UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




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




For the
fiscal year ended December 31, 2009




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 No: 001-31590




ECHOMETRIX,
INC.


(Exact
name of registrant as specified in its charter)




Delaware
              
              11-3621755(State or other jurisdiction of Incorporate or organization)
              
              (I.R.S. Employer Identification No.)6800 Jericho Turnpike – Suite 208E, Syosset, NY
              
              11791(Address of principal executive offices)
              
              (Zip Code)




Registrant’s
telephone number, including area code:


(516)
802-0223




Securities
registered pursuant to section 12(g) of the Act:





Title of Each Class
                      
                      Name of Each Exchange on which RegisteredCommon
      Stock, $0.0001 par value
                      
                      OTCClass
      A Warrant to Purchase Common Stock
                      
                      OTCClass
      B Warrant to Purchase Common Stock
                      
                      OTC




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  
 ̈
    No   x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  
 ̈
    No   x




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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes   x
    No    ̈


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.      ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer    ̈
              
              Accelerated Filer    ̈
              
              Non-accelerated Filer    ̈
              
              Smaller reporting company(Do not check if smaller reportingcompany)
              
              x




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).    Yes  
 ̈
    No   x




As of
June 30, 2009, the aggregate market value of the issued and outstanding common
stock held by non-affiliates of the registrant, based upon the closing price of
the common stock, under the symbol "EHMI" as quoted on the National Association
of Securities Dealers Inc. OTC Bulletin Board of $0.11 was approximately
$7,325,420. For purposes of the statement in the preceding statement, all
directors, executive officers and 10% shareholders are assumed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for any other purpose.




APPLICABLE
ONLY TO CORPORATE ISSUERS




Number of
registrant’s shares of common stock outstanding at March 30, 2010 was
81,024,164.




Documents incorporated by
reference : None.









TABLE
OF CONTENTS




Part
      I.Item
      1. Business
              3Item
      1A. Risk Factors
              6Item
      1 B. Unresolved Staff Comments
              10Item
      2. Properties
              10Item
      3. Legal Proceedings
              10Item
      4. Removed
      and Reserved
              11Part
      II.Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchase of Equity Securities
              11Item
      6. Selected Financial Data
              14Item
      7. Management’s Discussion and Analysis of Financial Condition And Results
      of Operations
              14Item
      8. Financial Statements and Supplementary Data
              20Item
      9. Changes in and Disagreements with Accountants on Accounting And
      Financial Disclosure
              21Item
      9A (T). Controls and Procedures
              21Item
      9B. Other Information
              21Part
      III.Item
      10. Directors, Executive Officers and Corporate Governance
              22Item
      11. Executive Compensation
              26Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
              29Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
              30Item
      14. Principal Accounting Fees and Services
              30Part
      IV.Item
      15. Exhibits, Financial Statement Schedules
              31





SPECIAL NOTE ON
FORWARD-LOOKING STATEMENTS





This
Annual Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based largely on our expectations and are subject to a number of
risks and uncertainties, many of which are beyond our control. Actual results
could differ materially from these forward-looking statements as a result of,
among other factors, risks related to the large amount of our outstanding term
loan; history of net losses and accumulated deficits; reliance on third parties
to market, sell and distribute our products; future capital requirements;
competition and technical advances; dependence on the oil services market for
pipe and well cleaners; ability to protect our patents and proprietary rights;
reliance on a small number of customers for a significant percentage of our
revenues; and other risks. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this Annual
Report will in fact occur.





2


PART
I
  Item
1. Description of Business
  EchoMetrix,
Inc. (formerly known as SearchHelp, Inc) was incorporated in the State of
Delaware on September 5, 2001 and completed its initial public offering on July
23, 2003. During the fiscal year ended December 31, 2008, the Company acquired
100% of the stock of EchoMetrix, Inc, a wholly owned subsidiary, and in May of
2009 the Company filed a Certificate of Ownership and merger with the state of
Delaware pursuant to which EchoMetrix was merged into the Company, and the
Company's corporate name was changed from SearchHelp, Inc. to EchoMetrix,
Inc.
  Business
Summary
  Echometrix,
Inc is a software company that develops industry-leading technology that
understands and interprets all the content on the digital web. The Company
currently maintains two operating divisions; the FamilySafe Parental Controls
division and the PULSE Data Analytics division. Through FamilySafe Inc, a wholly
owned subsidiary, we offer software products heralded as the most comprehensive
and effective solution in protecting children from dangers on the Internet and
the world of mobile texting. Our award-winning products have been specially
engineered to monitor, block and alert parents the moment a child encounters
inappropriate material from any Internet or mobile related source. Our PULSE
Data Analytics division has developed an advanced data analytics tool developed
to meet the changing needs of marketing and media executives. Our advanced data
analytic tool, PULSE enables the real-time aggregation, measurement, and
analysis of vast amounts of anonymous User Generated Content from
publicly-available Internet sources.
  Business
Strategy and Products
 
 Through
our FamilySafe Parental Controls division, we offer software products heralded
as the most comprehensive and effective solution in protecting children from
dangers on the Internet. Our award-winning products have been specially
engineered to monitor, block and alert parents the moment a child encounters
inappropriate material from any Internet related source.
 
 Our PULSE
Data Analytics division develops advanced data analytics tools developed to meet
the changing needs of marketing and media executives.  Our data and
tools enable the aggregation, measurement, and analysis of vast amounts of
anonymous User Generated Content on the Internet in real-time. Developed by
leading experts in the data research field, our product combines multiple areas
of expertise, such as data mining, natural language algorithmic processing, and
market research. The proprietary technology consists of a unique methodology
that integrates a complex series of data analytics which generates a
customizable series of graphical displays and reports specifically to be used by
marketers, brand managers and market researchers.
 
 FamilySafe
Division
 
 Online
safety of children remains the primary concern for parents across
America.  The prevalence of online predators coupled with adult
content, and high-risk behavior (such as “cyber-bullying”, “text rage” and
“sexting”) reinforces the need for advanced online safety
products.  Our FamilySafe division remains committed to providing
parents with best-of-breed parental control software, featuring real-time
analysis and instant notification.
 
 FamilySafe
Parental Controls develops and distributes Sentry Parental Controls.
FamilySafe's products are designed and built to assist parents by monitoring
what their children are seeing, hencekeeping their children safe while
on the Internet and their cell phones. FamilySafe's products offer real-time,
anywhere access to a child's online activity and the tools to educate parents
and children about safe surfing habits.
  3
  FamilySafe’s
"Sentry" products enable parents to receive instant email and SMS text messages
when questionable online exchanges occur on their children's computers and cell
phones, such as suspicious instant messages or conversations soliciting private
or personal information, or attempts to access inappropriate web sites. With the
click of a button, a parent's PC screen can turn into their child's screen to
see all the activities being conducted, as they occur.  If necessary,
the parent can either terminate the application or simply lock down the computer
from the parent’s computer. FamilySafe products are designed from the ground up
to prevent the child from disabling any of its features. Our controls help
parents determine the programs they can use, the websites they can visit, the
conversations they take part in, and when they can access the computer and the
Internet. FamilySafe's Sentry Parental Control products are web-based, which
offers the parent the ability to view, check, and adjust the program's settings
from any web browser anywhere in the world.
 
 FamilySafe’s
SMS Parental Management System is a parental notification system that provides
parents with instant notification when their child sends or receives
inappropriate or potentially dangerous text messages. Uniquely, this FamilySafe
SMS solution works on any text enabled phone from any carrier anywhere in the
world. It is particularly easy to use because it is network-based, and it does
not require any software or configuration adjustment to the mobile phone. It is
designed to monitor any SMS messages from a Mobile Operator SMSC.
  When the
SMSC receives a text message, it forwards a copy of the message to the SMS
Parental Management System which stores them, then analyzes the messages, and
sends an alert about questionable content to the parent subscriber via email or
SMS. The product uses a set of proprietary algorithms to determine which terms
and acronyms reflect questionable or dangerous activity. These algorithms
identify the “new” words used by children today, from thousands of SMS text
messages that are sent and received by children
  The
product also provides a full reporting of all incoming and outgoing SMS messages
to parent subscribers. Parents can view these messages via a web portal that
displays an easy-to-read activity log of their child’s SMS activity. To ensure
parents understand the language in the SMS messages, the product includes a
built-in translation capability to convert “Weblish” terms and acronyms into
standard English.
  The main
focus of the SMS Parental Management System is to enable parents to manage their
child’s SMS messaging. At the same time, the product is designed to comply with
the privacy rules that protect both the child and the person whom the child is
texting.
  PULSE Data Analytics
Division
 Millions
of unfiltered anonymous opinions and reviews are added to the Internet each day
through social mediums. This early trending date reflect catalytic changes that
can make or break a product or brand. Understanding digital content has become
essential in the marketplace today. PULSE provides research companies,
marketers, advertisers and product developers with the real-time automated tools
required to make the right strategic decisions that leverage the consumer power
of the digital web. PULSE provides access and analysis of unbiased, unfiltered
anonymous User Generated Content enabling professionals to benchmark their
brands and competitive products in real-time.
 
 ·
              PULSE
      is an advanced tool designed to obtain digital market intelligence in
      real-time
 ·
              Provides
      immediate marketable information about products...and the
      competition
 ·
              Allow
      marketers to immediately adjust and respond to consumers with refined
      messaging strategies
 ·
              Helps
      anticipate consumer needs — respond to early indicators for trends
      impacting a business before the competition
does
 ·
              Aggregate,
      analyze, and graphically display consumer
data
 ·
              Identify
      factors influencing consumers and
competitors
 ·
              Guide
      strategic product development
 ·
              Protect
      revenue, lower operational costs and mitigate
  risk
 ·
              Increase
      customer retention rates
 
 PULSE
helps professionals understand what people are saying from unbiased, unfiltered
anonymous User Generated Content.
  4
  Marketing
  EchoMetrix
is currently marketing the FamilySafe Parental Control programs online through a
number of web sites and landing pages.  These web sites primarily point
back to our FamilySafe division’s main site www.sentryparentalcontrols.com.
The market sensitivity and awareness to the vulnerability of children in the
digital world continues to be enhanced by the very real but inflammatory stories
that show up almost daily on the news and daily TV magazine
shows.  The digital world can be a very dangerous place for
kids.
 
 During
December 2009, the Company announced that it completed its corporate
restructuring, which repositions Echometrix as a business-to-business (B2B)
company. By realigning the Company into two separate and distinct divisions —
FamilySafe and PULSE Data Analytics — Echometrix will refocus its business on
developing resller distribution agreements with high-growth, global resellers
with established consumer brands.
  In line
with accelerating growth through this realignment, Echometrix has completed and
is launching a multi-language version of its award-winning FamilySafe Internet
product on a global basis. The Company is also launching its new FamilySafe
Mobile offering, the first ever, multi-language parental text monitoring product
which can be used on any mobile phone. These products will only be available
through major consumer-brand resellers. The Company's new approach will provide
parents with increased access to FamilySafe's comprehensive child protection
solution across all device platforms, including computers and mobile phones.
Millions of teens now use mobile phones as their primary communication device
and parents are increasingly concerned about new dangers such as sexting and
cyber-bullying.
  FamilySafe/AmberWatch
Partnership: As part of its ongoing partnership with the AmberWatch Foundation,
the most trusted name in child protection, Echometrix is expanding the
deployment of FamilySafe/AmberWatch Lookout. The innovative product offering
enables parents to protect their children from increasingly prevalent dangers
such as online predators, dangerous Web content and high-risk online behaviors
such as cyber-bullying. In  December of 2009, Echometrix and the
AmberWatch Foundation launched a new Public Service Announcement campaign in
hundreds of major cities in the U.S. to raise the awareness of online dangers
and to promote educational and technical solutions.
  Competition
  The
Company’s FamilySafe division competes for business with other companies that
have child-monitoring software that includes the following: NetNanny
(ContentWatch, Inc.), Cybersitter (Solid Oak Software, Inc. (US)), CyberPatrol
(SurfControl), McAfee Parental Controls (Networks Associates Technology, Inc.),
Norton Parental Controls (Symantec Corporation), FilterPak (S4F, Inc.), Cyber
Sentinel (Security Software Systems, Inc.), and Cyber Snoop (Pearl Software,
Inc.).
  The
Company has to respond promptly and effectively to the challenges of
technological change, evolving standards and the Company's competitors'
innovations by continuing to enhance the Company's products and services, as
well as the Company's sales and marketing channels.
 
 Economic
Dependency
 
 The
Company sold its products primarily on line in the current year and for fiscal
year 2008.  In the first quarter of fiscal 2008 the Company did sell
its product through one distributor, which accounted for 56% of the Company’s
sales and this customer accounted for 100% of the accounts receivable at
December 31, 2008. There was no customer that accounted for more than 10% of the
sales for the fiscal year ended December 31, 2009.
  5
  Intellectual
Property
  To date,
we have filed provisional patents for the Company’s FamilySafe product’s,
the  PULSE Analytics product, and look to file additional protection
measures, such as, trademark, trade name or copyright protection.  We
therefore rely on trade secret laws and confidentiality provisions in our
agreements to prevent the unauthorized disclosure and use of our intellectual
property.
  Employees
  As of
March 30, 2010, the Company has seven full time employees.
 
 Item
1A. Risk Factors.
 
 IF
WE CONTINUE OUR HISTORY OF LOSSES, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS
 
 We
incurred net losses of $4,480,910 and of $5,190,030 for the years ended December
31, 2009 and 2008, respectively. Since inception, we have an accumulated deficit
of $29,374,015.  As a result, as of December 31, 2009, we had a
stockholders’ deficit of $2,895,403 and a working capital deficiency of
$3,251,676. We cannot be certain whether we will ever make a profit, or, if we
do, that we will be able to continue earning a significant amount of revenues or
making a profit. If we continue to lose money, our stock price could decline or
we may be forced to discontinue our operations, either of which may result in
you losing a portion or all of your investment.
 
 WE
MAY NOT BE ABLE TO CONTINUE OUR BUSINESS AS A GOING CONCERN.
 
 The
report of our independent auditors for the fiscal year ended December 31, 2009
was issued under the assumption that we would continue as a going concern. As
discussed in Note 1 to our financial statements for the fiscal year December 31,
2009, we have experienced operating losses over the past two years resulting in
an accumulated deficit. Our independent auditors believe, based on our financial
results as of December 31, 2009, that such results raised substantial doubts
about our ability to continue as a going concern. The financial statements
included in the Annual Report on Form 10-K do not include any adjustments to
asset values or recorded liability amounts that might be necessary in the event
we are unable to continue as a going concern. If we are in fact unable to
continue as a going concern, you may lose your entire investment.
 
 IF
WE ARE UNABLE TO COMPLETE OUR FINANCING, OUR BUSINESS MAY FAIL OR OUR OPERATING
RESULTS AND OUR STOCK PRICE MAY BE MATERIALLY ADVERSELY AFFECTED
 
 The
Company's cash on hand at December 31, 2009 totaled $37,890. The Company signed
an Amendment in March of 2010 with investors in the Company’s Series B Preferred
Stock, and will receive funding of capital in tranches, with final payment no
later than May 31, 2010.  In the first quarter ended March 31, 2010,
the Company has received the first two tranches totaling $500,000. If we do not
receive funding as stipulated in the agreement, we will need additional
financing to meet our obligations and to continue our business. If we are not
able to raise funds, we may not be able to successfully develop and market our
products and our business will most likely fail.
  6
  AS
WE RAISE ADDITIONAL CAPITAL, YOUR PERCENTAGE OWNERSHIP INTEREST IN ECHOMETRIX
WILL LIKELY BE REDUCED
 
 The
raising of additional financing would in all likelihood result in dilution or
reduction in the value of our securities. Our ability to operate is dependent
upon obtaining sufficient capital. In September of 2009, the Company entered
into a Stock Purchase Agreement for sales of its Series B Preferred Stock and
issued 220,022 of preferred stock.  Preferred stock has a priority to
the common stock, and will reduce your percentage of ownership. If the Company
receives additional tranches and issues additional stock in accordance with the
Amended Stock Purchase Agreement, your ownership interest will be further
reduced.
 
 OUR INABILITY TO RETAIN AND ATTRACT
KEY PERSONNEL COULD SERIOUSLY HARM OUR BUSINESS AND ADVERSELY AFFECT OUR ABILITY
TO DEVELOP OUR PRODUCTS
 
 We
believe that our future success will depend on the abilities and continued
service of our senior management and executive officers, particularly our Chief
Executive Officer and Chief Operating Officer and those persons involved in the
research and development of our products. If we are unable to attract additional
qualified employees, researchers and consultants, we may be unable to
successfully finalize and market our products and other future products being
developed.
 
 OUR
FAMILYSAFE SENTRY PARENTAL CONTROL SOFTWARE TECHNOLOGY AND STRATEGY MAY NOT BE
SUCCESSFUL
 
 Our
success will depend almost entirely upon the acceptance of our products and
services by parents with children under the age of 17, elementary and middle
schools, media companies and households. Market acceptance will depend upon
several factors, particularly the determination by parents that they need and
want to monitor and protect their children while on the Internet and the
determination by schools that they want to educate and inform families about the
need for monitoring and knowing what their children do while on the Internet. A
number of factors may inhibit acceptance, including the existence of competing
products, our inability to convince families that they need to pay for the
products and services that we will offer, or failure by households and service
companies to use our products. If our products are not accepted by the market,
we may have to curtail our business operations, which could have a material
negative effect on operating results and most likely result in a lower stock
price.
 
 THE
COMMERCIALIZATION OF OUR NEW TECHNOLOGY AND STRATEGY MAY NOT BE
SUCCESSFUL
 
 Our
success will depend upon the acceptance of our products and services by
advertisers and marketers. Market acceptance will depend upon several factors,
particularly the determination by businesses that they need and want accurate,
relevant, real time, and objective marketing intelligence. A number of factors
may inhibit acceptance, including our inability to convince businesses that they
need to pay for the products and services that we will offer. If our products
are not accepted by the market, we may have to curtail our business operations,
which could have a material negative effect on operating results and most likely
result in a lower stock price.
  WE
MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS
 
 We will
compete, in our current and proposed businesses, with other companies, some of
which have far greater marketing and financial resources and experience than we
do. We cannot guarantee that we will be able to penetrate our primary market and
be able to compete at a profit. In addition to established competitors, there is
ease of market entry for other companies that choose to compete with us.
Effective competition could result in price reductions, reduced margins or have
other negative implications, any of which could adversely affect our business
and chances for success. Competition is likely to increase significantly as new
companies enter the market and current competitors expand their services. Many
of these potential competitors are likely to enjoy substantial competitive
advantages, including: larger technical staffs, greater name recognition, larger
customer bases and substantially greater financial, marketing, technical and
other resources. To be competitive, we must respond promptly and effectively to
the challenges of technological change, evolving standards and competitors’
innovations by continuing to enhance our services and sales and marketing
channels. Any pricing pressures, reduced margins or loss of market share
resulting from increased competition, or our failure to compete effectively,
could seriously damage our business and chances for success.
  7
  WE
MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY
 
 We must
continually implement and improve our products and/or services, operations,
operating procedures and quality controls on a timely basis, as well as expand,
train, motivate and manage our work force in order to accommodate anticipated
growth and compete effectively in our market segment. Successful implementation
of our strategy also requires that we establish and manage a competent,
dedicated work force and employ additional key employees in corporate
management, product design, client service and sales. We can give no assurance
that our personnel, systems, procedures and controls will be adequate to support
our existing and future operations. If we fail to implement and improve these
operations, there could be a material, adverse effect on our business, operating
results and financial condition.
 
