Item
9.**  **Directors and Executive Officers of the Registrant.**
  The
following table sets forth our directors and executive officers, their ages and
the positions they hold:
  **Name**
    **Age**
    **Position**Howard
      Safir
    63
    Chairman
      of the Board of DirectorsNazzareno
      Paciotti
    59
    Chief
      Executive Officer, Chief Financial Officer and DirectorRichard
      J. Berman
    62
    DirectorFredrick
      W. Gluck
    69
    DirectorBruce
      Galloway
    47
    DirectorJoseph
      R. Rosetti
    71
    DirectorMoshe
      Zarmi
    67
    Director
 HOWARD
SAFIR has served as one of our directors and as Chairman of our Board of
Directors since February 2004. Since December 2001 Mr. Safir has been Chairman
and Chief Executive Officer of SafirRosetti, an investigative and security firm
owned by Omnicom Group, Inc. Prior to that time, Mr. Safir was Vice Chairman of
IPSA International, a provider of investigative and security consulting
services. From 1996 to 2000, Mr. Safir served as Police Commissioner of New York
City. Mr. Safir began his law enforcement career in 1965 as a special agent
assigned to the New York office of the Federal Bureau of Narcotics, a forerunner
of the Drug Enforcement Administration (DEA). From 1977 to 1978, Mr. Safir
served as Assistant Director of the DEA. In 1994, Mr. Safir became New York
City's 29th Fire Commissioner. Mr. Safir is currently a director of Verint
Systems, Inc., a provider of analytic software-based solutions for
communications interception, networked video security and surveillance, and
business intelligence.
 
 NAZZARENO
PACIOTTI has served as our Chief Executive and Chief Financial Officer since
February 2004. He has also served as one of our directors since February 2004.
From December 2001 to February 2004, Mr. Paciotti was the President and Chief
Operating Officer of Pinkerton Consulting & Investigations Division, a
global provider of security consulting, investigations and business risk
services. Prior to joining Pinkerton, Mr. Paciotti was Chief Financial Officer
of Kroll, Inc. from July 1992 to December 2001.
 
 RICHARD
J. BERMAN has served as one of our directors since February 2004. Since 2000,
Mr. Berman has been Chairman of the board of directors of Candidate Resources,
Inc., a private human resources company that delivers services over the Web. Mr.
Berman is also currently the chairman of a private financial services company
that delivers its services over the Web. From 1998 to 2000, Mr. Berman was
chairman of the board of directors and chief executive officer of Internet
Commerce Corporation, an e-commerce business-to-business service provider. From
1982 to 1998, Mr. Berman was President of the American Acquisitions Company, a
privately-held merchant banking firm, and from 1983 to 1993, Chairman of the
board of directors of Prestolite Battery Company of Canada. From 1975 to 1982,
Mr. Berman served in various executive positions at Banker's Trust Company,
including as Senior Vice President responsible for managing the mergers and
acquisitions and private equity groups of Banker's Trust. Mr. Berman is
currently a director of Dyadic International, Inc., a biotechnology company,
International Microcomputer Software, Inc., a software company, Internet
Commerce Corporation, an internet supply chain company, NexMed, a life sciences
company, and MediaBay, Inc., a distributor of audio books and classic radio
programs.
 
 BRUCE
GALLOWAY has served as one of our directors since February 2004. Mr. Galloway is
currently a managing member of Galloway Capital Management, as well as a
managing director of Burnham Securities, a New York-based investment bank,
positions he has held since November 1992. From 1990 to 1992, Mr. Galloway was a
senior vice president at the global investment bank, Oppenheimer & Company.
Mr. Galloway is currently the Chairman of International Microcomputer Software,
Inc., Command Security Corporation, a provider of security guard and aviation
screening services, and Datametrics Corporation, a military contractor based in
Orlando, Florida. Mr. Galloway also serves as a director of Forward Industries,
Inc.
 
 2
 FREDERICK
W. GLUCK has served as one of our directors since October 1994. Mr. Gluck joined
McKinsey & Company, Inc. in 1967 and served as Managing Director of McKinsey
from 1988 to 1994. After retiring from McKinsey in June 1995, Mr. Gluck joined
Bechtel Group, Inc. ("Bechtel"), an engineering, construction and project
management company. From January 1996 to July 1998, Mr. Gluck served as Vice
Chairman and Director of Bechtel. In 1998 he retired from Bechtel and rejoined
McKinsey as a special consultant to the firm until July 2003. Mr. Gluck is also
a director of HCA Corporation and Amgen Inc.
 
 JOSEPH R.
ROSETTI has served as one of our directors since February 2004. Since December
2001, Mr. Rosetti has served as the President of SafirRosetti, an investigative
and security firm owned by Omnicom Group, Inc. From 1987 to 2000 Mr. Rosetti was
the Vice Chairman of Kroll Associates. As Vice Chairman he had responsibility
for Corporate Security/Crisis Management, which provides industry and
professional organizations with preventive measures to combat corporate and
financial crimes. From October 2000 to November 2001, Mr. Rosetti was a Senior
Vice President at IPSA International, Inc., a provider of investigative and
security consulting services. From 1971 to 1987 he was the Director of Worldwide
Security for IBM. Mr. Rosetti held government positions prior to joining IBM in
the U.S. Internal Revenue Service and the U.S. Department of Justice and was the
Chief Accountant for Marriott. Mr. Rosetti is also the Chairman and a director
of MediaBay, Inc., a retailer of spoken audio and nostalgia
products.
 