 IF
WE DO NOT CONTINUALLY UPDATE OUR PRODUCTS, THEY MAY BECOME OBSOLETE AND WE MAY
NOT BE ABLE TO COMPETE WITH OTHER COMPANIES
 
 Internet
technology, software applications and related infrastructure are rapidly
evolving. Our ability to compete depends on the continuing development of our
technologies and products. We cannot assure you that we will be able to keep
pace with technological advances or that our products will not become obsolete.
We cannot assure you that competitors will not develop related or similar
products and bring them to market before we do, or do so more successfully, or
that they will not develop technologies and products more effective than any
that we have developed or are developing. If that happens, our business,
prospects, results of operations and financial condition will be materially
adversely affected.
  OUR
BUSINESS IS CONCENTRATED, MAKING OUR OPERATIONS SENSITIVE TO ECONOMIC
FLUCTUATIONS
 
 Because
of our extremely limited financial resources, it is unlikely that we will be
able to further diversify our operations. Therefore, we will be subject to
economic fluctuations within our industry. If our business does not succeed, you
could lose all or part of your investment.
 
 IF
WE DO NOT SUCCEED IN OUR EXPANSION STRATEGY, WE MAY NOT ACHIEVE THE RESULTS WE
PROJECT
 
 Our
business strategy is designed to expand the sales of our products and services.
Our ability to implement our plan will depend primarily on the ability to
attract customers and the availability of qualified and cost-effective sales
personnel. There are no firm agreements for employment of additional marketing
personnel, and we can give you no assurance that any of our expansion plans will
be successful or that we will be able to establish additional favorable
relationships for the marketing and sales of our products and services. We also
cannot be certain when, if ever, we will be able to hire the appropriate
marketing personnel and to establish additional merchandising
relationships.
  OUR
OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AGAINST LAWSUITS
 
 EchoMetrix
is a Delaware corporation. Delaware law permits the indemnification of officers
and directors against expenses incurred in successfully defending against a
claim. Delaware law also authorizes Delaware corporations to indemnify their
officers and directors against expenses and liabilities incurred because of
their being or having been an officer or director. Our organizational documents
provide for this indemnification to the fullest extent permitted by
law.
  8
  OUR
COMPANY IS A PARTY TO VARIOUS LITIGATION
 
 We have
been engaged in various litigations (See Litigation section
below).  A
negative outcome in these actions could adversely effect our business.We could be subject to future litigations that could materially
affect our ability to operate our Business.
 
 RISKS
RELATED TO OUR SECURITIES
 
 ISSUANCE
OF PREFERRED STOCK COULD HURT HOLDERS OF COMMON STOCK
 
 Our board
of directors is authorized by our charter to create and issue preferred stock.
The rights of holders of preferred stock take precedence over the rights of
holders of common stock. Between February 2007 and December 31, 2007, we
created a class of 1,526,718 Series A 7% of cumulative preferred stock, since
that date, we have sold an aggregate of 901,237 shares of Series “A” preferred
stock and may issue additional shares of our Series “A” preferred stock at any
time. The preferred stock has a preference or liquidation of $2.62. Our board of
directors created the Series “B” preferred stock, with 550,055 shares
designated, and since that date, we have sold 275,028 shares.  As
future tranches of capital are received by the Company, additional preferred B
stock may be issued. The rights of future preferred stockholders could delay,
defer or prevent a change of control of EchoMetrix, even if the holders of
common stock are in favor of that change of control, as well as enjoy
preferential treatment on matters like distributions, liquidation preferences
and voting.
  OUR
STOCK PRICE HAS BEEN VOLATILE
 
 Our stock
price fluctuated between $0.05 and $0.28 for the year ended December 31, 2009
and between $0.05 and $0.25 for the year ended December 31, 2008. The price of
our shares may fluctuate significantly despite the absence of any apparent
reason. In addition, our stock is thinly traded, leading to even greater
volatility. You should expect this volatility to continue. The price of our
common stock may be subject to considerable fluctuations as a result of various
factors, including but not limited to:
 
 •
              Technological
      innovations or commercialization of new products by our
      competitors;
 •
              The
      release of research reports by securities
  analysts;
 •
              Disputes
      concerning patents or proprietary
rights;
 •
              Financial
      results of other firms, particularly those in our industry; and
 •
              Economic
      and other external factors.
  The
Company’s Common Stock does not currently have an active or liquid public
market. As a result, investors may find it difficult to sell their shares of our
Common Stock. There can be no assurance that a liquid market for our securities
will ever develop in the United States, or elsewhere, or that if such a market
does develop, that it will continue; or that the trading price of our securities
will not be subject to significant price fluctuations. Investors may also find
it difficult to obtain accurate information and quotations as to the price of
the Company’s securities. Accordingly, an investment in our securities should
only be considered by those investors who do not require liquidity and can
afford to suffer a total loss of their investment. An investor should consider
consulting with professional advisers before making such an
investment.
 
 OUR
SHARES ARE CLASSIFIED AS “PENNY STOCK” AND BECAUSE “PENNY STOCK” RULES WILL
APPLY, YOU MAY FIND IT DIFFICULT TO SELL YOUR SHARES
 
 A “penny
stock” is a common stock that is not listed on a national securities exchange
and trades for less than $5.00 per share. Additional disclosure is required in
connection with trades in a penny stock. These disclosure requirements may have
the effect of reducing the level of trading activity in our common stock, making
the market for the shares of common stock illiquid.
  9
  THERE
WILL BE A SIGNIFICANT NUMBER OF SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
AND THIS MAY HURT THE MARKET PRICE OF THE SHARES
 
 The
market price of our shares could decline as a result of sales, or the perception
that sales could occur, of a large number of shares available in the public
market. Such sales also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate. At
December 31, 2009, we had a total of 79,203,336 shares of common stock
outstanding, but there were also 115,145,797 shares that could be acquired upon
the conversion or exercise of outstanding preferred stock, notes, options and
warrants. Upon the conversion or exercise of these securities, holders
of our Common Stock will see their interest as a percentage of the total number
of our Common Stock diluted.
  WE
HAVE NEVER PAID ANY CASH DIVIDENDS
 
 EchoMetrix
has never paid any cash dividends on its shares of common stock and there are
presently no plans being considered that would result in the payment of cash
dividends.
  Item
1B. Unresolved Staff Comments.
  None.
  Item
2. Properties.
  The
Company leases an executive office consisting of 1,868 square feet at 6800
Jericho Turnpike, Suite 208E, Syosset, New York 11791. The lease commenced on
July 31, 2006 and has a five year and two month term. The current rent is $4,401
per month ($52,812 per year) and increases approximately 3% per annum. The
Company has a security deposit with its landlord of $8,406.  In the current
year ended December 31, 2009 the Company settled on a previous office lease in
Massachusetts and reduced the security deposit by $4,000 and reversed
approximately $12,797 of rent expense and recorded it as a gain on
extinguishment of a liability.
  Rent
expense was $50,289 and $61,953 for the years ended December 31, 2009 and 2008,
respectively.
  We
believe that our facilities are adequate for our current and near-term
needs.
  Item
3. Legal Proceedings.
  Freifeld
 
 On or
about November 2008, the plaintiffs, Freifelds brought an action against the
Company seeking summary judgment in lieu of complaint on two debt
conversions.  The plaintiffs converted their notes and received the
Company’s stock certificates in November 2008. Subsequently, the plaintiffs
brought suit, requesting repayment of their converted notes.  The
Company has retained legal counsel and has filed pre-answer motion for summary
judgment for the Company.  The Plaintiffs have moved for summary
judgment in lieu of a complaint and we cross-moved for summary judgment. The
Court has indicated that it is going to set the matter down for an evidentiary
hearing. On September 3, 2009 the courts dismissed the Plaintiffs motion for
summary judgment in favor of the Company. On July 9, 2009, the Plaintiffs filed
discovery for the deposition schedule for October 27, 2009. The Company has been
vigorously defending this action and still
in the discovery phase.
  10
 
 Attorney General
Inquiry
 
 On or
about September 24, 2009, the Company
received a subpoena duces tecum from theAttorney General’s Office of the
State of New York that
seeks documents and information related to the PULSE product. The Company
has been cooperating with the Attorney General’s Office, and while prepared to
vigorously itself, the Company is in settlement negotiations with the Attorney
General’ Office to amicably resolve the inquiry.
 
 Federal Trade Commission
Civil Investigative Demand
 
 On or
about December 16, 2009 the
Company received a Civil Investigative Inquiry from the Federal Trade Commission
(“FTC”) related to PULSE.  The Company has been cooperating
with the FTC’s investigation, and while prepared to vigorously itself, the
Company is prepared to explore a settlement with the FTC in order to amicably
resolve the investigation.
  Item
4. Removed and Reserved.
  PART
II
  Item
5. Market for Common Equity and Related Stockholder Matters.
  EchoMetrix's
public offering was completed on July 23, 2003. A total of 2,474,000 units were
sold in the public offering. Each unit consisted of one share of Common Stock,
one Class A Warrant, exercisable for five years, to purchase one share of Common
Stock at $0.75 per share ("Class A Warrant") and one Class B Warrant,
exercisable for seven years, to purchase one share of Common Stock at $1.75 per
share ("Class B Warrant"). The Common Stock, Class A Warrants and Class B
Warrants are quoted on the OTC Bulletin Board and trade under the symbol SHLP,
SHLPW and SHLPZ respectively.
 
 On
December 31, 2007, we extended the term to exercise the Class A Warrant from
December 31, 2007 to March 31, 2008. The exercise price of the Class A Warrant
was lowered on from $0.75 to $0.17 per share of our common stock, and we reduced
the exercise price of our Class B Warrant from $1.50 to $0.22 per share of our
common stock. All other terms and conditions of the Warrants remained the
same.
 
 On
December 31, 2007, we also extended the term to exercise Placement Agents’ Class
A Warrant from December 31, 2007 to December 31, 2008. The exercise price of the
Class A Warrant was lowered from $0.985 to $0.17 per share of our common stock,
and we reduced the exercise price of our Class B Warrant from $2.285 to $0.17
per share of our common stock. All other terms and conditions of the Warrants
remained the same.
  11
  On March
25, 2008, we extended the term to exercise the Class A Warrant from March 31,
2008 to July 31, 2008. All other terms and conditions of the Warrants remained
the same and became effective on June 11, 2008 when the Company received a
Notice of Effectiveness from the Securities and Exchange Commission
 
 On August
28, 2008, the Company extended the term to exercise the Class A Warrant from
August 31, 2008 to March 31, 2009.  All other terms and conditions of
the Warrants remained the same and became effective on October 8, 2008 when the
Company received a Notice of Effectiveness from the Securities and Exchange
Commission.
 
 On June
9, 2009, when the Company received a Notice of Effectiveness from the Securities
and Exchange Commission, the Company extended the terms to exercise the
Class A Warrant from March 31, 2009 to June 30, 2010 and to extend the term of
the Class B Warrant from December 31, 2009 to June 30, 2010. All other terms and
conditions of the Warrants remained the same.
  As of
March 30, 2010, the Company had outstanding 81,024,164 shares of its Common
Stock, par value $0.0001 per share, 2,469,000 Class A Warrants and 2,474,000
Class B Warrants. 5,000 of the Class A Warrants have been exercised, and none of
the Class B Warrants have been exercised. Also outstanding were a placement
agent warrant to purchase 247,400 units comprised of one share of common stock,
one Class A Warrant and one Class B Warrant.
  Additionally
outstanding were various placement agent warrants to purchase a total of 569,700
shares of the Company's Common Stock at a purchase prices ranging from $0.17 per
share to $0.22 per share.
 
 Price
Range of Common Stock
 
 The
following table shows the high and low bid prices of the Company’s Common Stock
as quoted on the OTC Bulletin Board by quarter during each of our last two
fiscal years ended December 31, 2009 and 2008. These quotes reflect inter-dealer
prices, without retail markup, markdown or commissions and may not represent
actual transactions. The information below was obtained from those
organizations, for the respective periods.
  2009
                    
                    Quarter Ended
                    
                    
                    Quarter Ended
                    
                    
                    Quarter Ended
                    
                    
                    Quarter EndedMarch 31, 2009
                    
                    
                    June 30, 2009
                    
                    
                    September 30, 2009
                    
                    
                    December 31, 2009High
                    
                    $
                    0.14
                    
                    
                    $
                    0.14
                    
                    
                    $
                    0.29
                    
                    
                    $
                    0.19Low
                    
                    $
                    0.03
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.08
                    
                    
                    $
                    0.03
 
 2008
                    
                    Quarter Ended
                    
                    
                    Quarter Ended
                    
                    
                    Quarter Ended
                    
                    
                    Quarter EndedMarch 31, 2008
                    
                    
                    June 30, 2008
                    
                    
                    September 30, 2008
                    
                    
                    December 31, 2008High
                    
                    $
                    0.25
                    
                    
                    $
                    0.20
                    
                    
                    $
                    0.19
                    
                    
                    $
                    0.15Low
                    
                    $
                    0.08
                    
                    
                    $
                    0.08
                    
                    
                    $
                    0.04
                    
                    
                    $
                    0.04
 
 The high
and low bid prices for shares of the Company’s  Common Stock on March
29, 2010 was $0.12 and $0.11, per share, respectively, based upon bids that
represent prices quoted by broker-dealers on the OTC Bulletin
Board.
  12
  Holders
 
 As of
March 30, 2010, there were approximately 537 holders of record of the Company's
common stock, approximately 20 holders of record of the Company's Class A
Warrants and approximately 34 holders of record of the Company's Class B
Warrants.
  Dividends
  Since its
organization, the Company has not paid any cash dividends on its common stock,
nor does it plan to do so in the foreseeable future.
  SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
 The
following table provides information regarding the status of our existing equity
compensation plans at December 31, 2009.
 
 Number of securities to
                                                be
                                                issued upon exercise of
                                                outstanding options,
                                                warrants
                                                and rights
                                              
                                              
                                              Weighted-average
                                                exercise
                                                price of outstanding
                                                options,
                                                warrants and rights
                                              
                                              
                                              Number of securities
                                                remaining
                                                available for future
                                                issuance
                                                under equity compensation
                                                plansEquity
      compensation plans approved by securityholders
                                              
                                              
                                              470,000
                                              
                                              
                                              $
                                              0.30
                                              
                                              
                                              
                                              1,030,000Equity
      compensation plans not approved by security holders
                                              
                                              
                                              24,599,001
                                              
                                              
                                              $
                                              0.17
                                              
                                              
                                              
                                              0Total
                                              
                                              
                                              25,069,001
                                              
                                              
                                              $
                                              0.18
                                              
                                              
                                              
                                              1,030,000
 
 The
number of securities remaining available for future issuance under equity
compensation plans approved by security holders totaled 1,030,000 shares at
December 31, 2009.
  SALES
OF UNREGISTERED SECURITIES FOR THE FOURTH QUARTER
 
 On
October 7, 2009, the Company issued 25,998 shares of its common stock upon the
conversion of $4,160 of the Company’s 10% convertible notes.
 
 On
October 19, 2009, the Company issued 12,800 shares of its common stock as
payment for interest due for September 2009 on the Company’s 10% convertible
notes.
 
 On
November 16, 2009, the Company issued 14,159 shares of its common stock as
payment for interest due for October 2009 on the Company’s 10% convertible
notes.
 
 On
December 15, 2009, the Company issued 19,159 shares of its common stock as
payment for interest due for November 2009 on the Company’s 10% convertible
notes.
 
 On
December 23, 2009, the Company issued 75,000 shares of the Company’s common
stock which were not timely issued in connection with bridge notes received in
the fourth quarter of 2007.
  13
  The above
shares of common stock were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
 
 Item
6. – Selected Financial Data
  N/A
  Item
7. - Management's Discussion and Analysis of Financial Condition and Results of
Operations
 
 Readers
are cautioned that certain statements contained herein are forward-looking
statements and should be read in conjunction with our disclosures under the
heading "Forward-Looking Statements" on page 1. These statements are based
on current expectations and assumptions that are subject to risks and
uncertainties. This discussion also should be read in conjunction with the notes
to our consolidated financial statements contained in Item 8. "Financial
Statements and Supplementary Data," of this Report.
 
 Background
 
 Echometrix,
Inc is a software company that develops industry-leading technology that
understands and interprets the digital web. The Company currently maintains two
operating divisions; the FamilySafe Parental Controls division and the PULSE
Data Analytics division. Through FamilySafe Inc, a wholly owned subsidiary, we
offer software products heralded as the most comprehensive and effective
solution in protecting children from dangers on the Internet and the world of
mobile texting. Our award-winning products have been specially engineered to
monitor, block and alert parents the moment a child encounters inappropriate
material from any Internet or mobile related source. Our PULSE Data Analytics
division has developed  PULSE, an advanced data analytics tool
developed to meet the changing needs of marketing and media executives. PULSE
enables the real-time aggregation, measurement, and analysis of vast amounts of
anonymous User Generated Content from publicly-available Internet
sources.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  These circumstances
raise substantial doubt about the Company's ability to continue as a going
concern.  The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
  If
the Company does not generate sufficient revenues from the sales of its products
in an amount necessary to meet its cash needs, the Company will need additional
financing to continue to operate. In March
of 2010, the Company signed an amendment with Rock Island Capital, LLC and
received proceeds of $500,000 in the first quarter ended March 31, 2010. If the
Company does not receive additional funding as per the Amendment to the Series B
Stock Purchase Agreement, the Company will need to raise additional
capital.As the Company increases sales from its products and
services, the Company expects to increase cash flows from
operations.
  Management's efforts have been directed
towards the development and implementation of a plan to generate sufficient
revenues to cover all of its present and future costs and expenses. This
plan which was completed in the fourth quarter of fiscal year 2009 includes a
corporate restructuring, which repositions Echometrix as a business-to-business
(B2B) company.  By realigning the Company into two separate and
distinct divisions, FamilySafe and PULSE Data Analytics, Echometrix will refocus
its business on high-growth, global resellers with established consumer brands.
In line with accelerating growth through this realignment, Echometrix has
completed and is launching a multi-language version of its award-winning
FamilySafe Internet product on a global basis. The Company is also launching its
new FamilySafe Mobile offering, the first ever, multi-language parental text
monitoring product which can be used on any mobile phone. These products will
only be available through major consumer-brand resellers and over the past two
months, Echometrix has been in discussions with numerous consumer brands in the
United States, Europe and South America. The Company's new approach will provide
parents with increased access to FamilySafe's comprehensive child protection
solution across all device platforms, including computers and mobile phones.
Millions of teens now use mobile phones as their primary communication device
and parents are increasingly concerned about new dangers such as sexting and
cyber-bullying. PULSE Data Analytics: Echometrix is further developing the PULSE
Data Analytics platform by integrating new analytical capabilities, innovative
tools, and solutions to meet the ever-increasing market demand. The information
obtained by PULSE Data Analytics will be based only on anonymous user-generated
content from publicly available sources on the Internet.
  14
  Significant
and Critical Accounting Policies:
 
 Our
discussion of the financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in conformity
with accounting principles generally accepted in the United States.  The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosure of any contingent
assets and liabilities at the date of the financial statements.  Management
regularly reviews its estimates and assumptions, which are based on historical
factors and other factors that are believed to be relevant under the
circumstances.  Actual results may differ from these estimates under
different assumptions, estimates or conditions.
  Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and potentially result in materially different
results under different assumptions and conditions.  See Note 3 of “Notes
to Consolidated Financial Statements” for additional disclosure of the
application of these and other accounting policies.
  Revenue
Recognition: The Company recognizes revenues in accordance with authoritative
guidance and when there is persuasive evidence of an arrangement, delivery has
occurred or services have been rendered, the sales price is determinable and
collectability is reasonably assured. Software products and services revenue is
derived via two distinct methods: direct non- consignment sales, and online
Internet sales: (i) revenue in the form of direct non- consignment sales of
merchandise are recognized when title passes to the customer, typically upon
shipment, less an estimated reserve if return privileges exist (ii) revenue from
online Internet sales is recognized upon the settlement of credit card charges,
typically within three days of the sale.
  Stock
Based Compensation: Effective January 1, 2006, the Company’s 2004 Stock Plan and
options granted outside of the Plan are accounted for in accordance with the
recognition and measurement provisions of Share Based Compensation as defined in
FASB Codification, topic 718, which requires compensation costs related to
share-based payment transactions, including employee stock options, to be
recognized in the financial statements.
 
 Results
of Operations
 
 Comparison
of the Results for the Years Ended December 31, 2009 and 2008
 
 Revenue
for the years ended December 31, 2009 and 2008 was $31,428 and $93,371,
respectively, a decrease of $61,943. The decrease relates to the fact that in
the year ended December 31, 2008, sales to a distributor totaled $63,144 and
on-line sales of $30,227.  The current year sales consist of on-line
sales and reflect a slight increase from the prior comparative
year.
  15
 
 Cost of
sales for the years ended December 31, 2009 and 2008 was $82,819 and $265,721,
respectively for direct costs of software sales, software amortization and write
off of inventory of $219,669.  This resulted in a negative gross
margin of $172,350 for fiscal year 2008.  The inventory consisted of
the older products, and had no salable value, as the Company’s focus shifted to
on-line sales in fiscal 2008. Without the inventory write off, gross profit for
the year ended December 31, 2008 was $47,319.
 
 Selling
costs decreased to $57,088 from $116,030 for the fiscal years ended December 31,
2009 and 2008, respectively.  This is directly attributable to the
Company’s focus on reducing costs and selling directly through
on-line.  Included in selling costs for the current year ended
December 31, 2009 are travel expenses totaling approximately $41,850.
 
 Website
costs decreased by approximately $51,178 for the year ended December 31, 2009
from the prior year primarily as a result of the Company’s capitalization of the
software development of $247,207.  Thus, the total expenditures on
website costs increased for the year ended December 31, 2009 from the prior year
ended December 31, 2008 increased by approximately $87,000.  This
increased spending is a direct result of the development of our Pulse product,
and the parental monitoring system program developed for mobile
devices.
 
 General
and administrative expenses increased to $3,658,239 from $3,013,034 for the
years ended December 31, 2009 and 2008, respectively.  The increase of
$645,205 consists of the following changes:
 
 ·
              Compensation costs (which
      includes stock compensation, salaries, taxes and benefits) increased
      approximately $454,000 for the fiscal year ended December 31, 2009
      compared to the prior year ended December 31, 2008.  The
      increase in overall compensation costs is a result of an increase in stock
      based compensation of approximately $478,000, increased salaries and
      taxes  approximating $102,000 and payments for a bonus under a
      consulting contract totaling $180,000.  These increases were
      offset by the decrease in severance costs of $315,750 issued in connection
      with a legal settlement in 2008. Stock based compensation and salaries
      increased in the current year as a result of hiring one additional full
      time employee in the fourth quarter of 2009, and issuing stock options and
      warrants to employees, directors and
  consultants.
 
 ·
              Professional fees (which includes
      accounting/auditing, consulting and legal fees) increased $113,548 for the
      fiscal year ended December 31, 2009.  This increase is primarily
      a result of hiring public relations in the current year (totaling $60,000)
      as well as an increase in computer services of approximately
      $40,000.
 
 Interest
expense for the years ended December 31, 2009 and 2008 was $397,418 and
$1,323,071 respectively, a decrease of $925,653. The decrease relates to the
fact that the current year ended December 31, 2009 interest expense was $133,398
for the modification of warrant exercise price and debt conversion price
compared to $1,206,811 for the fiscal year ended December 31, 2008. The decrease
in interest expense is also due to the fact that the outstanding balance of
convertible notes was lower for the fiscal year ended December 31, 2009 compared
to the fiscal year ended December 31, 2008.
 
 Gain on
extinguishments of liabilities totaled $491,830 for the year ended December 31,
2009 and was due to settlements of outstanding notes and liabilities.
Specifically, the Company paid $150,000 to settle the principal balance of a
$300,000 10% note payable, recording a $150,000 gain. The Company also settled
with the former Chief Operating Officer and recorded a gain approximating
$220,000 for the year ended December 31, 2009.   In addition, the
Company settled with three vendors and recorded gains totaling approximately
$122,000.
  16
 
 Amortization
expense from deferred note discounts for the years ended December 31, 2009 and
2008 was $650,254 and $348,037, respectively. The increase in amortization
expense primarily relates to the fact that the Company issued $1,600,000 of
bridge notes in the current fiscal year compared to $990,000 for the fiscal year
ended December 31, 2008.
 
 Liquidity
and Capital Resources
 
 The
Company's liquidity and capital needs relate primarily to working capital and
other general corporate requirements.  To date, the Company has funded
its operations with stockholder loans and by issuing notes and by the sale of
common and preferred stock.  Since inception, the Company has not
generated any significant cash flows from operations.  At December 31,
2009, the Company had cash and cash equivalents of $37,890 and a working capital
deficiency of $3,251,676.  If the Company does not generate sufficient
revenues from the sales of its products in an amount necessary to meet its cash
needs, the Company would need additional financing to continue to operate. As
the Company increases sales from its products and services, the Company expects
to increase cash flows from operations although
these cash flows may not be enough to support the Company’s
operations.
 
 Net cash
used in operating activities for the year ended December 31, 2009 was $2,164,799
compared to $1,179,732 for the prior comparable year ended December 31, 2008.
This increase in operating expenditures of $985,067 relates to the fact that in
the prior year there was approximately an additional $1,200,000 of non cash
interest expense relating to the modification of conversion price and warrant
exercise price of debt.
 
 Net cash
used in investing activities for the years ended December 31, 2009 and 2008 was
$292,207 and $110,959, respectively.  The current fiscal year
additions were primarily attributable to software costs of $247,207 and
capitalization of website costs of $45,000.  The prior year
expenditures related to software costs of $108,957.
 
 Net cash
provided from financing activities was $2,469,679 and $1,311,087 for the years
ended December 31, 2009 and 2008, respectively, an increase of $1,158,592. The
increase was a result of the Company’s sale of Series B Preferred shares in the
fiscal year ended December 31, 2009 totaling $2,000,000, as compared to the sale
of the Company’s common stock in the prior comparable year of
$318,000.
 
 Outstanding
Indebtedness
 
 The
Company has outstanding 10% convertible notes payable of $233,832 as of December
31, 2009 which are in default for non payment by maturity date.  In
addition, the Company has $2,026,890 of short term bridge notes outstanding as
of December 31, 2009.  Due to non payment by maturity date of the
$2,026,890 of bridge notes payable, $1,051,639 are in default as of December 31,
2009.
  While the
Company has raised capital from equity and debt transactions totaling
approximately $3,600,000 for the year ended December 31, 2009, we are dependent
on improved operating results and raising additional funds over the next twelve
month period. There are no assurances that we will be able to raise additional
funding. In the event that we are unable to generate sufficient cash flow or
receive proceeds from offerings of debt or equity securities, the Company may be
forced to curtail or cease its activities.
  17
  Research
and Development
 
 Research
and development costs are generally expensed as incurred. In accordance with the
provisions of FASB Codification Topic ACS 985-20, "Costs of Software to be Sold,
Leased, or Marketed,” software development costs are subject to capitalization
beginning when a product's technological feasibility has been established and
ending when a product is available for release to customers. For the years ended
December 31, 2009, and 2008 the Company capitalized $292,207 and $108,957 of
software and website development costs, respectively.  The software
and website costs are amortized on a straight line basis over the estimated
useful life of three years. Amortization expense for the years ended December
31, 2009 and 2008 was $87,120 and $22,043 respectively.
  In
accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of
Long-Lived Assets, we review long-lived assets for impairment whenever
circumstances and situations change such that there is an indication that the
carrying amounts may not be recovered.  In such circumstances, we will
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition.  Future cash flows are the future cash
inflows expected to be generated by an asset less the future outflows expected
to be necessary to obtain those inflows.  If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, we will recognize an impairment loss to adjust to
the fair value of the asset.  There have been no impairments for the
fiscal years ended December 31, 2009 and 2008.
  The
Company continually strives to enhance and improve the functionality of its
software products.  As such all new programming must be tested, even
if it is only a small component of a larger existing element of the software,
before being released to the public. Testing is an ongoing process and generally
occurs in three areas. First, upgrades and enhancements are done on a continual
basis to prolong the lifecycle of the products and as new enhancements and
upgrades are completed, each item must be tested for performance and function.
Testing is also performed to assure that new components do not adversely affect
existing software. Finally, as with all software, testing must assure
compatibility with all third party software, new operating systems and new
hardware platforms.
 
 Recent
Accounting Pronouncements Affecting the Company:
  In
October 2009, the FASB issued Accounting Standards Update No. 2009-13,
Multiple-Deliverable Revenue
Arrangements,which amends existing revenue recognition accounting
pronouncements that are currently within the scope of FASB Codification Subtopic
605-25 (previously included within EITF Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, or EITF 00-21). The consensus to EITF Issue
No. 08-01, Revenue
Arrangements with Multiple Deliverables, or EITF 08-01, provides
accounting principles and application guidance on whether multiple deliverables
exist, how the arrangement should be separated, and the consideration allocated.
This guidance eliminates the requirement to establish the fair value of
undelivered products and services and instead provides for separate revenue
recognition based upon management’s estimate of the selling price for an
undelivered item when there is no other means to determine the fair value of
that undelivered item. EITF 00-21 previously required that the fair value of the
undelivered item be the price of the item either sold in a separate transaction
between unrelated third parties or the price charged for each item when the item
is sold separately by the vendor. This was difficult to determine when the
product was not individually sold because of its unique features. Under EITF
00-21, if the fair value of all of the elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or
fair value was determined. This new approach is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. The Company will have to evaluate the
impact of this standard on future revenue arrangements that we may enter
into.
 18
  In
      June 2009, the FASB issued authoritative guidance which eliminates the
      exemption for qualifying special-purpose entities from consolidation
      requirements, contains new criteria for determining the primary
      beneficiary of a variable interest entity, and increases the frequency of
      required reassessments to determine whether a company is the primary
      beneficiary of a variable interest entity. The guidance is applicable for
      annual periods beginning after November 15, 2009 and interim periods
      therein and thereafter. The Company does not expect the adoption of this
      standard to have a material effect on its financial position or results of
      operations.
 
 EITF
      Issue No. 07-5 (ASC 815), “Determining Whether an Instrument (or embedded
      Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5) was issued in
      June 2008 to clarify how to determine whether certain instruments or
      features were indexed to an entity’s own stock under EITF Issue No. 01-6
      (ASC 815), “The Meaning of “Indexed to a Company’s Own Stock” (EITF 01-6)
      (ASC 815),. EITF 07-5(ASC 815), applies to any freestanding financial
      instrument (or embedded feature) that has all of the characteristics of a
      derivative as defined in FAS 133, for purposes of determining whether that
      instrument (or embedded feature) qualifies for the first part of the
      paragraph 11(a) scope exception. It is also applicable to any freestanding
      financial instrument (e.g., gross physically settled warrants) that is
      potentially settled in an entity’s own stock, regardless of whether it has
      all of the characteristics of a derivative as defined in FAS 133 (ASC
      815), for purposes of determining whether to apply EITF 00-19 (ASC 815).
      EITF 07-5(ASC 815) does not apply to share-based payment awards within the
      scope of FAS 123(R), Share-Based Payment (FAS 123(R) (ASC 718)). However,
      an equity-linked financial instrument issued to investors to establish a
      market-based measure of the fair value of employee stock options is not
      within the scope of FAS 123(R) and therefore is subject to EITF 07-5(ASC
      815).
 
 On
      June 5, 2003, the United States Securities and Exchange Commission (“SEC”)
      adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002
      (“Section 404”), as amended by SEC Release No. 33-9072 on October 13,
      2009. Commencing with its annual report for the year ending December 31,
      2010, the Company will be required to include a report of management on
      its internal control over financial reporting. The internal control report
      must include a statement of:
 
 ·
                Management’s
      responsibility for establishing and maintaining adequate internal control
      over its financial reporting;
 ·
                Management’s
      assessment of the effectiveness of its internal control over financial
      reporting as of year- end; and
 ·
                The
      framework used by management to evaluate the effectiveness of the
      Company’s internal control over financial
  reporting.
  Furthermore,
it is required to file the auditor’s attestation report separately on the
Company’s internal control over financial reporting on whether it believes that
the Company has maintained, in all material respects, effective internal control
over financial reporting.
 
 In
      August 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-04 “Accounting for Redeemable Equity Instruments - Amendment to
      Section 480-10-S99” which represents an update to section 480-10-S99,
      distinguishing liabilities from equity, per EITF Topic D-98,
      Classification and Measurement of Redeemable Securities. The Company does
      not expect the adoption of this update to have a material impact on its
      consolidated financial position, results of operations or cash flows. In
      August 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-05 “Fair Value Measurement and Disclosures Topic 820 – Measuring
      Liabilities at Fair Value”, which provides amendments to subtopic 820-10,
      Fair Value Measurements and Disclosures – Overall, for the fair value
      measurement of liabilities. This update provides clarification that in
      circumstances in which a quoted price in an active market for the
      identical liability is not available, a reporting entity is required to
      measure fair value using one or more of the following techniques: 1. A
      valuation technique that uses: a. The quoted price of the identical
      liability when traded as an asset b. Quoted prices for similar liabilities
      or similar liabilities when traded as assets. 2. Another valuation
      technique that is consistent with the principles of topic 820; two
      examples would be an income approach, such as a present value technique,
      or a market approach, such as a technique that is based on the amount at
      the measurement date that the reporting entity would pay to transfer the
      identical liability or would receive to enter into the identical
      liability. The amendments in this update also clarify that when estimating
      the fair value of a liability, a reporting entity is not required to
      include a separate input or adjustment to other inputs relating to the
      existence of a restriction that prevents the transfer of the liability.
      The amendments in this update also clarify that both a quoted price in an
      active market for the identical liability when traded as an asset in an
      active market when no adjustments to the quoted price of the asset are
      required are Level 1 fair value measurements. The Company does not expect
      the adoption of this update to have a material impact on its consolidated
      financial position, results of operations or cash
  flows.
 
 In
      September 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-08 “Earnings Per Share – Amendments to Section 260-10-S99”,which
      represents technical corrections to topic 260-10-S99, Earnings per share,
      based on EITF Topic D-53, Computation of Earnings Per Share for a Period
      that includes a Redemption or an Induced Conversion of a Portion of a
      Class of Preferred Stock and EITF Topic D-42, The Effect of the
      Calculation of Earnings per Share for the Redemption or Induced Conversion
      of Preferred Stock. The Company does not expect the adoption of this
      update to have a material impact on its consolidated financial position,
      results of operations or cash
flows.
 
 In
      September 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-09 “Accounting for Investments-Equity Method and Joint Ventures and
      Accounting for Equity-Based Payments to Non-Employees”. This update
      represents a correction to Section 323-10-S99-4, Accounting by an Investor
      for Stock-Based Compensation Granted to Employees of an Equity Method
      Investee. Additionally, it adds observer comment Accounting Recognition
      for Certain Transactions Involving Equity Instruments Granted to Other
      Than Employees to the Codification. The Company does not expect the
      adoption to have a material impact on its consolidated financial position,
      results of operations or cash
flows.
 
 In
      September 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-12 “Fair Value Measurements and Disclosures Topic 820 – Investment in
      Certain Entities That Calculate Net Assets Value Per Share (or Its
      Equivalent)”, which provides amendments to Subtopic 820-10, Fair Value
      Measurements and Disclosures-Overall, for the fair value measurement of
      investments in certain entities that calculate net asset value per share
      (or its equivalent). The amendments in this update permit, as a practical
      expedient, a reporting entity to measure the fair value of an investment
      that is within the scope of the amendments in this update on the basis of
      the net asset value per share of the investment (or its equivalent) if the
      net asset value of the investment (or its equivalent) is calculated in a
      manner consistent with the measurement principles of Topic 946 as of the
      reporting entity’s measurement date, including measurement of all or
      substantially all of the underlying investments of the investee in
      accordance with Topic 820. The amendments in this update also require
      disclosures by major category of investment about the attributes of
      investments within the scope of the amendments in this update, such as the
      nature of any restrictions on the investor’s ability to redeem its
      investments at the measurement date, any unfunded commitments (for
      example, a contractual commitment by the investor to invest a specified
      amount of additional capital at a future date to fund investments that
      will be made by the investee), and the investment strategies of the
      investees. The major category of investment is required to be determined
      on the basis of the nature and risks of the investment in a manner
      consistent with the guidance for major security types in U.S. GAAP on
      investments in debt and equity securities in paragraph 320-10-50-1B. The
      disclosures are required for all investments within the scope of the
      amendments in this update regardless of whether the fair value of the
      investment is measured using the practical expedient. The Company does not
      expect the adoption to have a material impact on its consolidated
      financial position, results of operations or cash
  flows.
 