 MOSHE
ZARMI has served as one of our directors since January 1998 and was President
and Chief Executive Officer from that time until February 2004. Mr. Zarmi has 30
years experience, primarily in high technology industries. From February 1993 to
January 1997, Mr. Zarmi was the Chief Executive Officer of Geotest, a leading
Automated Test Equipment company based in Southern California. His extensive
business experience includes a tenure at Israel Aircraft Industries, where he
held various positions in finance and administration, as well as head of US
marketing and sales.
  **Audit
Committee Financial Expert**
  The Board
of Directors has determined that Mr. Berman and Mr. Rosetti are “audit committee
financial experts,” as such term is defined in Item 401(e) of Regulation S-B,
and are independent as defined in rule 4200(a)(15) of the listing standards of
the National Association of Securities Dealers.
  **Section
16(a) Beneficial Ownership Reporting Compliance**
  The
members of our Board of Directors, our executive officers and persons who hold
more than 10% of our outstanding Common Stock are subject to the reporting
requirements of Section 16(a) of the Exchange Act, which requires them to file
reports with respect to their ownership of our Common Stock and their
transactions in such Common Stock. Based solely upon a review of Forms 3 and 4
and amendments furnished to the Company by such persons subject to the reporting
requirements of Section 16(a) of the Exchange Act, we believe that all reporting
requirements under Section 16(a) for the 2004 fiscal year were met in a timely
manner by our directors, executive officers and beneficial owners of more than
10% of our Common Stock.
  **Code
of Conduct**
  The
Company maintains a Code of Business Conduct and Ethics that is applicable to
all of our employees, including our Chief Executive Officer and Chief Financial
Officer, and our directors. The Code of Conduct, which satisfies the
requirements of a “code of ethics” under applicable SEC rules, contains written
standards that are designed to deter wrongdoing and to promote honest and
ethical conduct, including the ethical handling of actual or apparent conflicts
of interest; full, fair, accurate, timely and understandable public disclosures
and communications, including financial reporting; compliance with applicable
laws, rules and regulations; prompt internal reporting of violations of the
code; and accountability for adherence to the code.
  3
 
  **Item
10. Executive Compensation.**
  *Summary
Compensation Table*
  The
following table sets forth for the periods indicated the compensation we and our
subsidiaries paid to Nazzareno E. Paciotti, our Chief Executive Officer and
Chief Financial Officer, and Thomas Wade, who was an executive officer of ours
during 2004 but who is no longer employed by us. We had no employees and did not
pay any compensation in the fiscal years ended December 31, 2003 and December
31, 2002. For information about the compensation we paid to an entity controlled
by Howard Safir, our Chairman of the Board, see “Chairman Compensation.”
  **Annual
      Compensation**
    
    **Long-Term
      Compensation****Name
      and Principal Positions**
    
    **Year**
    
    **Salary
      ($)**
    
    **Securities**
      **Underlying**
      **Options**Nazzareno
      E. Paciotti
    
    
    2004
    
    
    174,247
    (1)
    
    250,000*Chief
      Executive Officer and**Chief
      Financial Officer*Thomas
      Wade(2)
      *President
      and Chief Operating Officer*
    
    
    2004
    
    
    214,795
    (3)
    
    1,975,020
    (4)
 
 (1)
    Represents
      salary from February 17, 2004 through December 31, 2004. Mr. Paciotti’s
      annual base salary during 2004 was $200,000.
  (2)
    Mr.
      Wade resigned as President and Chief Operating Officer on June 23, 2004,
      and his employment with us was terminated effective September 30, 2004
      pursuant to a Mutual Separation Agreement described below.
  (3)
    Represents
      salary from February 20, 2004 through September 30, 2004. Mr. Wade’s
      annual base salary during 2004 was $350,000.
  (4)
    These
      options were issued pursuant to the terms of the Merger Agreement pursuant
      to which GVI Security, Inc. merged with us becoming our wholly-owned
      subsidiary.
  *O* *ption
Grants in Fiscal 2004*
  The
following table summarizes stock options that were granted to the above named
executive officers during 2004. For information about stock options granted to
Howard Safir, our Chairman of the Board, see “Other Board
Compensation.”
  **Name**
    **Number
      of**
      **Securities**
      **Underlying**
      **Options**
      **Granted**
    **Percentage
      of Total OptionsGranted to**
      **Employees**
      **in
      2004**
    **Exercise
      Price**
    **Expiration
      Date**Nazzareno
      E. Paciotti
    250,000
    8.1%
    $2.60
    02/17/2014Thomas
      Wade
    1,975,020
    64.3%
    $0.3185
    01/19/2005(1)
 
 (1)
    Mr.
      Wade’s employment with us was terminated pursuant to a Mutual Separation
      Agreement entered into on October 19, 2004. Pursuant to the terms of his
      option agreement, the option expires three months after termination. Mr.
      Wade exercised these options in full in 2005.
  4
 *Aggregated
Option Exercises in Fiscal 2004 and FY-End Option Values*
 
 The
following table contains information about options exercised by our named
executive officers during 2004 and the option values as of December 31,
2004.
 