 In
      October 2009, the FASB issued guidance for amendments to FASB Emerging
      Issues Task Force on EITF Issue No. 09-1 “Accounting for Own-Share Lending
      Arrangements in Contemplation of a Convertible Debt Issuance or Other
      Financing” (Subtopic 470-20) “Subtopic”. This accounting standards update
      establishes the accounting and reporting guidance for arrangements under
      which own-share lending arrangements issued in contemplation of
      convertible debt issuance. This Statement is effective for fiscal years,
      and interim periods within those fiscal years, beginning on or after
      December 15, 2009. Earlier adoption is not permitted. The Company does not
      expect the adoption to have a material impact on its consolidated
      financial position, results of operations or cash
  flows.
  Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon
adoption.
  19
 
 ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  INDEX
 Page No.FINANCIAL
      STATEMENTS:Report
      of Independent Registered Public Accounting Firm
                
                F-1Consolidated
      Balance Sheets as at December 31, 2009 and 2008
                
                F-2 - F-3Consolidated Statements of
      Operations For the
      Years Ended December 31, 2009 and 2008
                
                F-4Consolidated Statement of
      Stockholders' Deficit For the Years ended December 31,
      2009 and 2008
                
                F-5
      - F-6Consolidated Statements of Cash
      Flows For the Years
      Ended December 31, 2009 and 2008
                
                F-7 - F-8Notes
      to Consolidated Financial Statements
                
                F-9 - F-28
  20
  Report of Independent
Registered Public Accounting Firm
  To the
Board of Directors and Shareholders of EchoMetrix, Inc.
 Syosset,
New York
  We have
audited the accompanying consolidated balance sheets of EchoMetrix, Inc. and
Subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
ended December 31, 2009 and 2008. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of EchoMetrix, Inc. and
Subsidiaries at December 31, 2009 and 2008, and the results of their operations
and their cash flows for the year ended December 31, 2009 and 2008 in conformity
with accounting principles generally accepted in the United States of
America.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has negative working capital and a net capital deficiency
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
  /s/ Sherb
& Company LLP
  New York,
New York
 March 29,
2010
  F-1




ECHOMETRIX,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




ASSETS





December
      31,
                
                
                December
      31,2009
                
                
                2008Current
      assets:Cash
                
                $
                37,890
                
                
                $
                25,217Accounts
      receivable less allowance for doubtful accounts of $0 and $250
      respectively
                
                
                238
                
                
                
                1,891Prepaid
      expenses
                
                
                12,671
                
                
                
                18,780Total
      current assets
                
                
                50,799
                
                
                
                45,888Property
      and equipment - net
                
                
                68,094
                
                
                
                130,953Other
      assets:Capitalized
      software costs, less amortization of $82,120 and $22,043,
      respectively
                
                
                252,001
                
                
                
                86,914Website
      development costs, less amortization of $5,000
                
                
                40,000
                
                
                
                -Deferred
      finance costs, less amortization of $10,000 and $330,339,
      respectively
                
                
                -
                
                
                
                10,000Security
      deposit
                
                
                9,454
                
                
                
                13,454Intangible
      assets, less amortization of $9,657 and $28,970,
    respectively
                
                
                -
                
                
                
                9,657Total
      other assets
                
                
                301,455
                
                
                
                120,025Total
      assets
                
                $
                420,348
                
                
                $
                296,866





See notes
to consolidated financial statements


F-2


ECHOMETRIX,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS (Continued)





LIABILITIES AND
STOCKHOLDERS' DEFICIT





December
      31,
                        
                        
                        December
      31,2009
                        
                        
                        2008Current
      liabilities:Note
      payable - bank
                        
                        $
                        -
                        
                        
                        $
                        49,007Current
      portion of long term debt and capital leases
                        
                        
                        47,991
                        
                        
                        
                        57,101Current
      portion of 10% convertible notes payable
                        
                        
                        233,832
                        
                        
                        
                        668,000Convertible
      short term bridge notes payable, net of discount of $111,574 and $59,279
      respectively
                        
                        
                        1,642,249
                        
                        
                        
                        1,020,721Non
      convertible short term bridge notes payable
                        
                        
                        273,067
                        
                        
                        
                        210,000Due
      to stockholders
                        
                        
                        307,838
                        
                        
                        
                        887,755Due
      to affiliates
                        
                        
                        -
                        
                        
                        
                        47,671Accounts
      payable
                        
                        
                        295,771
                        
                        
                        
                        538,158Accrued
      expenses
                        
                        
                        501,727
                        
                        
                        
                        369,824Total
      current liabilities
                        
                        
                        3,302,475
                        
                        
                        
                        3,848,237Other
      liabilities:Obligations
      under capital lease, net of current portion
                        
                        
                        5,735
                        
                        
                        
                        59,325Note
      payable - equipment, net of current portion
                        
                        
                        -
                        
                        
                        
                        7,377Deferred
      rent
                        
                        
                        7,541
                        
                        
                        
                        9,498Total
      liabilities
                        
                        
                        3,315,751
                        
                        
                        
                        3,924,437Stockholders'
      deficitPreferred
      Stock - $.0001 par value, 25,000,000 authorized:Series
      A Preferred stock - $.0001 par value, 1,526,718 designated; issued and
      outstanding -  901,237 respectively
                        
                        
                        90
                        
                        
                        
                        90Series
      B Preferred stock - $.0001 par value, 550,055 designated; issued and
      outstanding - 220,022 and 0 respectively
                        
                        
                        22
                        
                        
                        
                        -Common
      stock - $.0001 par value,  authorized  - 250,000,000
      shares; issued and outstanding -79,203,336 and 71,787,304, shares,
      respectively
                        
                        
                        7,921
                        
                        
                        
                        7,178Additional
      paid-in capital
                        
                        
                        26,470,579
                        
                        
                        
                        19,214,710Accumulated
      deficit
                        
                        
                        (29,374,015
                        )
                        
                        
                        (22,849,549
                        )Total
      stockholders'  deficit
                        
                        
                        (2,895,403
                        )
                        
                        
                        (3,627,571
                        )Total
      liabilities and stockholders' deficit
                        
                        $
                        420,348
                        
                        
                        $
                        296,866





See notes
to consolidated financial statements


F-3


ECHOMETRIX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





For
      the Years Ended December 31,2009
                              
                              
                              2008Revenues
                              
                              $
                              31,428
                              
                              
                              $
                              93,371Cost
      of SalesAmortization
      of software development costs
                              
                              
                              82,120
                              
                              
                              
                              22,043Software
                              
                              
                              699
                              
                              
                              
                              24,009Write
      off of inventory
                              
                              
                              -
                              
                              
                              
                              219,669Cost
      of Sales
                              
                              
                              82,819
                              
                              
                              
                              265,721Gross
      Loss
                              
                              
                              (51,391
                              )
                              
                              
                              (172,350
                              )Operating
      expenses:Selling
                              
                              
                              57,088
                              
                              
                              
                              116,030Web
      site costs
                              
                              
                              69,945
                              
                              
                              
                              121,123General
      and administrative
                              
                              
                              3,658,239
                              
                              
                              
                              3,013,034Depreciation
      and amortization
                              
                              
                              87,516
                              
                              
                              
                              159,778Total
      operating expenses
                              
                              
                              3,872,788
                              
                              
                              
                              3,409,965Loss
      from operations
                              
                              
                              (3,924,179
                              )
                              
                              
                              (3,582,315
                              )Other
      (income) expenses:Interest
                              
                              
                              396,410
                              
                              
                              
                              1,312,432Interest
      - related party
                              
                              
                              1,008
                              
                              
                              
                              10,639Gain
      on extinguishment of liabilities
                              
                              
                              (491,830
                              )
                              
                              
                              -Other
      expenses (income)
                              
                              
                              889
                              
                              
                              
                              (63,393
                              )Amortization
      of note discounts
                              
                              
                              650,254
                              
                              
                              
                              348,037Total
      other expenses
                              
                              
                              556,731
                              
                              
                              
                              1,607,715Net
      loss
                              
                              
                              (4,480,910
                              )
                              
                              
                              (5,190,030
                              )Common
      stock dividends to be issued for Series B Preferred Stock
                              
                              
                              (43,556
                              )
                              
                              
                              -Deemed
      preferred stock dividend
                              
                              
                              (2,000,000
                              )
                              
                              
                              -Net
      loss applicable to common stockholders
                              
                              $
                              (6,524,466
                              )
                              
                              $
                              (5,190,030
                              )Per
      share dataLoss
      per share - basic and diluted
                              
                              $
                              (0.09
                              )
                              
                              $
                              (0.08
                              )Weighted
      average number of shares outstanding- basic and diluted
                              
                              
                              76,074,372
                              
                              
                              
                              65,171,825





See notes
to consolidated financial statements


F-4


ECHOMETRIX, INC. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008




Series
      A Preferred Stock
                                            
                                            Series
      B Preferred Stock
                                            
                                            Common
      Stock
                                            
                                            Additional
                                            
                                            
                                            
                                            TotalPar
      Value $.0001
                                            
                                            
                                            
                                            Par
      Value $.0001
                                            
                                            
                                            
                                            Par
      Value $.0001
                                            
                                            Paid-In
                                            
                                            Accumulated
                                            
                                            Stockholders'Shares
                                            
                                            Amount
                                            
                                            Shares
                                            
                                            Amount
                                            
                                            Shares
                                            
                                            Amount
                                            
                                            Capital
                                            
                                            Deficit
                                            
                                            DeficitBalance
      at December 31, 2007 (Restated)
                                            
                                            
                                            901,237
                                            
                                            $
                                            90
                                            
                                            
                                            -
                                            
                                            $
                                            -
                                            
                                            
                                            45,139,182
                                            
                                            $
                                            4,517
                                            
                                            $
                                            14,301,695
                                            
                                            $
                                            (17,659,519
                                            )
                                            $
                                            (3,353,217
                                            )Net
      proceeds from sale of securities
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,271,429
                                            
                                            
                                            227
                                            
                                            
                                            317,773
                                            
                                            
                                            
                                            
                                            
                                            318,000Common
      stock issued in connection with exercise of warrants
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            3,080,276
                                            
                                            
                                            308
                                            
                                            
                                            233,913
                                            
                                            
                                            
                                            
                                            
                                            234,221Common
      stock issued in connection with conversion of 10% notes
      payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            14,163,550
                                            
                                            
                                            1,416
                                            
                                            
                                            1,511,584
                                            
                                            
                                            
                                            
                                            
                                            1,513,000Common
      stock issued as interest on debt
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            742,867
                                            
                                            
                                            70
                                            
                                            
                                            96,692
                                            
                                            
                                            
                                            
                                            
                                            96,762Fair
      value of common stock issued for services
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            330,000
                                            
                                            
                                            33
                                            
                                            
                                            57,267
                                            
                                            
                                            
                                            
                                            
                                            57,300Warrants
      issued for services
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            116,000
                                            
                                            
                                            
                                            
                                            
                                            116,000Common
      stock issued for compensation
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,650,000
                                            
                                            
                                            265
                                            
                                            
                                            288,235
                                            
                                            
                                            
                                            
                                            
                                            288,500Common
      stock issued for purchase of Company
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            300,000
                                            
                                            
                                            30
                                            
                                            
                                            38,970
                                            
                                            
                                            
                                            
                                            
                                            39,000Common
      stock issued in connection with legal settlement
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,275,000
                                            
                                            
                                            127
                                            
                                            
                                            165,623
                                            
                                            
                                            
                                            
                                            
                                            165,750Restricted
      stock issued in connection with bridge notes payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,835,000
                                            
                                            
                                            184
                                            
                                            
                                            173,328
                                            
                                            
                                            
                                            
                                            
                                            173,512Warrant
      issued in connection with bridge notes payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            67,733
                                            
                                            
                                            
                                            
                                            
                                            67,733Beneficial
      conversion feature issued in connection with bridge notes
      payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            69,504
                                            
                                            
                                            
                                            
                                            
                                            69,504Interest
      related to modification of exercise price of warrants
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            75,000
                                            
                                            
                                            
                                            
                                            
                                            75,000Interest
      related to modification of conversion price of debt
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,014,811
                                            
                                            
                                            
                                            
                                            
                                            1,014,811Compensation
      related to modification of exercise price of warrants
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            117,000
                                            
                                            
                                            
                                            
                                            
                                            117,000Option
      expense
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            569,583
                                            
                                            
                                            
                                            
                                            
                                            569,583Net
      Loss
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (5,190,030
                                            )
                                            
                                            (5,190,030
                                            )Balance
      at December 31, 2008
                                            
                                            
                                            901,237
                                            
                                            
                                            90
                                            
                                            
                                            -
                                            
                                            
                                            -
                                            
                                            
                                            71,787,304
                                            
                                            
                                            7,178
                                            
                                            
                                            19,214,710
                                            
                                            
                                            (22,849,549
                                            )
                                            
                                            (3,627,571
                                            )





See notes
to consolidated financial statements


F-5


ECHOMETRIX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008 (Continued)





Series
      A Preferred Stock
                                            
                                            Series
      B Preferred Stock
                                            
                                            Common
      Stock
                                            
                                            Additional
                                            
                                            
                                            
                                            TotalPar
      Value $.0001
                                            
                                            
                                            
                                            Par
      Value $.0001
                                            
                                            
                                            
                                            Par
      Value $.0001
                                            
                                            Paid-In
                                            
                                            Accumulated
                                            
                                            Stockholders'Shares
                                            
                                            Amount
                                            
                                            Shares
                                            
                                            Amount
                                            
                                            Shares
                                            
                                            Amount
                                            
                                            Capital
                                            
                                            Deficit
                                            
                                            DeficitBalance
      at December 31, 2008
                                            
                                            
                                            901,237
                                            
                                            
                                            90
                                            
                                            
                                            
                                            
                                            
                                            
                                            71,787,304
                                            
                                            
                                            7,178
                                            
                                            
                                            19,214,710
                                            
                                            
                                            (22,849,549
                                            )
                                            
                                            (3,627,571
                                            )Common
      stock issued for interest on debt
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            675,795
                                            
                                            
                                            66
                                            
                                            
                                            79,771
                                            
                                            
                                            
                                            
                                            
                                            79,837Common
      stock issued in connection with 2008 warrants exercised
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            24,000
                                            
                                            
                                            2
                                            
                                            
                                            (2
                                            )
                                            
                                            
                                            
                                            
                                            -Common
      stock issued for conversion of 10% notes-principal
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            766,237
                                            
                                            
                                            77
                                            
                                            
                                            93,083
                                            
                                            
                                            
                                            
                                            
                                            93,160Common
      stock issued for conversion of Bridge Notes - principal
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,500,000
                                            
                                            
                                            250
                                            
                                            
                                            349,750
                                            
                                            
                                            
                                            
                                            
                                            350,000Common
      stock issued for legal settlement
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            500,000
                                            
                                            
                                            50
                                            
                                            
                                            44,950
                                            
                                            
                                            
                                            
                                            
                                            45,000Fair
      value of common stock issued for services
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            120,000
                                            
                                            
                                            15
                                            
                                            
                                            20,986
                                            
                                            
                                            
                                            
                                            
                                            21,001Restricted
      stock issued in connection with bridge notes payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,830,000
                                            
                                            
                                            283
                                            
                                            
                                            266,461
                                            
                                            
                                            
                                            
                                            
                                            266,744Warrants
      issued in connection with bridge notes payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            94,368
                                            
                                            
                                            
                                            
                                            
                                            94,368Beneficial
      conversion feature issued in connection with bridge notes
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            341,393
                                            
                                            
                                            
                                            
                                            
                                            341,393Interest
      related to modification of conversion price of debt
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            133,398
                                            
                                            
                                            
                                            
                                            
                                            133,398Fair
      value of warrants issued for consulting services
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            663,629
                                            
                                            
                                            
                                            
                                            
                                            663,629Fair
      value of options issued for consulting services
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            94,000
                                            
                                            
                                            
                                            
                                            
                                            94,000Fair
      value of warrants issued to employees
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            360,000
                                            
                                            
                                            
                                            
                                            
                                            360,000Option
      expense
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            670,548
                                            
                                            
                                            
                                            
                                            
                                            670,548Issuance
      of Preferred B securities
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            220,022
                                            
                                            
                                            22
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,999,978
                                            
                                            
                                            
                                            
                                            
                                            2,000,000Dividends
      payable in common stock to Series B Preferred Stockholders
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            43,556
                                            
                                            
                                            (43,556
                                            )
                                            
                                            -Deemed
      Dividend on Preferred B securities
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,000,000
                                            
                                            
                                            (2,000,000
                                            )
                                            
                                            -Net
      Loss
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (4,480,910
                                            )
                                            
                                            (4,480,910
                                            )Balance
      at December 31, 2009
                                            
                                            
                                            901,237
                                            
                                            $
                                            90
                                            
                                            
                                            220,022
                                            
                                            $
                                            22
                                            
                                            
                                            79,203,336
                                            
                                            $
                                            7,921
                                            
                                            $
                                            26,470,579
                                            
                                            $
                                            (29,374,015
                                            )
                                            $
                                            (2,895,403
                                            )





See notes
to consolidated financial statements


F-6


ECHOMETRIX,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For
      the Years Ended December 31,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      loss
                      
                      $
                      (4,480,910
                      )
                      
                      $
                      (5,190,030
                      )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Write
      off of inventory
                      
                      
                      -
                      
                      
                      
                      219,669Gain
      on extinguishment of debt
                      
                      
                      (491,830
                      )
                      
                      
                      -Warrants
      and options issued for services
                      
                      
                      757,629
                      
                      
                      
                      -Warrants
      issued to employees
                      
                      
                      360,000Common
      stock issued for services
                      
                      
                      21,000
                      
                      
                      
                      173,300Stock
      issued for interest on debt service
                      
                      
                      79,837
                      
                      
                      
                      96,300Stock
      issued for legal settlement
                      
                      
                      -
                      
                      
                      
                      165,750Compensatory
      element of stock options
                      
                      
                      670,548
                      
                      
                      
                      1,049,068Depreciation
                      
                      
                      62,859
                      
                      
                      
                      63,460Amortization
      of deferred financing costs
                      
                      
                      10,000
                      
                      
                      
                      67,348Amortization
      of software and website development costs
                      
                      
                      87,120
                      
                      
                      
                      22,043Amortization
      of intangible assets
                      
                      
                      9,657
                      
                      
                      
                      28,970Amortization
      of discount related to issuance of restricted stock
                      
                      
                      263,614
                      
                      
                      
                      135,825Amortization
      of beneficial conversion feature
                      
                      
                      290,717
                      
                      
                      
                      105,337Amortization
      of discount related to issuance of warrants
                      
                      
                      95,923
                      
                      
                      
                      106,875Interest
      and compensation expense as a result of modificationof
      warrant exercise price
                      
                      
                      -
                      
                      
                      
                      192,000Interest
      expense as a result of conversion price reduction
                      
                      
                      133,398
                      
                      
                      
                      1,014,811Increase
      (decrease) in cash flows as a result of changes in asset and liability
      account balances:Accounts
      receivable
                      
                      
                      1,653
                      
                      
                      
                      87,158Inventories
                      
                      
                      -
                      
                      
                      
                      28,479Prepaid
      expenses and other assets
                      
                      
                      6,109
                      
                      
                      
                      (13,371
                      )Deferred
      rent
                      
                      
                      (1,957
                      )
                      
                      
                      (280
                      )Due
      to stockholders
                      
                      
                      (68,886
                      )
                      
                      
                      301,264Accounts
      payable and accrued expenses
                      
                      
                      28,719
                      
                      
                      