 **Name**
    **Shares****Acquired**
      **on
      Exercise**
    **Value**
      **Realized**
    **Number
      of Shares**
      **Underlying
      Unexercised Options at**
      **at
      FY-End (#)**
      **Exercisable/Unexercisable**
    **Value
      of**
      **Unexercised**
      **In-the-Money
      Options**
      **at
      FY-End ($)**
      **Exercisable/Unexercisable**(1)****Nazzareno
      E. Paciotti
    __
    __
    62,500/187,500
    $71,875/$215,625Thomas
      Wade
    __
    __
    1,975,020/0(2)
    $6,777,281/0
 
 (1)
    The
      value has been determined based on the closing price of our Common Stock
      on the OTC Bulletin Board on December 30, 2004, which was $3.75.
  (2)
    Pursuant
      to the Mutual Separation Agreement with Mr. Wade, upon his termination,
      all unvested options became exercisable. Mr. Wade exercised these options
      in full in 2005.
  **Employment
Contracts; Termination of Employment and Change-in-Control
Arrangements**
 
 ***Employment
Agreement with Executive Officer***
  We have
entered into an Executive Employment Agreement, dated as of January 24, 2005,
with Nazzareno E. Paciotti, our Chief Executive Officer and Chief Financial
Officer. The Employment Agreement provides for an initial three-year term of
employment as our Chief Executive Officer and Chief Financial Officer. The
agreement automatically renews for additional one-year terms unless terminated
by either party at least 60 days before the expiration of the then current term.
Under the terms of the Employment Agreement, Mr. Paciotti receives an annual
base salary of $275,000 during the first year of the term of the agreement,
$300,000 during the second year of the term of the agreement and $375,000
thereafter. Mr. Paciotti is also entitled to receive an incentive bonus in
accordance with the terms of our Management Incentive Plan as it may then be in
effect. No such plan is currently in effect.
  In the
event that Mr. Paciotti’s employment is terminated as a result of his death,
permanent disability or for cause, we will pay him his accrued and unpaid base
salary through the date of termination plus any accrued vacation pay and
unreimbursed expenses. If Mr. Paciotti’s employment is terminated without cause,
we will pay him (1) an amount equal to his accrued and unpaid salary through the
date of termination, plus any accrued vacation pay and any unreimbursed expenses
and any incentive bonus then earned but not already paid, (2) a pro-rated
portion of any incentive bonus he would have otherwise been entitled to under
our Management Incentive Plan (if any), (3) an amount equal to the greater of
six months of his then-current salary, or the salary he would have earned had he
stayed employed by us through the remainder of the term of the agreement
(payable in equal bi-monthly installments over the relevant period), and (4)
medical insurance coverage for the duration of the period over which he receives
the bi-monthly payments under (3).
  Mr.
Paciotti is prohibited under his employment agreement from copying, using or
disclosing any of our Proprietary Information (as defined in the agreement)
during the term of his employment and for a period of ten years thereafter and
has assigned to us all rights to any inventions he develops during his
employment that pertain directly or indirectly to our business or that are
developed during work time or using our materials or facilities.
  Mr.
Paciotti is also prohibited from competing with us and directly or indirectly
soliciting any of our customers, suppliers, licensees, licensors and employees
during the term of the agreement and for a period of 12 months thereafter.
During the 12-month period following the term of the agreement, Mr. Paciotti
will be entitled to payments of $10,000 per month in consideration of complying
with these prohibitions.
  ***Separation
Agreement with Thomas Wade***
  On
October 19, 2004, we, our subsidiary, GVI Security Inc., and Thomas Wade entered
into a Mutual Separation Agreement whereby the parties mutually agreed to the
termination of Mr. Wade’s employment with our subsidiary. Prior to his
termination, Mr. Wade was the beneficial holder of approximately 8.7% of our
Common Stock and was the President of our subsidiary, and prior to June 23,
2004, was a director of ours and our President and Chief Operating Officer. In
accordance with Mr. Wade’s employment agreement, and pursuant to the Mutual
Separation Agreement, Mr. Wade is entitled to receive severance payments equal
to one year of his annual base salary of $350,000. In addition, for a period of
one-year, Mr. Wade will continue to receive a car allowance of $800 per month,
an unaccounted for expense reimbursement of $1,200 per month, and medical
benefits. We also agreed that Mr. Wade’s options to purchase 1,975,020 shares of
our Common Stock vested in full. Mr. Wade exercised these options in full in
2005. Mr. Wade has agreed to release us in full from any and all claims and to
continue to be bound by all the terms of his employment agreement.
  ***Director
Compensation***
  With the
exception of Mr. Safir, the Chairman of our Board of Directors, our directors do
not receive any cash compensation for their service on the Board of Directors.
Our directors are reimbursed for actual out-of-pocket expenses incurred by them
in connection with their attendance at meetings of the Board of
Directors.
  *Chairman
Compensation*
  We have
entered into an agreement dated as of February 17, 2004 with November Group,
Ltd. Mr. Safir is the Chairman, Chief Executive Officer and principal of
November Group. The agreement provides that November Group will provide us with
advice, consultation and assistance over an initial term of three years and for
a fee of $600,000, payable in equal monthly installments over the term of the
agreement. In the event that we terminate the agreement for a reason other than
a “good reason” (as defined in the agreement), we will be required to pay
November Group a termination fee of one half of the entire remaining fee. In
addition, upon a change in control, as defined in the agreement, the entire fee
shall become due and owing.
  November
Group is prohibited under the agreement from copying, using or disclosing any of
our Proprietary Information (as defined in the agreement) during the term of the
agreement and for a period of two years thereafter and has assigned to us all
rights to any inventions it develops during the term of the agreement that
pertain directly or indirectly to our business or that are developed during work
time or using our materials or facilities. November Group is also prohibited
from directly or indirectly soliciting any of our customers, suppliers,
licensees, licensors and employees during the term of the agreement and for a
period of two years thereafter.
  *Other
Board Compensation*
  On
February 17, 2004, each of our Directors was granted a stock option under our
2004 Long-Term Incentive Plan to purchase shares of our Common Stock at an
exercise price of $2.60 per share. The stock options have a ten year term and
vest in four equal installments over a three-year period that began on the date
of issuance. Each of Messrs. Berman, Galloway and Gluck was granted a stock
option to purchase 300,000 shares of our Common Stock. Each of Messrs. Rosetti
and Paciotti was granted a stock option to purchase 250,000 shares of our Common
Stock. Mr. Zarmi was granted a stock option to purchase 150,000 shares of our
Common Stock. Mr. Safir was granted a stock option to purchase 500,000 shares of
our Common Stock. In addition, at that time we granted options to purchase an
aggregate of 550,000 shares of our Common Stock to directors who have since
resigned, of which options to purchase 137,500 shares of Common Stock were
vested at the time of resignation and are currently exercisable.
  5
 On
January 6, 2005, each of our Directors was granted a stock option under our 2004
Long-Term Incentive Plan to purchase shares of our Common Stock at an exercise
price of $1.50 per share. The stock options have a ten year term and vest in
three equal installments over a two-year period that began on the date of
issuance. Each of Messrs. Berman, Galloway and Rosetti was granted a stock
option to purchase 47,500 shares of our Common Stock. Each of Messrs. Gluck and
Zarmi was granted a stock option to purchase 22,500 shares of our Common Stock.
Mr. Paciotti was granted a stock option to purchase 375,000 shares of our Common
Stock, and Mr. Safir was granted a stock option to purchase 275,000 shares of
our Common Stock.
  **Stock
Option Plan**
  In March
2004, our stockholders approved our 2004 Long-Term Incentive Plan, reserving
5,939,913 (after giving effect to the subsequent one-for-65 reverse split)
shares of our Common Stock for issuance thereunder. The Plan provides for the
grant of options and other awards to our employees, officers, directors and
consultants. The Plan authorizes the Board of Directors to issue incentive stock
options (“ISOs”) as defined in Section 422(b) of the Internal Revenue Code of
1986, as amended, stock options that do not conform to the requirements of that
Code section (“Non-ISOs”), stock appreciation rights (“SARs”), restricted stock,
stock awards and other stock based awards. Directors who are not employees of
the Company may only be granted Non-ISOs.
  The Plan
is administered by the Compensation Committee of the Board of Directors. The
Compensation Committee has the authority to select those employees, officers,
directors and consultants whose performance it determines significantly promotes
the Company’s success to receive discretionary awards under the Plan, grant the
awards, interpret and determine all questions of policy with respect thereto and
adopt rules, regulations, agreements and instruments deemed necessary for its
proper administration.
  **Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.**
  The
following table sets forth information known to the Company with respect to the
beneficial ownership of Common Stock held of record as of April 25, 2005, by (1)
all persons who are owners of 5% or more of our Common Stock, (2) each of our
named executive officers (see “Summary Compensation Table”), (3) each director,
and (4) all of our executive officers and directors as a group . Unless
otherwise indicated, each of the stockholders can be reached at our principal
executive offices located at 2801 Trade Center Drive, Suite 120, Carrollton,
Texas 75007.
  **SHARES
      BENEFICIALLY OWNED****1****Number**
    
    **Percent
      (%)***Beneficial
      Owners of more than 5% of Common Stock (other than directors and executive
      officers)*Europa
      International, Inc.2
    