                      166,292Total
      adjustments
                      
                      
                      2,316,111
                      
                      
                      
                      4,010,298Net
      cash used in operating activities
                      
                      
                      (2,164,799
                      )
                      
                      
                      (1,179,732
                      )Cash
      flows from investing activities:Acquisition
      expenses less cash acquired
                      
                      
                      -
                      
                      
                      
                      373Equipment
      purchases
                      
                      
                      -
                      
                      
                      
                      (2,375
                      )Capitalized
      software costs
                      
                      
                      (247,207
                      )
                      
                      
                      (108,957
                      )Capitalized
      website development costs
                      
                      
                      (45,000
                      )
                      
                      
                      -Net
      cash used in investing activities
                      
                      
                      (292,207
                      )
                      
                      
                      (110,959
                      )





See notes
to consolidated financial statements


F-7




ECHOMETRIX, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)





For
      the Years Ended December 31,2009
                  
                  
                  2008Cash
      flows from financing activities:Proceeds
      from sale of Preferred B securities
                  
                  
                  2,000,000
                  
                  
                  
                  -Borrowings
      (payments) from stockholders
                  
                  
                  (306,809
                  )
                  
                  
                  117,629Proceeds
      from warrants exercised in relation to convertible notes
      payable
                  
                  
                  -
                  
                  
                  
                  114,686Proceeds
      from bridge notes payable
                  
                  
                  1,600,000
                  
                  
                  
                  990,000Payments
      of bridge notes payable
                  
                  
                  (513,109
                  )
                  
                  
                  (150,000
                  )Payments
      of 10% convertible notes payable
                  
                  
                  (191,008
                  )
                  
                  
                  -Payments
      of note payable - equipment
                  
                  
                  -
                  
                  
                  
                  (4,690
                  )Payments
      under capital lease
                  
                  
                  (70,388
                  )
                  
                  
                  (58,848
                  )Payments
      of notes payable - bank
                  
                  
                  (49,007
                  )
                  
                  
                  (5,690
                  )Proceeds
      from sale of securities
                  
                  
                  -
                  
                  
                  
                  318,000Payments
      for deferred financing costs
                  
                  
                  -
                  
                  
                  
                  (10,000
                  )Net
      cash provided by financing activities
                  
                  
                  2,469,679
                  
                  
                  
                  1,311,087Net
      increase in cash
                  
                  
                  12,673
                  
                  
                  
                  20,396Cash
      at beginning of year
                  
                  
                  25,217
                  
                  
                  
                  4,821Cash
      at end of year
                  
                  $
                  37,890
                  
                  
                  $
                  25,217Supplemental
      Disclosure of cash flow information:Cash
      payment made during the period - Interest
                  
                  $
                  11,745
                  
                  
                  $
                  6,635Supplemental
      Schedules of Noncash  Investing and Financing
      Activities:Common
      stock issued in connection with settlement agreement
                  
                  $
                  45,000
                  
                  
                  $
                  -Computer
      equipment under capital lease
                  
                  $
                  -
                  
                  
                  $
                  36,811Convertible
      notes converted to common stock
                  
                  $
                  443,160
                  
                  
                  $
                  1,513,000Stock
      issued for acquisition of EchoMetrix Inc.
                  
                  $
                  -
                  
                  
                  $
                  39,000Common
      Stock and options issued for services
                  
                  $
                  -
                  
                  
                  $
                  57,300Debt
      discount related to restricted stock issued in connection to bridge
      loans
                  
                  $
                  266,744
                  
                  
                  $
                  173,512Debt
      discount related to warrants granted in connection to bridge
      loans
                  
                  $
                  94,368
                  
                  
                  $
                  67,733Debt
      discount of beneficial conversion feature in relation to bridge
      loans
                  
                  $
                  341,293
                  
                  
                  $
                  69,504Shareholder
      loan converted to accounts payable
                  
                  $
                  32,000
                  
                  
                  
                  -Common
      stock dividends to be issued for Series B Preferred Stock
                  
                  $
                  43,556
                  
                  
                  $
                  -Deemed
      preferred stock dividend
                  
                  $
                  2,000,000
                  
                  
                  $
                  -





See notes
to consolidated financial statements


F-8


ECHOMETRIX,
INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





NOTE 1 -
DESCRIPTION OF BUSINESS AND GOING CONCERN





Echometrix,
Inc (the Company) is a software company that develops industry-leading
technology that understands and interprets the digital web. The Company
currently maintains two operating divisions; the FamilySafe Parental Controls
division and the PULSE Data Analytics division. Through FamilySafe Inc, a wholly
owned subsidiary, the Company offers software products heralded as the most
comprehensive and effective solution in protecting children from dangers on the
Internet and the world of mobile texting. It's products have been specially
engineered to monitor, block and alert parents the moment a child encounters
inappropriate material from any Internet or mobile related source. It's PULSE
Data Analytics division has developed  PULSE, an advanced data
analytics tool developed to meet the changing needs of marketing and media
executives. PULSE enables the real-time aggregation, measurement, and analysis
of vast amounts of anonymous User Generated Content from publicly-available
Internet sources.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As reflected in the
consolidated financial statements, the Company incurred net losses of
$4,480,910 and $5,190,030 for the years ended December 31, 2009 and 2008,
respectively.  In addition, the Company had negative working capital
of $3,251,676 and an accumulated deficit of $29,374,015 at December 31,
2009.




These circumstances raise substantial
doubt about the Company's ability to continue as a going concern.  The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.  Management's efforts
have been directed towards the development and implementation of a plan to
generate sufficient revenues to cover all of its present and future costs and
expenses. This plan which was completed in the fourth quarter of fiscal
year 2009 includes a corporate restructuring, which repositions Echometrix as a
business-to-business (B2B) company.  By realigning the Company into
two separate and distinct divisions, FamilySafe and PULSE Data Analytics,
Echometrix will refocus its business on high-growth, global resellers with
established consumer brands. In line with accelerating growth through this
realignment, Echometrix has completed and is launching a multi-language version
of its award-winning FamilySafe Internet product on a global basis. The Company
is also launching its new FamilySafe Mobile offering, the first ever,
multi-language parental text monitoring product which can be used on any mobile
phone. These products will only be available through major consumer-brand
resellers and over the past two months, Echometrix has been in discussions with
numerous consumer brands in the United States, Europe and South America. The
Company's new approach will provide parents with increased access to
FamilySafe's comprehensive child protection solution across all device
platforms, including computers and mobile phones. Millions of teens now use
mobile phones as their primary communication device and parents are increasingly
concerned about new dangers such as sexting and cyber-bullying. PULSE Data
Analytics: Echometrix is further developing the PULSE Data Analytics platform by
integrating new analytical capabilities, innovative tools, and solutions to meet
the ever-increasing market demand. The information obtained by PULSE Data
Analytics will be based only on anonymous user-generated content from publicly
available sources on the Internet.


F-9


If the
Company does not generate sufficient revenues from the sales of its products in
an amount necessary to meet its cash needs, the Company will need additional
financing to continue to operate. There are no assurances that the Company can
continue to successfully raise additional financing.  As the Company
increases sales from its products and services, the Company expects to increase
cash flows from operations. The Company has been successful in raising financing
from equity and debt transactions. During 2009, the Company raised approximately
$3,600,000 from the sale of preferred stock ($2,000,000), and private placement
of common stock and warrants, and issuance of debt ($1,600,000). In addition an
approximate total of $93,000 of the 10% short term promissory notes have been
converted into common stock, and $350,000 of the bridge notes payable have been
converted into common stock. During 2008, the Company raised $848,000 from the
private placement of common stock and warrants, and issuance of debt and a total
of $1,488,000 of the 10% short term promissory notes have been converted into
common stock.




The
accompanying consolidated financial statements have been prepared, in accordance
with accounting principles generally accepted in the United States (“U.S. GAAP”)
and pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”).  The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany transactions have been eliminated in
consolidation.





NOTE 2
–PRIOR PERIOD ADJUSTMENT TO QUARTERLY FINANCIALS:





In the
first Quarter ended March 31, 2008, the Company amended the conversion
provisions, and warrant exercising price under its 10% convertible notes by
significantly reducing the conversion price of the debt and warrant exercise
price with the conversion price reduction being contingent upon the concurrent
exercising of the warrant to purchases the Company’s common stock. The Company
did not record the interest expense and increase to additional paid-in capital
associated with the accounting for the modification in accordance with U.S.
generally accepted accounting principles.




The
following adjustments are a result of an accounting change by the Company to
properly reflect the accounting for the modification of the conversion price of
the Company’s convertible notes, and the reduction in the related warrant
exercise the Financial Accounting Standards Board (“FASB”) on stock based
compensation and modifications of debt.




The
effect on the first quarter ended March 31, 2008 was a debit to interest expense
of $985,500 and the corresponding credit was to additional paid-in capital.
There was no effect on the fiscal year ended December 31, 2008.




NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:





(a) Basis
of Presentation:





EchoMetrix,
Inc. is organized as a single reporting unit, with two operating divisions, and
believes that it operates as a single business.   References in this report
to “EchoMetrix”, the “Company”, “we”, “us” or “our” refers to EchoMetrix Inc.
and its consolidated subsidiaries. All intercompany transactions have been
eliminated in consolidation.


F-10


(b)
Revenue Recognition:




The
Company recognizes revenues in accordance with authoritative guidance and when
there is persuasive evidence of an arrangement, delivery has occurred or
services have been rendered, the sales price is determinable and collectability
is reasonably assured. Software products and services revenue is derived via two
distinct methods: direct non- consignment sales, and online Internet sales: (i)
revenue in the form of direct non- consignment sales of merchandise are
recognized when title passes to the customer, typically upon shipment, less an
estimated reserve if return privileges exist (ii) revenue from online Internet
sales is recognized upon the settlement of credit card charges, typically within
three days of the sale.




(c) Use
of Estimates:




The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.




(d)
Earnings Per Share:





The
Company utilizes the guidance per FASB Codification “ASC 260 "Earnings Per
Share". Basic earnings per share is calculated on the weighted effect of all
common shares issued and outstanding, and is calculated by dividing net income
available to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is calculated by dividing
net income available to common stockholders by the weighted average number of
common shares used in the basic earnings per share calculation, plus the number
of common shares that would be issued assuming conversion of all potentially
dilutive securities outstanding, is not presented separately as it is
anti-dilutive. Such securities, shown below, presented on a common share
equivalent basis and outstanding as of December 31, 2009 and 2008 have been
excluded from the per share computations as their effect would be
anti-dilutive:




FortheYears Ended
                        December31,2009
                      
                      
                      20082004
      Stock Plan Options
                      
                      
                      470,000
                      
                      
                      
                      1,150,000Non
      ISO Stock Options
                      
                      
                      24,599,001
                      
                      
                      
                      7,369,632Convertible
      Preferred Stock
                      
                      
                      31,014,570
                      
                      
                      
                      9,012,370Convertible
      Notes Payable
                      
                      
                      15,894,045
                      
                      
                      
                      5,485,714Warrants
                      
                      
                      43,168,181
                      
                      
                      
                      10,996,084





(e) Stock
Based Compensation:




Effective
January 1, 2006, the Company’s 2004 Stock Plan and options granted outside of
the Plan are accounted for in accordance with the recognition and measurement
provisions of Share Based Compensation as defined in FASB Codification, topic
718, which  requires compensation costs related to share-based payment
transactions, including employee stock options, to be recognized in the
financial statements.


F-11


(f)
Advertising Costs:




The
Company expenses ordinary advertising and promotion costs as incurred.




(g)
Software Development Costs:




Research
and development costs are expensed as incurred. No research and development
costs were incurred during the years ended December 31, 2009 and
2008.




In
accordance with the provisions of Accounting for the costs of computer software
to be sold or otherwise marketed, software development costs are subject to
capitalization beginning when a product's technological feasibility has been
established and ending when a product is available for release to customers. For
the years ended December 31, 2009 and 2008, the Company capitalized $247,207 and
$108,957, respectively of software development costs..  The software
costs are amortized on a straight line basis over the estimated useful life of
three years. Amortization expense for the years ended December 31, 2009 and 2008
was $82,120 and $22,043 respectively. Such
amortization is included in cost of sales in the consolidated statements of
operations. Estimated aggregate minimum amortization expenses for each of the
next three years is:


2010
                  
                  
                  120,5002011
                  
                  
                  98,5002012
                  
                  
                  33,000





(h)
Long-Lived Assets




In
accordance with guidance for “Accounting for the Impairment or Disposal of
Long-Lived Assets”, we review long-lived assets for impairment whenever
circumstances and situations change such that there is an indication that the
carrying amounts may not be recovered.  In such circumstances, we will
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition.  Future cash flows are the future cash
inflows expected to be generated by an asset less the future outflows expected
to be necessary to obtain those inflows.  If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, we will recognize an impairment loss to adjust to
the fair value of the asset.  There were no impairments for the fiscal
years ending December 31, 2009 and 2008.




(i) Cash
Equivalents:




For
purposes of the consolidated statements of cash flows, the Company considers all
highly liquid investments with a remaining maturity of three months or less,
when purchased, to be cash equivalents.




(j)
Accounts Receivable and Allowance for Doubtful Accounts




Accounts
receivable are stated at the amount the Company expects to collect. The Company
provides an allowance for doubtful accounts equal to the estimated uncollectible
amounts. The Company’s estimate is based on historical collection experience and
a review of the current status of trade accounts receivable. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will
change. Accounts receivable are presented net of an allowance for doubtful
accounts of $0 and $250 at December 31, 2009, and 2008,
respectively.


F-12


(k)
Fair Value of Financial Instruments:




The
Company’s financial instruments are cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses, notes payable and obligations
under capital leases. The carrying amounts of accounts receivable, accounts
payable and accrued expenses approximates fair value due to the short term
nature of these financial instruments. The recorded values of notes payable and
obligations under capital leases approximate their fair values, as interest
approximates market rates.




(l)
Concentration of Credit Risk:




Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and accounts receivable. The Company from time
to time may maintain cash balances, which exceed the Federal Depository
Insurance Coverage limit. The Company performs periodic reviews of the relative
credit rating of its bank to lower its risk. Concentrations of credit risk with
respect to accounts receivable are limited because a number of geographically
diverse customers make up the Company’s customer base, thus spreading the trade
credit risk.





(m)
Inventories:




The
Company's inventory consisted entirely of finished, packaged software products
and was valued at lower of cost or market price. Cost is determined on a
first-in, first-out (“FIFO”) basis.  All inventory was written off in
the fiscal year ended December 31, 2008 and a loss on the write off of $219,669
is included in the statement of operations in the cost of sales line
item.





(n)
Shipping and Handling Costs:




The
Company’s shipping and handling costs are included in cost of sales for all
periods presented. Shipping and handling costs were $0 and $7,715 for the years
ending December 31, 2009, and December 31, 2008, respectively.




(o)
Property and Equipment and Depreciation:




Property
and equipment are recorded at cost. Expenditures for major additions and
improvements are capitalized and minor replacements, maintenance, and repairs
are charged to expense as incurred. When property and equipment are disposed of,
the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations for the
respective period. Depreciation is provided for over the estimated useful lives
of the related asset using the straight-line method. The estimated useful lives
for significant property and equipment categories are as follows:


Furniture and fixtures
              
              5 yearsData processing equipment
              
              3 to 5 yearsTelecommunication equipment
              
              5 yearsPurchased software
              
              3 years




(p) 
Intangible Assets and Amortization:




In April
2008, the Company purchased all of the stock of EchoMetrix Inc., in exchange for
300,000 shares of the Company’s common stock.  The acquisition
resulted in $373 of cash, and the difference between the purchase price and the
net assets acquired was recorded as an intangible asset, approximately $38,627.
The Company is amortizing the intangible over a twelve month
period.  Intangible assets subject to amortization are amortized on a
straight-line basis over their estimated useful lives. The amortization expense
for the years ended December 31, 2009 and 2008 was $9,657 and $28,970
respectively.


F-13


(q)
Deferred Financing Costs:




The
Company incurred financing costs related to its borrowings. Such costs are
deferred and amortized generally by the straight-line method over the life of
the underlying borrowings. In case the amount is repaid before maturity, the
related unamortized amount is written off in the statement of operations. The
Company amortized $10,000 and $67,403 of deferred financing costs for the years
ended December 31, 2009 and 2008, respectively.





(r)
Reclassifications:





Certain
prior year items have been reclassified to conform to current year
presentation.  The Company reclassified amortization related to debt
discounts from depreciation and amortization in operating expenses to the same
caption included in other expenses.  In addition, the Company
reclassified amortization of software costs from operating expenses to be
included within cost of sales.




(s)
Recently Issued Accounting Pronouncements Affecting The Company:
  In October 2009, the FASB issued
Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue
Arrangements, which amends existing revenue recognition accounting
pronouncements that are currently within the scope of FASB Codification Subtopic
605-25 (previously included within EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables , or EITF 00-21). The consensus to EITF
Issue No. 08-01, Revenue Arrangements with Multiple Deliverables, or EITF
08-01, provides accounting principles and application guidance on whether
multiple deliverables exist, how the arrangement should be separated, and the
consideration allocated. This guidance eliminates the requirement to establish
the fair value of undelivered products and services and instead provides for
separate revenue recognition based upon management’s estimate of the selling
price for an undelivered item when there is no other means to determine the fair
value of that undelivered item. EITF 00-21 previously required that the fair
value of the undelivered item be the price of the item either sold in a separate
transaction between unrelated third parties or the price charged for each item
when the item is sold separately by the vendor. This was difficult to determine
when the product was not individually sold because of its unique features. Under
EITF 00-21, if the fair value of all of the elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or
fair value was determined. This new approach is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. The Company will have to evaluate the
impact of this standard on future revenue arrangements that we may enter
into.


F-14


Recent accounting
pronouncements
 
 Recent
accounting pronouncements applicable to the Company are summarized
below.
  -
                In
      June 2009, the FASB issued authoritative guidance which eliminates the
      exemption for qualifying special-purpose entities from consolidation
      requirements, contains new criteria for determining the primary
      beneficiary of a variable interest entity, and increases the frequency of
      required reassessments to determine whether a company is the primary
      beneficiary of a variable interest entity. The guidance is applicable for
      annual periods beginning after November 15, 2009 and interim periods
      therein and thereafter. The Company does not expect the adoption of this
      standard to have a material effect on its financial position or results of
      operations.
 
 -
                EITF
      Issue No. 07-5 (ASC 815), “Determining Whether an Instrument (or embedded
      Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5) was issued in
      June 2008 to clarify how to determine whether certain instruments or
      features were indexed to an entity’s own stock under EITF Issue No. 01-6
      (ASC 815), “The Meaning of “Indexed to a Company’s Own Stock” (EITF 01-6)
      (ASC 815),. EITF 07-5(ASC 815), applies to any freestanding financial
      instrument (or embedded feature) that has all of the characteristics of a
      derivative as defined in FAS 133, for purposes of determining whether that
      instrument (or embedded feature) qualifies for the first part of the
      paragraph 11(a) scope exception. It is also applicable to any freestanding
      financial instrument (e.g., gross physically settled warrants) that is
      potentially settled in an entity’s own stock, regardless of whether it has
      all of the characteristics of a derivative as defined in FAS 133 (ASC
      815), for purposes of determining whether to apply EITF 00-19 (ASC 815).
      EITF 07-5(ASC 815) does not apply to share-based payment awards within the
      scope of FAS 123(R), Share-Based Payment (FAS 123(R) (ASC 718)). However,
      an equity-linked financial instrument issued to investors to establish a
      market-based measure of the fair value of employee stock options is not
      within the scope of FAS 123(R) and therefore is subject to EITF 07-5(ASC
      815).
 