    
    9,106,497
    
    
    18.2
    %William
      Teitelbaum3
    
    
    7,477,265
    
    
    14.9
    %GVI
      Acquisition, LLC4
    
    
    3,030,130
    
    
    6.0
    %Laurus
      Master Fund, Ltd.5
    
    
    5,895,917
    
    
    10.5
    %5Thomas
      Wade6
    
    
    3,462,287
    
    
    6.9
    %Fred
      Knoll7
    
    
    9,892,151
    
    
    19.6
    %David
      Weiner8
    
    
    6,182,397
    
    
    12.2
    %The
      Pinnacle Fund, L.P.9
    
    
    4,000,000
    
    
    8.0
    %Southwell
      Partners, L.P.10
    
    
    3,333,333
    
    
    6.6
    %Reid
      S. Walker
      G.
      Stacy Smith11
    
    
    3,333,334
    
    
    6.6
    %
  6
 **SHARES
      BENEFICIALLY OWNED****1****Number**
    
    **Percent
      (%)**
 *Directors
      and Executive Officers*Howard
      Safir12
    
    
    408,333
    
    
    *Richard
      Berman13
    
    
    165,833
    
    
    *Bruce
      Galloway14
    
    
    175,352
    
    
    *Nazzareno
      Paciotti15
    
    
    316,666
    
    
    *Joseph
      Rosetti16
    
    
    969,490
    
    
    1.9
    %Frederick
      Gluck13
    
    
    161,116
    
    
    *Moshe
      Zarmi17
    
    
    85,577
    
    
    **All
      directors and executive officers as a group (seven
      persons)*18
    
    
    2,282,367
    
    
    4.5
    %
 *  Less than
1%.
  1
    Gives
      effect to the shares of Common Stock issuable upon the exercise of all
      options exercisable within 60 days of April 25, 2005 and other rights
      beneficially owned by the indicated stockholders on that date. Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and includes voting and investment power with respect
      to shares. Unless otherwise indicated, the persons named in the table have
      sole voting and sole investment control with respect to all shares
      beneficially owned. Percentage ownership is calculated based on 50,125,793
      shares of the Common Stock outstanding as of April 25, 2005. All
      information is based upon information furnished by the persons listed,
      contained in filings made by them with the SEC or otherwise available to
      the Company.
  2
    Includes
      3,030,130 shares of Common Stock beneficially owned by GVI Acquisition,
      LLC, of which Europa International, Inc. has a 25.1% membership interest
      (see note 3 below). Europa’s address is P.O. Box 146, Road Town, Tortola,
      British Virgin Islands. Fred Knoll is the principal of Knoll Capital
      Management, L.P., which manages Europa’s
investments.
  3
    Mr.
      Teitelbaum’s address is 4 Winston Court, Dix Hills, NY 11746.
  4
    The
      address of GVI Acquisition LLC is 3940 Laurel Canyon Blvd., Suite 327,
      Studio City, California 91604. Europa and Woodman Management Corporation
      are the sole members, and Fred Knoll and David Weiner are the sole
      managers, of GVI Acquisition LLC. Mr. Weiner is the sole director and
      stockholder of Woodman.
  5
    Consists
      of (i) 2,303,665 shares of Common Stock which may be acquired upon
      conversion of a convertible term note at a conversion price of $1.91 per
      share, (ii) 2,252,252 shares of Common Stock which may be acquired upon
      conversion of a convertible note at a conversion price of $2.22, and (iii)
      1,340,000 shares of Common Stock which may be acquired upon exercise of
      warrants at an exercise price of $3.50 per share. Does not include shares
      of Common Stock that may be acquired upon conversion of interest and fees
      payable under convertible notes. The convertible notes, warrant and
      related agreements contain provisions which restrict the ability of Laurus
      to acquire in excess of 4.99% of our outstanding shares of Common Stock.
      Laurus’s address is 825 Third Avenue, 14th Floor, New York, New York
      10022.
  6
    Thomas
      Wade’s address is 3145 Devonshire, Plano, Texas
75206.
  7
    Includes
      (i) 9,106,497 shares of Common Stock beneficially owned by Europa (see
      note 2); (ii) currently exercisable options to purchase 46,007 shares of
      Common Stock, (iii) 72,981 shares of Common Stock (including 13,742 shares
      issuable upon exercise of warrants) beneficially owned by Thinking
      Technologies, L.P., and (iv) 333,333 shares of Common Stock, and warrants
      to purchase 333,333 shares of Common Stock, held by Knoll Capital Fund II.
      Fred Knoll is the principal of Knoll Capital Management, L.P., which is
      the general partner of Thinking Technologies and the investment manager of
      Knoll Capital Fund II. Mr. Knoll’s address is c/o Knoll Capital
      Management, LP, 200 Park Avenue, Suite 3900, New York, New York
      10166.
  7
 8
    Includes
      (i) 3,030,130 shares of Common Stock beneficially owned by GVI Acquisition
      LLC, of which Mr. Weiner is a manager and indirectly holds a 74.9%
      membership interest (see note 4 above), (ii) 2,768,934 shares of Common
      Stock owned by Woodman Management Corporation, of which Mr. Weiner is the
      sole director and stockholder, (iii) 50,000 shares of Common Stock that
      may be purchased upon exercise of currently exercisable stock options, and
      (iv) 333,333 shares of Common Stock that may be purchased upon exercise of
      warrants held by W-net, Inc., of which David Weiner is the sole
      stockholder.
  9
    The
      address of The Pinnacle Fund, L.P. is 4965 Preston Park Blvd., Suite 240,
      Plano, Texas 75093.
  10
    The
      address of Southwell Partners, L.P. is 1901 North Akard, 2ndFloor, Dallas, Texas 75201.
  11
    Includes
      180,641 shares of Common Stock held by Walker Smith Capital, L.P.
      (“WSC”), 848,542 shares of Common Stock held by Walker Smith Capital
      (Q.P.), L.P. (“WSCQP”), 1,137,484 shares of Common Stock held
      by Walker Smith International Fund, Ltd. (“WS International”),
      328,227 shares of Common Stock held by WS Opportunity Fund, L.P.
      (“WSO”), 374,487 shares of Common Stock held by WS Opportunity Fund
      (Q.P.), L.P. (“WSOQP”), and 463,953 shares of Common Stock held by WS
      Opportunity Fund International, Ltd. (“WSO International”). WS Capital,
      L.L.C. (“WS Capital”) is the general partner of WS Capital Management,
      L.P. (“WSC Management”). WSC Management is the general partner of WSC and
      WSCQP and the investment manager and agent and attorney-in-fact for WS
      International. WSV Management, L.L.C. (“WSV”) is the general partner of WS
      Ventures Management, L.P. (“WSVM”). WSVM is the general partner of WSO and
      WSOQP and the investment manager and agent and attorney-in-fact for WSO
      International. Reid S. Walker and G. Stacy Smith are principals of WS
      Capital and WSV. The address for all of these persons is 300 Crescent
      Court, Suite 880, Dallas, Texas 75201.
  12
    Includes
      (i) 341,667 shares of Common Stock that may be purchased upon exercise of
      currently exercisable stock options, (ii) 33,333 shares of Common Stock
      that may be purchased upon exercise of warrants held by the November Group
      Ltd., of which Howard Safir is the Chairman and principal member, and
      (iii) 33,333 shares of Common Stock held by the November Group Pension
      Plan.
  13
    Consists
      solely of shares of Common Stock that may be purchased upon exercise of
      currently exercisable stock options.
  14
    Includes
      (i) 3,134 shares of Common Stock held directly, (ii) 3,308 shares of
      Common Stock held by the Bruce Galloway IRA, (iii) 3,077 shares owned by
      Jacombs Investments, Inc., of which Mr. Galloway is the principal
      shareholder and President, and (iv) 165,833 shares of Common Stock that
      may be purchased upon exercise of currently exercisable stock options.
  15
    Includes
      250,000 shares of Common Stock that may be purchased upon exercise of
      currently exercisable stock options, and 33,333 shares of Common Stock
      that may be purchased upon exercise of warrants.
  16
    Includes
      (i) 140,833 shares of Common Stock that may be purchased upon exercise of
      currently exercisable stock options, (ii) 135,787 shares of Common Stock
      that may be purchased upon exercise of warrants, (iii) 208,998 shares of
      Common Stock held by Crystal Lakes, L.P., and (iv) 137,832 shares of
      Common Stock that may be purchased upon exercise of warrants held by
      Crystal Lakes. Mr. Rosetti is the principal partner of Crystal
      Lakes.
  17
    Consists
      solely of shares of Common Stock that may be purchased on conversion and
      exercise of options and warrants. Mr. Zarmi’s address is 215 Frankel
      Boulevard, Merrick, New York 11566.
  18  Includes
Messrs. Safir, Berman, Galloway, Paciotti, Rosetti, Gluck, and
Zarmi.
  **Item
12. Certain Relationships and Related Transactions.**
  In
November 2000, in consideration of advances made by Thinking Technologies, L.P.
to us, Technologies was issued a Demand Convertible Grid Note in the principal
amount of up to $1,000,000, bearing interest at the rate of 10% per year. The
Note was subsequently transferred by Technologies to Europa International Inc.
Fred Knoll, a director of ours until December 31, 2004, is the principal of
Knoll Capital Management, L.P., which is both the general partner of
Technologies, and the investment manager for Europa. Principal and interest
outstanding under the Note was originally convertible into shares of our Common
Stock at a price of $0.375 per share (before giving effect to the one-for-65
reverse stock split), and in February 2001, the Note was amended to change the
conversion price to $0.12 per share (before giving effect to the one-for-65
reverse stock split). On January 4, 2002, in consideration of Technologies’
agreement not to demand payment on the Note for a period of six months, the
Board of Directors approved a resolution further reducing the conversion price
of the Note, so that upon conversion, the Note would convert into 80% of our
outstanding Common Stock on a fully-diluted basis. At December 31, 2003, the
amount outstanding under the Note was approximately $1,317,000 consisting of
principal of $1,000,000 and interest of $317,000.
  8
 During
the years ended December 31, 2003 and 2002, we also received advances
approximating $75,000 each year from Europa. These loans accrued interest at 10%
per annum and were due upon demand. Through December 31, 2003, approximately
$14,000 for interest had accrued on the loans.
  Immediately
prior to the GVI merger, and as a condition thereto, Europa exchanged the Note
and all of our other indebtedness to Europa, for 10,000 shares of our Series D
Convertible Preferred Stock. The shares of Series D Preferred Stock subsequently
converted into an aggregate of 1,187,983 shares of our Common Stock on April 12,
2004 when we filed an amendment to our Certificate of Incorporation increasing
our authorized number of shares of Common Stock to 75,000,000 and effecting a
one-for-65 reverse split of our Common Stock.
  In
connection with the GVI merger, the former stockholders of GVI were issued an
aggregate of 1,000,000 shares of our Series E Preferred Stock. Each share of
Series E Preferred Stock converted into approximately 28.2 shares of our Common
Stock when we filed the amendment to our Certificate of Incorporation increasing
our authorized number of shares of Common Stock to 75,000,000 and effecting a
one-for-65 reverse split of our Common Stock, so that the shares of Series E
Preferred Stock issued in the GVI merger converted into an aggregate of
28,214,587 shares of our Common Stock, constituting approximately 95% of our
shares of Common Stock outstanding immediately after the GVI merger.
  The two
largest stockholders of GVI prior to the GVI merger were William Teitelbaum, who
owned approximately 47.8% of GVI’s Common Stock, and GVI Acquisition LLC, which
owned approximately 38.3% of GVI’s Common Stock. As a result of the GVI merger
(1) Teitelbaum was issued 13,493,932 shares of our Common Stock (post-split),
constituting approximately 45.6% of our then outstanding shares of Common Stock
(assuming the conversion of all other shares of our preferred stock then
outstanding) and (ii) GVI Acquisition LLC was issued 10,795,145 shares of our
Common Stock (post-split), constituting approximately 36.5% of the outstanding
shares of our Common Stock then outstanding (assuming the conversion of all
other shares of our preferred stock then outstanding).
  GVI
Acquisition LLC is a California limited liability company, whose sole managers,
Fred Knoll and David Weiner, were directors of ours until December 31, 2004 and
January 4, 2005, respectively. Prior to the GVI merger, Mr. Knoll was also our
Chairman. The sole members of GVI Acquisition LLC are Woodman Management
Corporation, which has a 74.9% membership interest in GVI Acquisition LLC, and
Europa, which has a 25.1% membership interest in GVI Acquisition LLC. Mr. Weiner
controls Woodman and is its sole stockholder. Mr. Knoll is the principal of
Knoll Capital Management, L.P., which is the investment manager for
Europa.
  In the
normal course of business, we have sold products to a company principally owned
by Mr. Teitelbaum. During 2004 and 2003, we made sales in the amounts of $3,587
and $299,846, respectively, to this company. At December 31, 2004 no amounts
were due from this company.
  On
February 18, 2004, we entered into a consulting agreement with Europa pursuant
to which Europa agreed to provide consulting services to us with respect to our
financial affairs, capitalization and the elimination of certain liabilities
listed on our balance sheet as of September 30, 2003. As consideration for these