 -
                On
      June 5, 2003, the United States Securities and Exchange Commission (“SEC”)
      adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002
      (“Section 404”), as amended by SEC Release No. 33-9072 on October 13,
      2009. Commencing with its annual report for the year ending December 31,
      2010, the Company will be required to include a report of management on
      its internal control over financial reporting. The internal control report
      must include a statement of:
 
 ·
                Management’s
      responsibility for establishing and maintaining adequate internal control
      over its financial reporting;
 ·
                Management’s
      assessment of the effectiveness of its internal control over financial
      reporting as of year- end; and
 ·
                The
      framework used by management to evaluate the effectiveness of the
      Company’s internal control over financial
  reporting.
  Furthermore,
it is required to file the auditor’s attestation report separately on the
Company’s internal control over financial reporting on whether it believes that
the Company has maintained, in all material respects, effective internal control
over financial reporting.
 
 -
                In
      August 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-04 “Accounting for Redeemable Equity Instruments - Amendment to
      Section 480-10-S99” which represents an update to section 480-10-S99,
      distinguishing liabilities from equity, per EITF Topic D-98,
      Classification and Measurement of Redeemable Securities. The Company does
      not expect the adoption of this update to have a material impact on its
      consolidated financial position, results of operations or cash flows. In
      August 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-05 “Fair Value Measurement and Disclosures Topic 820 – Measuring
      Liabilities at Fair Value”, which provides amendments to subtopic 820-10,
      Fair Value Measurements and Disclosures – Overall, for the fair value
      measurement of liabilities. This update provides clarification that in
      circumstances in which a quoted price in an active market for the
      identical liability is not available, a reporting entity is required to
      measure fair value using one or more of the following techniques: 1. A
      valuation technique that uses: a. The quoted price of the identical
      liability when traded as an asset b. Quoted prices for similar liabilities
      or similar liabilities when traded as assets. 2. Another valuation
      technique that is consistent with the principles of topic 820; two
      examples would be an income approach, such as a present value technique,
      or a market approach, such as a technique that is based on the amount at
      the measurement date that the reporting entity would pay to transfer the
      identical liability or would receive to enter into the identical
      liability. The amendments in this update also clarify that when estimating
      the fair value of a liability, a reporting entity is not required to
      include a separate input or adjustment to other inputs relating to the
      existence of a restriction that prevents the transfer of the liability.
      The amendments in this update also clarify that both a quoted price in an
      active market for the identical liability when traded as an asset in an
      active market when no adjustments to the quoted price of the asset are
      required are Level 1 fair value measurements. The Company does not expect
      the adoption of this update to have a material impact on its consolidated
      financial position, results of operations or cash
  flows.
 
 -
                In
      September 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-08 “Earnings Per Share – Amendments to Section 260-10-S99”,which
      represents technical corrections to topic 260-10-S99, Earnings per share,
      based on EITF Topic D-53, Computation of Earnings Per Share for a Period
      that includes a Redemption or an Induced Conversion of a Portion of a
      Class of Preferred Stock and EITF Topic D-42, The Effect of the
      Calculation of Earnings per Share for the Redemption or Induced Conversion
      of Preferred Stock. The Company does not expect the adoption of this
      update to have a material impact on its consolidated financial position,
      results of operations or cash
flows.
 
 -
                In
      September 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-09 “Accounting for Investments-Equity Method and Joint Ventures and
      Accounting for Equity-Based Payments to Non-Employees”. This update
      represents a correction to Section 323-10-S99-4, Accounting by an Investor
      for Stock-Based Compensation Granted to Employees of an Equity Method
      Investee. Additionally, it adds observer comment Accounting Recognition
      for Certain Transactions Involving Equity Instruments Granted to Other
      Than Employees to the Codification. The Company does not expect the
      adoption to have a material impact on its consolidated financial position,
      results of operations or cash
flows.
 
 -
                In
      September 2009, the FASB issued the FASB Accounting Standards Update No.
      2009-12 “Fair Value Measurements and Disclosures Topic 820 – Investment in
      Certain Entities That Calculate Net Assets Value Per Share (or Its
      Equivalent)”, which provides amendments to Subtopic 820-10, Fair Value
      Measurements and Disclosures-Overall, for the fair value measurement of
      investments in certain entities that calculate net asset value per share
      (or its equivalent). The amendments in this update permit, as a practical
      expedient, a reporting entity to measure the fair value of an investment
      that is within the scope of the amendments in this update on the basis of
      the net asset value per share of the investment (or its equivalent) if the
      net asset value of the investment (or its equivalent) is calculated in a
      manner consistent with the measurement principles of Topic 946 as of the
      reporting entity’s measurement date, including measurement of all or
      substantially all of the underlying investments of the investee in
      accordance with Topic 820. The amendments in this update also require
      disclosures by major category of investment about the attributes of
      investments within the scope of the amendments in this update, such as the
      nature of any restrictions on the investor’s ability to redeem its
      investments at the measurement date, any unfunded commitments (for
      example, a contractual commitment by the investor to invest a specified
      amount of additional capital at a future date to fund investments that
      will be made by the investee), and the investment strategies of the
      investees. The major category of investment is required to be determined
      on the basis of the nature and risks of the investment in a manner
      consistent with the guidance for major security types in U.S. GAAP on
      investments in debt and equity securities in paragraph 320-10-50-1B. The
      disclosures are required for all investments within the scope of the
      amendments in this update regardless of whether the fair value of the
      investment is measured using the practical expedient. The Company does not
      expect the adoption to have a material impact on its consolidated
      financial position, results of operations or cash
  flows.
 
 -
                In
      October 2009, the FASB issued guidance for amendments to FASB Emerging
      Issues Task Force on EITF Issue No. 09-1 “Accounting for Own-Share Lending
      Arrangements in Contemplation of a Convertible Debt Issuance or Other
      Financing” (Subtopic 470-20) “Subtopic”. This accounting standards update
      establishes the accounting and reporting guidance for arrangements under
      which own-share lending arrangements issued in contemplation of
      convertible debt issuance. This Statement is effective for fiscal years,
      and interim periods within those fiscal years, beginning on or after
      December 15, 2009. Earlier adoption is not permitted. The Company does not
      expect the adoption to have a material impact on its consolidated
      financial position, results of operations or cash
  flows.


F-15


Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon
adoption.





NOTE 4 -
STOCK COMPENSATION





The
Company’s 2004 Stock Plan (the “Plan”), which is stockholder approved, permits
the grant of share options and shares to its employees for up to 1,500,000
shares of Common Stock as stock compensation.  All stock options under
the Plan are granted at the fair market value of the Common Stock at the grant
date. Employee stock options generally vest ratably over a three-year period and
generally expire 5 years from the grant date.  Additionally, the
Company grants options and shares to its employees outside the
Plan.





Accounting
for Employee Awards:


The
Company adheres to the provisions of Share Based Compensation as defined in the
FASB codification, topic ASC 718. The codification focuses primarily on
accounting for transactions in which an entity obtains employee services through
share-based payment transactions.  This guidance requires an entity to
measure the cost of employee services received in exchange for the award of
equity instruments based on the fair value of the award at the date of
grant.  The cost is recognized over the period during which an
employee is required to provide services in exchange for the award.





As a
result of the adoption of the provision of Share Based Compensation, the
Company's results for the years ended December 31, 2009 and 2008 include
share-based compensation expense for employees and board of directors totaled
approximately $581,551 and $1,049,069, respectively, which have been
included in the general and administrative expenses line item in the
accompanying consolidated statement of operations.  No income tax
benefit has been recognized in the income statement for share-based compensation
arrangements as the Company has provided a 100% valuation allowance on its’ net
deferred tax asset. Stock option compensation expense is the estimated fair
value of options granted amortized on a straight-line basis over the requisite
service period for the entire portion of the award. The Company has not adjusted
the expense by estimated forfeitures, as required for employee options, since
the forfeiture rate based upon historical data was determined to be
immaterial.





During
the years ended December 31, 2009 and 2008, the Company granted 7,910,844 and
7,275,000 (respectively) of options to employees, consultants and board of
directors.  The options are exercisable at a range of $0.08 to $0.18
and have a five year term.  As of December 31, 2009, 10,373,445
employee options have vested and the remaining 3,150,000 vest over a three year
period.





The fair
value of options at the date of grant is estimated using the Black-Scholes
option pricing model. During the years ended December 31, 2009 and 2008, the
assumptions made in calculating the fair values of options are as
follows:


F-16





For
      the Years Ended
                        December31,2009
                      
                      2008Expected
      term (in years)
                      5
                      
                      5Expected
      volatilty
                      99.09%-100.00%
                      
                      89.23%-95.46%Expected
      dividend yield
                      0%
                      
                      0%Risk-free
      interest rate
                      2.51%-3.85%
                      
                      3.47%-4.26%





Accounting for Non-employee Awards:





The
Company records its stock-based compensation expense in accordance with ASC
718-10, formerly SFAS 123R, “Share Based Payment” to its non-employee
consultants for stock granted.




Stock
compensation expense related to non-employee options was approximately $94,000
and $193,333 for the years ended December 31, 2009 and 2008,
respectively.  These amounts are included in the Consolidated
Statements of Operations within the general and administrative expenses line
item.





During
the years ended December 31, 2009 and 2008, the Company granted 5,400,000 and 0,
respectively, of the options to non-employees.  The options are
exercisable at a range of $0.08 to $0.30 and have a five year
term.  As of December 31, 2009, 6,378,889 non-employee options have
vested and the remaining 5,166,667 options vest over a three year
period.





The
following table represents our stock options granted, exercised, and forfeited
during 2009.





Weighted
                                                
                                                
                                                WeightedAverage
                                                
                                                
                                                AverageExercise
                                                
                                                
                                                Remaining
                                                
                                                
                                                AggregateNumber
                                                
                                                
                                                Price
                                                
                                                
                                                Contractual
                                                
                                                
                                                IntrinsicStock
      Options
                                                
                                                of
      Shares
                                                
                                                
                                                per
      Share
                                                
                                                
                                                Term
                                                
                                                
                                                ValueOutstanding
      at December 31, 2007
                                                
                                                
                                                9,733,157
                                                
                                                
                                                $
                                                0.36
                                                
                                                
                                                2.6661
                                                
                                                
                                                $
                                                0Granted
                                                
                                                
                                                7,275,000
                                                
                                                
                                                
                                                0.15Exercised
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Forfeited/expired
                                                
                                                
                                                (3,570,000
                                                )
                                                
                                                
                                                0.31Outstanding
      at December 31, 2008
                                                
                                                
                                                13,438,157
                                                
                                                
                                                $
                                                0.24
                                                
                                                
                                                
                                                2.4235
                                                
                                                
                                                $
                                                0Granted
                                                
                                                
                                                13,310,844
                                                
                                                
                                                
                                                0.12ExercisedForfeited/expired
                                                
                                                
                                                (1,680,000
                                                )
                                                
                                                
                                                0.30Outstanding
      at December 31, 2009
                                                
                                                
                                                25,069,001
                                                
                                                
                                                $
                                                0.18
                                                
                                                
                                                
                                                3.3829
                                                
                                                
                                                $
                                                0Exercisable
      at December 31, 2009
                                                
                                                
                                                16,752,334
                                                
                                                
                                                $
                                                0.20
                                                
                                                
                                                
                                                3.3591
                                                
                                                
                                                $
                                                0




As of
December 31, 2009, there was $551,599 of unrecognized compensation cost,
net of estimated forfeitures, related to nonvested stock options, which is
expected to be recognized over a weighted average period of approximately 1.5
years.


F-17




NOTE 5
-   PROPERTY AND EQUIPMENT




The
following is a summary of property and equipment, at cost less accumulated
depreciation, at December 31:





2009
                          
                          
                          2008Furniture
      and fixtures
                          
                          $
                          3,780
                          
                          
                          $
                          3,780Data
      processing equipment
                          
                          
                          212,730
                          
                          
                          
                          212,730Telecommunication
      equipment
                          
                          
                          21,262
                          
                          
                          
                          21,262Purchased
      software
                          
                          
                          2,395
                          
                          
                          
                          2,395240,167
                          
                          
                          
                          240,167Less:
      accumulated depreciation
                          
                          
                          (172,073
                          )
                          
                          
                          (109,214
                          )$
                          68,094
                          
                          
                          $
                          130,953





Depreciation
charged to operations amounted to $62,859 and $63,460 for the years ended
December 31, 2009 and 2008, respectively. Property and equipment include gross
assets acquired under capital leases of $108,226 and $195,325 at December 31,
2009 and 2008, respectively. Capital leases are included as a component of data
processing equipment. Amortization of assets under capital leases is included in
depreciation expense.





NOTE 6
-   NOTES PAYABLE - BANK





The
Company had a $50,000 revolving line of credit and a $5,000 overdraft privilege
with a bank.  In the fiscal year ended December 31, 2009, the Company
repaid the line of credit totaling $49,007, and subsequently closed these
accounts.  At December 31, 2008 $49,007 of the line had been utilized.
At December 31, 2008, none of the overdraft privilege had been utilized.
Interest on borrowings is charged at 2.25% above the bank's prevailing prime
rate (5.5% and 7.25 % at December 31, 2009 and 2008, respectively). Interest of
$2,228 and $1,139 was charged to operations for the years ended December 31,
2009 and 2008, respectively. The debt was guaranteed personally by the former
CEO of the Company and is collateralized by marketable securities owned by him
which had a fair market value of approximately $35,000 at December 31,
2008.





NOTE 7
-   NOTE PAYABLE - EQUIPMENT





On July
12, 2006, the Company entered into a secured loan agreement with GE Commercial
Finance for the purchase of $21,262 of communications equipment related to the
Company’s corporate office space. This loan has a five-year term with monthly
payments of $433 including interest at the rate of 8.15% per annum and is
secured by the equipment purchased. The outstanding balance at December 31, 2009
and 2008 was $8,065 and $12,406 respectively, of which $4,330 and $4,341 is
included in current liabilities. Future principal payments under the secured
loan payable as of December 31, 2009 for the next two years are $4,330 and
$3,735, respectively.





NOTE 8 -
OBLIGATIONS UNDER CAPITAL LEASE





On July
17, 2006 the Company entered into an equipment lease agreement with Citicorp
Vendor Finance for the purchase of $87,098 of computer equipment related to the
Company’s products. The lease has a five-year term and a $1 purchase option. In
January 2009, the Company prepaid the Citicorp Vendor Finance lease for servers
for $50,000 in lieu of the remaining payments totaling $65,125.


F-18


On
September 16, 2007 the Company entered into an equipment lease agreement with GE
Capital for the purchase of $71,914 of computer equipment. The lease has a
three-year term and a $1 purchase option. The Company is accounting for this
obligation as a capital lease. Assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair market value of the asset.  The assets are depreciated over the
lower of their related lease terms or their estimated useful lives.




On
February 28, 2008 the Company entered into an equipment lease agreement with GE
Capital for the purchase of $36,312 of computer equipment. The lease has a
three-year term and a $1 purchase option. The Company is accounting for this
obligation as a capital lease. Assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair market value of the asset.  The assets are depreciated over the
lower of their related lease terms or their estimated useful lives.





Depreciation
for assets under capital leases for the years ended December 31, 2009 and 2008
amounted to $6,749 and $51,478, respectively, and is included in
depreciation expense.





The
following is a summary of assets held under capital leases at December 31, 2009
and 2008:





December31,
                          2009
                        
                        
                        December31,
                          2008Data
      processing equipment, server and routers
                        
                        $
                        108,226
                        
                        
                        $
                        195,325Less:
      Accumulated depreciation
                        
                        
                        ( 76,126
                        )
                        
                        
                        ( 82,875
                        )$
                        32,100
                        
                        
                        $
                        112,450





The
minimum future lease payments under the capital lease and the equipment loan for
the next two years, in aggregate are:





Year
      ending
                          
                          AmountDecember
      31, 2010
                          
                          $
                          47,991December
      31, 2011
                          
                          
                          5,735Total
      minimum lease payments
                          
                          $
                          53,726





NOTE
9 -    10% CONVERTIBLE NOTES
PAYABLE





During
2005 and 2006, the Company raised capital via a private placement to accredited
investors of units (“Units”), each Unit consisting of (a) a 10% convertible note
with the original principal amount of $10,000 and (b) warrants to purchase
10,000 shares of common stock, exercisable at $0.50 per share, for $10,000 per
Unit. The Company raised a gross amount of $2,895,000 from the offerings. The
convertible notes matured in two years from the date of issue, if not converted
earlier, bearing a 10% interest rate. These Notes are convertible at any time at
the option of the holder into the Company’s Common Stock at the conversion rate
of $0.40 per share.





At
inception, the Company had determined that the 10% convertible debentures
contained a beneficial conversion feature.  The estimated fair value
of the warrants has been determined using the Black-Scholes option pricing
model. The combined total fair value of the warrants and beneficial conversion
feature had been accounted for as a debt discount that had been amortized and
treated as interest expense over the term of the convertible debenture under the
effective interest method. For the years ended December 31, 2009 and 2008, the
discount amortization amounted charged to interest expense totaled $0 and
$96,567, respectively. As of December 31, 2009 and 2008 the debt discount had
been fully amortized.


F-19


As of
December 31, 2009 all of the 10% convertible notes outstanding were in
default.  The default provision requires an additional 2% interest per
annum until the loans are repaid or converted. The 2% default penalty totaled
approximately $9,600 and $21,402 for the fiscal years ending December 31,
2009 and 2008, respectively and is included in interest expense on the
consolidated statement of operations and in accrued expenses on the consolidated
balance sheet as of December 31, 2009.





As stated
in Note 2, the Company modified certain terms of the notes, including a lower
conversion price and a lower exercise price on the warrants.   The
modification of the notes in the fiscal quarter ended March 31, 2008 resulted in
additional interest expense of $985,500 with a credit to additional paid in
capital.  The modification of notes in and fourth quarter of fiscal
year 2008 resulted in additional interest expense of $104,311 with the offset
recorded to additional paid in capital.





During
the fiscal year ended December 31, 2009 the Company repaid a total of $191,008
of the outstanding principal to the 10% convertible note holders. Of the total
repaid, the Company settled in principal note of $300,000 for $150,000 in cash
and recorded a gain on extinguishment of debt of $150,000.  In
addition, the Company converted principal totaling approximately $93,000 and
accrued interest of $2,840 into 794,636 shares of common stock at conversion
rates between $0.10 and $0.16. For the year ended December 31, 2009 the Company
recorded interest expense as a result of the modification of debt (due to lower
conversion price) for 10% convertible notes totaling $66,548.





As
reflected on the balance sheets, the value of the 10% convertible notes at
December 31, 2009 and 2008 amounted to $233,832 and $668,000, respectively and
are classified as current due to the fact that they are in default for the non
payment by the maturity date.





NOTE
10 –  BRIDGE NOTES PAYABLE




Convertible
Bridge Notes Payable:





On
November 7, 2007 the Company began a private placement to accredited investors
of 10% short term promissory notes. The
private placement was terminated in December of 2007, and the Company received
gross proceeds of $300,000.These notes are payable the earlier of August
15, 2008 or when the Company raises $1,000,000 in its next qualified financing
as defined. The notes bear interest at a rate of 10% per annum, payable at the
end of the term. The principal amounts of the notes are convertible into the
Company’s common stock by the holder, at any time prior to the repayment of the
principal, at the rate of $0.15 per share. In October of 2009, the Company
repaid $20,168 towards the principal balance of these notes. As of December 31,
2009, the total of $279,832, of principal and accrued interest of $63,768 is
outstanding and currently in default for non payment of principal on maturity
date.




During
2008, the Company issued 10% short term promissory notes to accredited
investors. These notes have maturity dates ranging from a period of three months
to twelve months, bear interest at a rate of 10% per annum, payable at the end
of the term.  The Company raised a total of $905,000 from these
promissory notes for the year ended December 31, 2008 and issued 1,715,000
restricted shares of the Company’s common stock to the note holders. The
principal amounts of the notes are convertible into the Company’s common stock
by the holder, at any time prior to the repayment of the principal, at rates
ranging from $0.14 to $0.20 per share. These shares were valued at the fair
market value on the date of each note. As a result of the issuance of these
convertible notes and related restricted shares and warrants, the Company
recorded a total discount of $290,349 with a corresponding credit to common
stock and additional paid in capital. The discount is accreted over the term of
the note using the straight line method. For the year ended December 31,
2009, the Company amortized a total of $59,279 of the discount. During the year
ended December 31, 2009 the Company repaid $164,202 of principal and converted a
total of accrued interest and principal of $222,833 ($200,000 was principal)
into 1,591,667 shares of common stock of the Company.  For the year
ended December 31, 2009 the Company recorded interest expense as a result of the
modification of debt (due to a lower conversion price) of $66,850. As of
December 31, 2009, a total of $415,798 principal and accrued interest totaling
$70,522 of these short term promissory notes are currently in default and
outstanding.


F-20


During
2009, the Company issued 10% short term promissory notes to accredited
investors. These notes have maturity dates ranging from a period of nine months
to eighteen months, bear interest at a rate of 10% per annum, payable at the end
of the term.  The Company raised a total of $1,300,000 from these
promissory notes for the year ended December 31, 2009 and issued 2,530,000
restricted shares of the Company’s common stock to the note holders. The
principal amounts of the notes are convertible into the Company’s common stock
by the holder, at any time prior to the repayment of the principal, at rates
ranging from $0.14 to $0.15 per share. These shares were valued at the fair
market value on the date of each note. As a result of the issuance of these
convertible notes and related restricted shares and warrants, the Company
recorded a total discount of $673,672 with a corresponding credit to common
stock and additional paid in capital. The discount is accreted over the term of
the note using the straight line method. For the year ended December 31,
2009, the Company amortized a total of $562,052 of the discount. In July 2009,
the Company issued 1,071,429 shares of restricted common stock for converting
$150,000 of principal at $0.14.  In 2009, the Company repaid $91,807
of the principal portion of these notes, which $16,807 was applied against the
loans in default.





As of
December 31, 2009, a total of $1,058,193 principal and accrued interest totaling
$79,065 of these short term bridge promissory notes are currently outstanding,
of which $83,193 of principal and $9,469 of accrued interest was in default at
year end.





Non
Convertible Bridge Notes Payable:





On
October 4, 2007, the Company issued a short term promissory note in the
principal amount of $150,000. This note was payable on September 30, 2008 and
bears an interest rate equal to the prime rate plus three percent, 6.25% per
annum at September 30, 2009 and is payable at the end of the term.  In
October of 2009 the Company repaid a portion of the principal loan totaling
$25,210.  As of December 31, 2009 the total of $124,790 of principal
and accrued interest of $27,481, is outstanding and currently in default for non
payment of principal on maturity date.





During
2008, the Company issued 10% short term promissory notes to accredited
investors. These notes have maturity dates ranging from a period of three months
to twelve months, bear interest at a rate of 10% per annum, payable at the end
of the term.  The Company raised a total of $85,000 from these
promissory notes for the year ended December 31, 2008 and issued 120,000
restricted shares of the Company’s common stock to the note holder. These shares
were valued at the fair market value on the date of each note. As a result of
the issuance of these notes and related restricted shares, the Company recorded
a total discount of $20,400 with a corresponding credit to common stock and
additional paid in capital. The Company amortized the $20,400 in the fiscal year
ended December 31, 2008. The Company repaid $25,000 of these notes in the year
ended December 31, 2008 and $10,084 was repaid in the fiscal year ended December
31, 2009.  As of December 31, 2009, a total of $49,916 principal and
$9,737 of accrued interest of these short term non convertible promissory notes
are currently in default and outstanding.


F-21


During
2009, the Company issued 10% short term promissory notes to accredited
investors. These notes have maturity dates ranging from a period of three months
to nine months, bear interest at a rate of 10% per annum, payable at the end of
the term.  The Company raised a total of $300,000 from these
promissory notes and issued 300,000 restricted shares of the Company’s common
stock to the note holders for the year ended December 31, 2009. These shares
were valued at the fair market value on the date of each note. As a result of
the issuance of these notes and related restricted shares, the Company recorded
a total discount of $28,836 with a corresponding credit to common stock and
additional paid in capital. The discount is accreted over the term of the note
using the straight line method. For the year ended December 31, 2009, the
Company amortized a total of $28,836 of the discount, and repaid $201,639 of
principal. As of December 31, 2009, a total of $98,361 of principal and $16,075
of accrued interest of these short term non convertible promissory notes are
currently in default and outstanding.




As of
December 31, 2009, the Company’s bridge loan payable principal balance amounted
to $2,026,890, of which $1,051,639 were in default as of year end.





NOTE
11 - DUE TO STOCKHOLDERS AND AFFILIATES




(a)       Due
to stockholders




At
December 31, 2009 and 2008, the Company was indebted to its former CEO, William
Bozsnyak, in the amounts of $43,718 and $163,718, respectively, for working
capital advances made to the Company.  In accordance with Mr.
Bozsnyak’s separation agreement dated February 2009, in the fiscal year ended
December 31, 2009, the Company repaid $120,000 of the loan previously made for
working capital advances. For the years ended December 31, 2009 and 2008,
interest expense was charged in the amounts of $1,008 and $10,639,
respectively.  The interest rate used in this calculation is the same
interest rate paid to the Company’s short term lender under the revolving line
of credit described in Note 5, 5.5% and 7.25% at December 31, 2009 and 2008,
respectively.  At December 31, 2009 and 2008, $164,100 and $163,092 in
accrued interest was due to Mr. Bozsnyak, respectively.





At
December 31, 2009 and 2008, $100,019 and $360,588, respectively, was owed for
unpaid salaries and accrued vacation to Mr. Bozsnyak and Mr. O’Connor. During
the year ended December 31, 2009, the Company repaid approximately $104,000 of
unpaid salaries to Mr. Bozsnyak, of which $86,000 was repaid in accordance with
his February 2009 separation agreement. Also in connection with his separation
agreement, the Company reversed $88,997 of stock based compensation related to
the value of unissued options from 2008 that were in accordance with his
employment agreement.




(b)    Due
to affiliates




In
December of 2008, the Company and Mr. O’Connor entered into a separation
agreement when he resigned. Pursuant to the agreement, in full consideration of
all unpaid compensation totaling $172,222, the Company agreed to a lump sum cash
payment of $40,000 and the remaining $132,222 of compensation was to be paid in
options (881,481 cashless options at an exercise price of $0.15) of the
Company.  In October of 2009, the Company entered into a settlement
agreement with the former Chief Operating Officer, Mr.
O’Connor.  Pursuant to the settlement agreement, the Company arranged
for a third party to purchase 750,000 shares of the Company’s common stock owned
by Mr. O’Connor for $110,000. In consideration for the stock purchase agreement,
Mr. O’Connor forgave the $40,000 lump sum cash payment, the 881,481 options and
a debt of $47,671 from prior years, due to an affiliate of the Company in which
Mr. O’Connor owns.


F-22


NOTE 12
–    ECONOMIC DEPENDENCY




The
Company sold its products primarily on line in the current year and for fiscal
year 2008.  In the first quarter of fiscal 2008 the Company did sell
its product through one distributor, which accounted for 56% of the Company’s
sales and this customer  accounted for 100% of the accounts receivable
at December 31, 2008. There was no customer that accounted for more than 10% of
the sales for the fiscal year ended December 31, 2009.





NOTE 13 - INCOME TAXES





The tax
effect of the temporary differences that give rise to deferred tax assets are
presented below:


2009
              
              
              2008Deferred
      Tax Assets:Net
      Operating Losses
              
              
              $7,505,000
              
              
              
              $6,461,000Option
      Expense
              
              
              1,687,000
              
              
              
              990,000Other
              
              
              (104,000
              )
              
              
              234,000Valuation
      Allowances
              
              
              (9,088,000
              )
              
              
              (7,685,000
              )Net
      Deferred Tax Asset
              
              
              $-
              
              
              
              $-
 
 At
December 31, 2009 and 2008, a 100% valuation allowance was recorded to reduce
the Company’s net deferred tax asset to $0.  The Company could not
determine that it was more likely than not that the deferred tax asset resulting
from net operating loss carryforwards would be realized.
 
 The
Company has generated net operating loss carryforwards aggregating approximately
$9,245,000 at December 31, 2009 for federal and state income tax
purposes.  These carryforwards are available to offset future taxable
income and expire at various dates through 2029.
 
 A
reconciliation of the difference between the expected tax rate using the
statutory federal tax rate (34%) and the Company’s effective tax rate is as
follows:
 
 2009
              
              
              2008U.S
      federal income tax at statutory rate
              
              
              $(1,524,000
              )
              
              
              $(1,765,000
              )State
      income tax, net of federal income tax benefit
              
              
              (224,000
              )
              
              
              (260,000
              )Non
      cash interest
              
              
              121,000
              
              
              
              551,000Beneficial
      conversion feature
              
              
              216,000
              
              
              
              41,000Other
      permanent differenced
              
              
              8,000
              
              
              
              65,000Valuation
      tax asset allowance
              
              
              1,403,000
              
              
              
              1,368,000Effective
      tax rate
              
              
              $-
              
              
              
              $-


F-23





NOTE 14
-    EQUITY TRANSACTIONS





(a)
            Preferred
      Stock:





On July
29, 2009, the Company and Rock Island Capital, LLC (“Rock Island”) entered into
a Series B Convertible Preferred Stock Purchase Agreement, as amended on
September 9, 2009 (the “Agreement”). Pursuant to the Agreement, the Company has
sold to assignees of Rock Island an initial tranche of $2,000,000 of its Series
B Convertible Preferred Stock (220,022 shares), in the aggregate, at a purchase
price per share of $9.09, and has issued to such assignees Warrants to purchase
22,002,200 shares of the Company’s Common Stock, in the aggregate, at an
exercise price of $0.15 per share. Each share of Series B Convertible Preferred
Stock is convertible into 100 shares of the Company’s Common Stock at the sole
discretion of the holder. Pursuant to the Agreement, Rock Island may designate
one member for service on the Company’s board of directors. Under the terms of
the Agreement, Rock Island and its assignees may, at their discretion, purchase
additional shares of Series B Convertible Preferred Stock and Warrants in two
additional tranches of $2,000,000 and $1,000,000 payable on or before December
2, 2009, and January 8, 2010, respectively.





The
Company recorded the beneficial conversion feature and the warrant associated
with such investment as a deemed preferred dividend of $2,000,000 with a
corresponding credit to additional paid in capital.  In connection
with the Stock Purchase Agreement and Certificate of Designation, the Preferred
B stockholders were entitled to a quarterly dividend paid in common
stock.  The Company has recorded dividends payable totaling
$43,556 at December 31, 2009 and included this amount in the accompanying
consolidated statement of stockholders’ deficit and statement of
operations.





On March
4, 2010, Echo Metrix, Inc. (the “Company”) entered into Amendment No. 2
(“Amendment No. 2”) to the Series B Convertible Preferred Stock Purchase
Agreement, dated July 29, 2009, as amended by Amendment No. 1 to the Series B
Convertible Preferred Stock Purchase Agreement, with Rock Island Capital, LLC
(the “Purchaser”), dated September 4, 2009 (as amended, the “Purchase
Agreement”).





Pursuant
to the Purchase Agreement, the Company agreed to sell to the Purchaser, in
tranches (with the last tranche to occur within approximately 60 days from
execution of Amendment No. 2), an aggregate of 550,055 shares of Series B
Preferred Stock (of which 220,022 shares were sold prior to execution of
Amendment No.2) for an aggregate purchase price of $5,000,000 (of which
$2,000,000 was sold prior to execution of Amendment No. 2). In addition, the
Company agreed to issue to the Purchaser five-year warrants to purchase
50,000,000 shares at an exercise price of $0.03, exercisable on a cashless
basis, and 50,000,000 shares at an exercise price of $0.06, not exercisable on a
cashless basis, in tranches pro rata with the sale of the Series B Preferred
Stock. The exercise price of the warrants not exercisable on a cashless basis
shall be reduced to $0.03 if the closing price of the Company’s common stock has
a volume weighted average price of less than $0.06 for a thirty day period
during the term of such warrants. The Company also agreed to issue to the
Purchaser 45,000,000 shares of common stock (the “Additional Shares”), in
tranches pro rata with the sale of the Series B Preferred Stock. The Purchaser
may terminate the Purchase Agreement upon 10 days’ written notice, in which
event the Purchaser shall not be obligated to make any additional purchases
under the Purchase Agreement, except for a final purchase for
$300,000.





In
connection with the Purchase Agreement, the Company filed an Amended and
Restated Certificate of Designation of Series B Preferred Stock (the
“Certificate of Designation”) filed with the State of Delaware on March 5,
2010.





F-24





(b)
            Common
      Stock:





Payment of
Interest





For the
years ended December 31, 2009 and 2008, the Company issued 675,795 shares
(valued at $79,837) and 742,867 shares (valued at $96,762) respectively of the
Company’s restricted common stock as payment for interest due on the Company’s
10% convertible and Bridge notes.





Bridge Notes
Issued





During
the years ended December 31, 2009 and 2008, the Company
issued  2,830,000 shares (valued at $266,744)  and 1,835,000
shares (valued at $173,512), respectively of the Company’s restricted common
stock in connection with the issuance of promissory notes amounting to
$1,600,000 and $990,000 for the same fiscal years.





Services
Rendered


The
Company issued 120,000 shares (valued at $21,001) and 330,000 shares (valued at
$57,300) for the years ended December 31, 2009 and 2008 respectively of the
Company’s restricted common stock as payment for services and
compensation.





Conversion of 10% Notes
Payable


During
the years ended December 31, 2009 and 2008, the Company issued 766,237 shares
and 13,971,242 shares, respectively of the Company’s common stock in
connection with the conversion of $93,160 and $1,488,000 of the Company’s 10%
convertible notes payable.





Conversion of Bridge Notes
Payable


During
the years ended December 31, 2009 and 2008, the Company issued 2,500,000 and
192,302 shares of the Company’s common stock in connection with the conversion
of $350,000 and $25,000, principal of bridge notes payable,
respectively.





Legal
Settlements


In May of
2008, the Company issued 1,275,000 shares, valued at $165,750, of its restricted
common stock as part of a legal settlement with the former President of the
Company.





In August
of 2009, the Company issued 500,000 shares of restricted common stock as part of
an amendment to a settlement agreement with the Company’s former
President.  In consideration for accelerating the remaining payments
of $95,000, the Company and Mr. Carrizzo settled for a lump sum cash payment of
$50,000 and 500,000 restricted shares of common stock, valued at
$45,000.





In
February of 2010, the Company issued a $5,000 cash payment and 800,000 shares of
the Company’s common stock valued at $72,000 to a former consulting company
under the terms of a settlement agreement.  As of December 31, 2009,
the Company has recorded $77,000 in consulting expenses and has accrued for such
in the accompanying consolidated balance sheet in the accrued expenses line
item.





Warrants
Exercised


The
Company issued 24,000 and 3,080,276 shares of common stock for the years ended
December 31, 2009 and 2008, respectively, in connection with warrants
exercised.





Sale of
Securities


During
the year ended December 31, 2008, the Company (through private sales) issued
2,271,429 of its restricted common stock in exchange for net proceeds
approximating $318,000.




F-25




Stock Issued for
Compensation


The
Company issued 2,650,000 of its restricted common stock for the year ended
December 31, 2008 to employees and non employees in exchange for
compensation.





Acquisition of
Company


In May of
2008, the Company issued 300,000 shares of its restricted common stock as part
of the purchase of EchoMetrix, Inc.





(c )
Warrants :





Warrants
Exercised


For the
year ended December 31, 2008, 3,080,276 of warrants were exercised for total
proceeds of approximately $114,000. There were no warrants exercised in the year
ended December 31, 2009.





Warrants
Issued


As of
December 31, 2009, the Company has outstanding warrants to purchase 43,168,181
shares of its common stock at prices ranging between $0.10 and
$0.50.  These warrants have been issued as part of loan agreements
with the Company, for assistance in raising money for the Company, for
professional services rendered, and for other contractual purposes.




On June
1, 2009, the Company filed a Post Effective Amendment No. 4 to its Registration
Statement on Form S-1 (“Post Effective Amendment” to extend the terms to
exercise the Class A Warrant from June 30, 2009 to June 30, 2010 and to extend
the term of the Class B Warrant from December 31, 2009 to June 30,
2010.  The extended date became effective upon the date on which the
Securities and Exchange Commission declared the Post-Effective Amendment, which
was June 9, 2009.





During
the years ended December 31, 2009 and 2008, the Company issued warrants to
purchase 1,325,000 and 2,471,400 shares of the Company’s common stock,
respectively in connection with promissory notes issued and sales of its
restricted common stock.  All warrants have a three to five year term
and are exercisable at a range of $0.14 to $0.35 per share. The Company utilizes
the Black-Scholes option-pricing model to calculated the fair value of the
warrants issued. A fair value of approximately $94,368 and $67,733 was
determined for the years ended December 31, 2009 and 2008, respectively, and
expensed over the terms of the warrant.




During
the year ended December 31, 2009, the Company issued 2,200,000 warrants in
connection with a consulting agreement, at an exercise price of $0.15 per share
and with an exercise period of 5 years. The
Company utilizes the Black-Scholes option-pricing model to calculate the fair
value of the warrants issued.  A fair value of $336,000 was determined
and expensed as the warrants were fully vested upon
issuance.