services, we will pay Europa 93% of the amount of the liabilities eliminated
from our balance sheet (other than as a result of our repayment of a liability)
up to a maximum of $195,000. The agreement has a term of eighteen months and may
be terminated at any time by Europa.
  9
 On March
31, 2004, our Chief Executive Officer and affiliates of two of our former
directors, David Weiner and Fred Knoll, provided us with an aggregate of
$159,000 of subordinated convertible loans to fund short-term capital
requirements. Such loans bore interest at a rate of 10% per annum and were
repaid in full on June 29, 2004.
  In August
2004 we entered into a six-month Services Agreement with Rapor pursuant to which
Rapor provided us with technical and engineering support services in connection
with our sales of integrated security solutions products. In consideration for
these services, we paid Rapor $38,000 per month and reimbursed Rapor for certain
documented expenses. The Services Agreement was terminated when we consummated
the merger with Rapor.
  In
October 2004 we entered into a Settlement Agreement and General Release with
William Teitelbaum, who was a founder of GVI Security Inc. and its Chairman
until May 22, 2003. Pursuant to the Settlement Agreement, in consideration for
650,000 shares of our Common Stock, Mr. Teitelbaum released us from any claims
with respect to a warrant he alleged had been issued to him by GVI Security,
Inc., which, following the GVI merger in February 2004, would have entitled him
to purchase 4,030,637 shares of our Common Stock for nominal consideration. In
addition, on January 5, 2005, pursuant to our obligations under the Settlement
Agreement and as a result of the private placement we completed in December
2004, we repurchased from Mr. Teitelbaum 6,666,667 shares of our Common Stock
for a cash purchase price of $10 million ($1.50 per share). Mr. Teitelbaum is
subject to a lock-up provision under that agreement which prohibits him from
selling any shares of our Common Stock for a period of 15 months following the
repurchase.
  On
October 19, 2004, we, our subsidiary, GVI Security Inc., and Thomas Wade entered
into a Mutual Separation Agreement whereby the parties mutually agreed to the
termination of Mr. Wade’s employment with our subsidiary. Prior to his
termination, Mr. Wade was the beneficial holder of approximately 8.7% of our
Common Stock and was the President of our subsidiary, and prior to June 23,
2004, was a director of ours and our President and Chief Operating Officer. In
accordance with Mr. Wade’s employment agreement, Mr. Wade will be entitled to
receive severance payments equal to one year of his annual base salary of
$350,000. In addition, for a period of one-year, Mr. Wade will continue to
receive a car allowance of $800 per month, an unaccounted for expense
reimbursement of $1,200 per month, and medical benefits. We have also agreed
that Mr. Wade’s options to purchase 1,975,020 shares of our Common Stock shall
vest in full. These options were exercised in 2005. Mr. Wade has agreed to
release us in full from any and all claims and to continue to be bound by all
the terms of his employment agreement.
  On
October 29, 2004, in a private placement exempt from registration under the
Securities Act, we sold 23 “Units” for an aggregate purchase price of
$1,150,000, to a group of five purchasers, all of whom are our affiliates. Each
Unit consisted of $50,000 principal amount of 12% Subordinated Secured
Promissory Notes, and the right to be issued warrants to purchase shares of the
Company’s Common Stock. The Notes were repaid in full in accordance with their
terms in December 2004 upon the closing of a private placement. As a result of
our December 2004 private placement, and in accordance with the terms of the
bridge financing, for each $50,000 in principal amount of notes purchased, such
purchaser was issued a five-year warrant to purchase 33,333 shares of Common
Stock at an exercise price of $1.50 per share. The purchasers of the Units were
(i) an entity controlled by Howard Safir, our Chairman of the Board, (ii)
Nazzareno E. Paciotti, a director and our Chief Executive Officer, (iii) a
limited partnership of which Joseph Rosetti, a director of ours, is the
principal, (iv) a corporation wholly-owned by David Weiner, a director of ours
until January 4, 2005, and (v) an equity fund managed by Fred Knoll, a director
of ours until December 31, 2004. Each purchaser of Units was paid a closing fee
equal to one percent (1%) of the purchase price paid by such purchaser for the
Units.
  Pursuant
to the terms of the Subscription Agreements under which the Units were sold, we
granted “piggy back” registration rights with respect to the shares of Common
Stock issuable upon exercise of the Warrants and the right to demand
registration of such shares at any time after 180 days following the issuance of
the Warrants.
  As a
result of the closing of the December 2004 private placement, we issued warrants
to purchase an aggregate of 766,666 shares of Common Stock at a price of $1.50
per share to the investors in the October 2004 bridge financing, in accordance
with our obligations under such financing.
  10
 On
December 1, 2004, we acquired Rapor, Inc. in a merger in which we issued to
Rapor’s former stockholders an aggregate of 2,707,852 shares of our Common Stock
and seven-year warrants to purchase an aggregate of 1,353,925 shares of our
Common Stock at an exercise price of $3.04 per share. In connection with the
closing of the merger, we also paid approximately $184,000 in cash, and issued
98,007 shares of Common Stock, in satisfaction of secured obligations of Rapor.
Joseph Rosetti, one of our directors, was a director of Rapor prior to the
merger. Mr. Rosetti was also the direct holder of approximately 12% of Rapor’s
outstanding common stock, and a principal partner in a partnership, established
for the benefit of members of his family, that held approximately 7.5% of
Rapor’s outstanding common stock. In accordance with the terms of the merger, as
former stockholders of Rapor, Mr. Rosetti was issued 346,060 shares of Common
Stock and warrants to purchase 135,787 shares of Common Stock, and the
partnership was issued 208,998 shares of Common Stock and warrants to purchase
104,499 shares of Common Stock.
  **Item
13. Exhibits.**
  The
following document is filed as part of this report:
  31
    Certification
      of Nazzareno Paciotti, Chief Executive Officer and Chief Financial Officer
      of the Registrant, pursuant to Rules 13a-14(a) and 15(d)-14(a) of the
      Securities Exchange Act of 1934
 ****
 **Item
14. Principal Accountant Fees and Services.**
  The
following table presents fees for professional audit services rendered by
Mercadien for the audit of the Company’s annual financial statements for the
years ended December 31, 2004 and 2003, and fees billed for other services
rendered by Mercadien during those years.
  **2004**
    
    **2003**Audit
      fees(1)
    
    $
    216,244
    
    $
    45,862Audit
      related fees(2)
    
    
    __
    
    
    —Tax
      fees
    
    $
    3,136
    
    
    —All
      other fees(2)
    
    $
    40,220
    
    
    —Total
      fees
    
    $
    259,600
    
    $
    45,862
 
 
 (1)
    Includes
      fees paid for professional services rendered in connection with the audit
      of annual financial statements and the review of quarterly financial
      statements.
  (2)
    Consists
      primarily of fees paid in connection with review of the Company’s
      financial statements in the Company’s Registration Statement on Form SB-2
      and related due diligence, and services rendered in connection with
      employee compensation matters.
  **Pre-Approval
Policies And Procedures**
  The Audit
Committee pre-approves all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for us by our independent
auditor, subject to the de minimis exceptions for non-audit services described
in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended. The
Audit Committee approved all such services prior to the auditor’s engagement for
such services during the year ended December 31, 2004.
   11
  **SIGNATURES**
  In
accordance with Section 13 or 15(d) of the Exchange Act, GVI Security Solutions,
Inc. has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 2 nd day of
May, 2005.
 
 GVI SECURITY SOLUTIONS,
      INC.By:
    /s/ Nazzareno E.
      PaciottiNazzareno
      E. Paciotti
      Chief
      Executive Officer
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 **Signature**
    **Title**
    **Date**/s/
      Nazzareno E. Paciotti
      Nazzareno
      E. Paciotti
    Chief
      Executive Officer (Principal Executive Officer), Chief Financial Officer
      (Principal Accounting and Financial Officer) and Director
    May
      2, 2005/s/
      Howard SafirHoward
      Safir
    Chairman
      of the Board of Directors
    May
      2, 2005/s/
      Richard Berman
      Richard Berman
    Director
    May
      2, 2005Bruce Galloway
    Director
    May
      2, 2005Frederick W. Gluck
    Director
    May
      2, 2005/s/
      Joseph R. Rosetti
      Joseph R. Rosetti
    Director
    May
      2, 2005/s/
      Moshe Zarmi
      Moshe Zarmi
    Director
    May
      2, 2005
 
  12