During
the year ended December 31, 2009 the Company granted warrants in connection with
employment agreements totaling 4,000,000 shares all at an exercisable price of
$0.10 and for a five year term. The
Company utilizes the Black-Scholes option-pricing model to calculate the fair
value of the warrants issued.  A fair value of $360,000 was determined
and expensed and included in the general and administrative line item in the
accompanying consolidated statement of operations as the warrants were fully
vested upon issuance.





In
connection with the sale of the Company’s Preferred B Convertible Stock, an
investor received warrants of 22,002,200 at an exercise price of $0.15 and a
five year term. The
Company utilizes the Black-Scholes option-pricing model to calculate the fair
value of the warrants issued.  A fair value of $2,000,000 was
determined and disclosed as a deemed preferred stock dividend in the
consolidated statements of operations and stockholder’s
deficit.




On August
15, 2008, a warrant was issued to a consultant to acquire 400,000 common shares
at $0.15 per share exercisable for three years as part of the compensation for
consulting services rendered. The
Company utilizes the Black-Scholes option-pricing model to calculate the fair
value of the warrants issued.  A fair value of $44,000 was determined
and recorded in consulting expense as the warrants were fully vested upon
issuance.




WeightedAverageCommon
              
              
              ExerciseShares
              
              
              PriceOutstanding
      at December 31, 2007
              
              
              13,616,684
              
              
              
              $0.25Issued
              
              
              2,871,400
              
              
              
              0.18Exercised
              
              
              (3,080,276
              )
              
              
              0.04Expired
              
              
              (1,529,724
              )
              
              
              0.77Outstanding
      at December 31, 2008
              
              
              11,878,084
              
              
              
              $0.22Issued
              
              
              31,290,097
              
              
              
              0.14Exercised
              
              
              -
              
              
              
              -Expired
              
              
              -
              
              
              
              -Outstanding
      at December 31, 2009
              
              
              43,168,181
              
              
              
              $0.16




F-26




NOTE 15 -
COMMITMENTS AND CONTINGENCIES.





(a)
            Legal
      Proceedings





Freifeld





On or
about November 2008, the plaintiffs, Freifelds brought an action against the
Company seeking summary judgment in lieu of complaint on two debt
conversions.  The plaintiffs converted their notes and received the
Company’s stock certificates in November 2008. Subsequently, the plaintiffs
brought suit, requesting repayment of their converted notes.  The
Company has retained legal counsel and has filed pre-answer motion for summary
judgment for the Company.  The Plaintiffs have moved for summary
judgment in lieu of a complaint and we cross-moved for summary judgment. The
Court has indicated that it is going to set the matter down for an evidentiary
hearing. On September 3, 2009 the courts dismissed the Plaintiffs motion for
summary judgment in favor of the Company. On July 9, 2009, the Plaintiffs filed
discovery for the deposition schedule for October 27, 2009. The Company has been
vigorously defending this action and is
still in the discovery phase.





Attorney General
Inquiry





On or
about September 24, 2009, the Company
received a subpoena duces tecum from theAttorney General’s Office of the
State of New York that
seeks documents and information related to the PULSE The
Company has been cooperating with the Attorney General’s Office, and while
prepared to vigorously itself, the Company is in settlement negotiations with
the Attorney General’ Office to amicably resolve the inquiry. As of the date of
this filing, no value or estimate has been assessed to a
settlement.





Federal Trade Commission
Civil Investigative Demand





On or
about December 16, 2009, the Company
received a Civil Investigative Inquiry from the Federal Trade Commission (“FTC”)
related to PULSE.  The Company has been cooperating with the
FTC’s investigation, and while prepared to vigorously itself, the Company is
prepared to explore a settlement with the FTC in order to amicably resolve the
investigation. As of the date of this filing, no value or estimate has been
assessed to a settlement.




F-27





(b)
            Leases





The
Company signed a new operating lease beginning July 31, 2006 for its corporate
office space located in Syosset, New York.  The lease has a term of
five years and two months and expires on September 30, 2011.  In the
fiscal year ended December 31, 2009 the Company settled on a previous office
lease in Massachusetts and reduced the security deposit by $4,000 and reversed
approximately $12,797 of rent expense and recorded it as a gain on
extinguishment of a liability. The following is a schedule by year of future
minimum rental payments required under the lease agreement:





Year
      ending
                      
                      AmountDecember
      31, 2010
                      
                      $
                      56,917December
      31, 2011
                      
                      $
                      43,768





Rent
expense was $50,289 and $61,953 for the years ended December 31, 2009 and 2008,
respectively.





NOTE 16 -
SUBSEQUENT EVENTS




“Subsequent
Events ”, the
Company evaluated subsequent events after the balance sheet date of December 31,
2009 through March 29, 2010, which is the date the consolidated financial
statements were issued.




On
January 15, 2010, the Company, through a private sale, issued 300,000 shares of
its restricted common stock as a result of a promissory note issued for
$150,000. The Company repaid this loan in the first quarter ended March 31,
2010.





On
February 18, 2010, the Company, through a private sale, issued 100,000 shares of
its restricted common stock as a result of promissory notes issued for $50,000.
The Company repaid this loan in the first quarter ended March 31,
2010.





In accordance with the Amendment to the
Stock Purchase Agreement for Series B Preferred Stock, the Company received
$500,000 in the first quarter ended March 31, 2010.




F-28




Item
9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.




None




Item
9A (T). Controls and Procedures





Internal
Controls




Evaluation
of our Disclosure Controls and Internal Controls




Under the
supervision and with the participation of our senior management, including our
chief executive and financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our 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
period covered by this annual report (the “Evaluation Date”). The disclosure
controls and procedures are intended to insure that the information relating to
us, including our consolidated subsidiaries, required to be disclosed in our
Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and (ii) is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure. Our management has concluded
that based on their evaluation that our internal control over financial
reporting was not effective as of December 31, 2009 as
further described below.




Management's
Annual Report on Internal Controls and Procedures.





Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives. In
evaluating the effectiveness of our internal control over financial reporting,
our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control –
Integrated Framework.




Based
upon our assessment and the COSO criteria, management concluded that our
internal control over financial reporting was not effective as of December 31,
2009 due to a material weakness. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a
timely basis.




More
specifically, the material weakness relates to a lack of sufficient personnel
with appropriate knowledge, experience and training in U.S. GAAP resulting in a
lack of sufficient analysis and documentation of the application of U.S. GAAP to
transactions, including but not limited to accounting for modification of
debt.




Due to
our small size, limited financial resources, and turnover of our Chief Financial
Officer, who has been the only individual involved in our accounting and
financial reporting, there has been no segregation of duties within the
accounting function. This lack of segregation of duties represents a material
weakness.




In
efforts to address this material weakness, we are planning to add additional
personnel to the internal accounting operation.




This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.




Changes in Internal Controls.
  There were no significant changes in our internal controls over
financial reporting that occurred during the year ended December 31, 2009, that
have materially affected, or are reasonably like to materially affect, our
internal controls over financial reporting.




The
Company's management does not expect that the Company's disclosure controls or
the Company's internal controls will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Because of the inherent limitations in a
cost effective control system, misstatements due to error or fraud may occur and
may not be detected.




Item
9B. Other Information.




Not
Applicable.




21




PART
III




Item
10. Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance; Compliance With Section 16(a) of the Exchange Act.




The
Company has a seven-member board of directors. The identity of each of our
directors and executive officers and their principal occupations for the past
five years are as follows.




YearName
                          
                          Age
                          
                          Position
                          
                          Began
      ServicePeter
      Sealey
                          
                          67
                          
                          Chairman
      of the Board
                          
                          2009Jeffrey
      Greene
                          
                          63
                          
                          Chief
      Executive Officer
                          
                          2009Erica
      Zalbert
                          
                          35
                          
                          Chief
      Financial Officer
                          
                          2008Frank
      Chester
                          
                          61
                          
                          Director
                          
                          2009Randy
      S. Zelin
                          
                          46
                          
                          Director
                          
                          2007David
      Lewis
                          
                          40
                          
                          Director
                          
                          2009Peter
      Charles
                          
                          40
                          
                          Director
                          
                          2009




22




Peter
Sealey, 66, has been the Chairman of the board of EchoMetrix since February
2009, and is currently the CEO and founder of The Sausalito Group, Inc., a
diversified management consulting firm based in Sausalito, CA and offering
capabilities in business and marketing strategy, brand identity, market
research, advertising services, business development, and expert witness
testimony.  Peter held numerous positions at the Coca-Cola Company and
became its first CMO in 1990. In addition, Mr. Sealey has served as a management
consultant for numerous leading firms including VeriSign, The General Motors
Corporation, The Coca-Cola Company, Sony New Technologies, Inc., the
Anheuser-Busch Company, Visa U.S.A., United Parcel Service, ImproveNet, Johnson
& Johnson, Hewlett-Packard, The Eastman Kodak Company, and Nokia. He serves,
or has served, on the Boards of Advisors of Intent MediaWorks, FaceBook.com,
Veoh Networks, Log Savvy, Inc., DiStreams, Inc., HomeGain.com, Space.com,
AgentWare, Learning Framework, NetOyster, Zinio & eVoice.com. He is a
special partner in DigaComm Ventures, LLC.




Jeffrey
Greene, 63, has been the Chief Executive Officer and a Director of EchoMetrix
since February 2009.  Prior to joining EchoMetrix, Mr. Greene spent
the last 30 years as a CEO/COO starting, restarting and rehabilitating
businesses in banking, technology, entertainment and most recently the wireless
industry space.  Greene served as the Chairman of Citicorp Information
Management Services, which was one of the largest resellers of marketing
intelligence to the packaged goods industry.  He later became the President
of Island Trading Company, the owner of 74 entertainment properties including
Island Records.  As President of the Pharmacy Fund, a
major  “factor” of third party pharmacy receivables, he raised over $2
Billion in the securitized asset backed securities market while reselling
pharmaceutical information to the key manufacturers.




Erica
Zalbert, 35, became the Chief Financial Officer of EchoMetrix, Inc. in May 2008.
Prior to joining the Company, Ms. Zalbert, was employed with Cambridge Who's Who
Publishing, Inc., as Controller. Ms. Zalbert established its accounting
department from the ground up, overseeing the internal accounting of all merged
who's who entities, consolidated their financial reporting, captured daily and
weekly revenues, managed the payroll process, and implemented a Microsoft-based
Solomon accounting system. Ms. Zalbert's professional career in finance and
accounting began when she joined PricewaterhouseCoopers as an Associate in 1998,
and leaving in 2003.During her tenure, she conducted audits for a diversified
clientele in the manufacturing, distribution, retail, telecommunications,
advertising, mortgage banking, education, and not-for profit sectors. From 2003
to 2006, Ms. Zalbert held the position of Vice President of Financial Reporting
for Newtek Business Services (NASDAQ: NEWT). Her responsibilities included
reviewing financials for the parent company and 60+ subsidiaries, inter-company
analysis, and SEC and regulatory reports. Ms. Zalbert maintained stock
compensation schedules, segment accounting and auditing schedules, and performed
FIN 46 analysis. She revamped the department, transitioning the records of 25
Newtek companies from a consulting firm to in-house staff, implementing MAS 500
accounting software and FRX reporting software. Ms. Zalbert earned a BBA in
Accounting from Hofstra University and is a Certified Public
Accountant.




Frank
Chester, 60, has been a director of EchoMetrix since March of 2009 and has been
a member of the New York Stock exchange for twenty four years, with
experience on the floor for almost forty years. During his years as a member, he
owned a seat for fifteen years until the exchange became a public entity. When
the exchange became public the seat was exchanged for stock and cash. Mr.
Chester helped to start two brokerage firms become active members on the floor.
Mr. Chester graduated from Villanova University in 1970 with a Bachelor of
Science in Business Administration. He has been a guest on such television
programs as CNBC, Fox Business, and Bloomberg radio.




Randy S.
Zelin, 46, has been a director of EchoMetrix since 2007. An experienced attorney
in private practice and a former Nassau County, NY Assistant District Attorney,
Mr. Zelin concentrates in the areas of criminal defense and securities
litigation. From June 2000 to present, Mr. Zelin serves as President of Randy
Scott Zelin, P.C., a law firm in Westbury, New York. He is a graduate of Hofstra
University (B.A. 1984) and the Touro College Jacob D. Fuchsberg Law Center (J.D.
1987). He is of counsel to Pryor & Mandelup, LLP, a distinguished
bankruptcy, reorganization, and civil practice, where he maintains his office.
Mr. Zelin is admitted to practice in New York, New Jersey, and in the U.S.
District Courts for the Southern, Eastern, and Northern Districts of New York,
and the U.S. Court of Appeals for the Second Circuit. Mr. Zelin is a member of
the Nassau County Bar Association and the National Association of Criminal
Defense Lawyers. He has lectured at continuing legal education programs on
criminal law and procedure and has taught as a guest instructor in various local
law schools’ trial advocacy programs as well as for the National Institute for
Trial Advocacy. He also appears regularly on CNN Headline news to discuss
noteworthy trials and criminal justice issues.





23




David
Lewis, 40, has been a director of the Company since September 2009. Mr. Lewis is
a founding partner and COO of Rock Island Capital, LLC, an investment group
partnership comprised of seasoned business professionals with decades of
operational experience. His responsibilities at Rock Island include developing
corporate client relationships leading to investment opportunities as well as
managing various aspects of public and private market transactions. Mr. Lewis
attended University of Massachusetts  (B.S. 1991) in Amherst, MA and
has acquired over 16 years of financial markets experience through affiliations
with leading investment banking firms including Alex Brown & Sons,
Prudential Securities, and Oppenheimer & Co. Mr. Lewis has specialized in
public market transactions including initial and secondary public offerings,
P.I.P.E. transactions, and institutional trading.  Mr. Lewis was
affiliated with National Securities in Boca Raton, FL ('05-'07) where he advised
clients in the areas of in depth asset management & asset allocation as well
as corporate strategy and valuation.  In 2008, Mr. Lewis founded a
consultancy that has advised numerous companies in various industries including
software, energy, nuclear power, and consumer products.




Peter
Charles, 40, has been a director of the Company since November 2009. Mr. Charles
joined Echo Metrix in October 2009 as Vice President, Director of Corporate
Affairs. His responsibilities at the Company include corporate communication and
several day-to-day operational and managerial duties. Most recently, Mr. Charles
was with Thorium Power (now Lightbridge Corporation), a developer of novel
nuclear fuels, where his primary responsibility was investor relations and also
carried out various treasury duties. Prior to joining Thorium Power in 2006, Mr.
Charles was with Oppenheimer & Co., a full service investment firm. At
Oppenheimer, Mr. Charles was registered as a General Securities Professional and
was licensed for Sales Supervision and Management. Mr. Charles attended
Northeastern University (B.S. 1991) in Boston, MA and he has over 18 years of
experience in financial markets, working with various levels of investors
including middle-market institutional investors. As a focus, Mr. Charles
specialized in Control and Restricted Stock where he is well versed in SEC and
NASD rules and the associated filing procedures. Mr. Charles is also well versed
in global macroeconomics and regularly studies financial and economic
history.





Each
director holds office until the next annual stockholders meeting or until a
successor is duly elected or appointed.  Officers are appointed to
their positions, and continue in such positions, at the discretion of the
directors.





Audit
Committee




On April
2, 2003 the Board of Directors established an Audit Committee, which consists of
one director, who must be an independent director, as defined in the Charter for
the Audit Committee. The Audit Committee consisted of David Barnes, as Chairman,
until his resignation on March 26, 2009.  Members of the Committee are
appointed by the Board of Directors and serve one-year terms. Members may be
removed by the Board of Directors at any time with or without cause. Upon the
removal or resignation of a member, the Board of Directors may appoint a
successor to serve the remainder of the unexpired term. The Audit Committee will
meet at least four times annually with the independent auditors and more
frequently as circumstances dictate.




The
purpose of the Audit Committee is to assist the Board of Directors in fulfilling
its oversight responsibilities with respect to:





·
            the integrity of the financial
      reports and other financial information provided by us to the public or
      any governmental body;




24




·
            our compliance with legal and
      regulatory requirements


·
            our systems of internal controls
      regarding finance, accounting and legal
  compliance;


·
            the qualifications and
      independence of our independent
auditors;


·
            the performance of our internal
      audit function and independent
auditors;


·
            our auditing, accounting, and
      financial reporting processes generally;
  and


·
            the performance of such other
      functions as the Board of Directors may assign from time to
      time.





The Audit
Committee has the authority to:




·
            make recommendations to the Board
      of Directors regarding the appointment or replacement of independent
      public accountants;





·
            confer with our independent
      public accountants regarding the scope, method and results of the audit of
      our books and accounts;





·
            review our financial reporting
      process and the management recommendations made by our independent public
      accountants;





·
            recommend and implement any
      desired changes to our audit procedures;
  and





·
            perform such other duties as the
      Board of Directors may from time to time
  direct.




Audit Committee Financial
Expert




The
Company does not have a financial expert, as defined in paragraph (d) (2)(5)(ii)
of Item 407 of Regulation S-K.





Code of
Ethics




Our board
of directors adopted a Code of Ethics that covers all executive officers of our
company and its subsidiaries. The Code of Ethics requires that senior management
avoid conflicts of interest; maintain the confidentiality of information
relating to our company; engage in transactions in shares of our common stock
only in compliance with applicable laws and regulations and the requirements set
forth in the Code of Ethics; and comply with other requirements which are
intended to ensure that such officers conduct business in an honest and ethical
manner and otherwise act with integrity and in the best interest of our
company.




All our
executive officers are required to affirm in writing that they have reviewed and
understand the Code of Ethics.




Any
amendment of our Code of Ethics or waiver thereof applicable to any of our
principal executive officer, principal financial officer and controller,
principal accounting officer or persons performing similar functions will be
disclosed on our website within 5 days of the date of such amendment or waiver.
In the case of a waiver, the nature of the waiver, the name of the person to
whom the waiver was granted and the date of the waiver will also be disclosed. A
copy of our Code of Ethics is incorporated by reference to the Company’s form
10-KSB filed with the Securities and Exchange Commission on March 16,
2004.




Indebtedness of Executive
Officers and Directors




No
executive officer, director or any member of these individuals’ immediate
families or any corporation or organization with whom any of these individuals
is an affiliate is or has been indebted to us since the beginning of our last
fiscal year.




25





Family
Relationships




There are
no family relationships among our executive officers and directors.




Legal
Proceedings




During
the past five years, no officer or director of the Company has:


·
            been convicted in or is currently
      subject to a pending a criminal
  proceeding;


·
            been a party to a civil
      proceeding of a judicial or administrative body of competent jurisdiction
      and as a result of such proceeding was or is subject to a judgment, decree
      or final order enjoining future violations of, or prohibiting or mandating
      activities subject to any Federal or state securities or banking laws
      including, without limitation, in any way limiting involvement in any
      business activity, or finding any violation with respect to such law;
      nor


·
            has any bankruptcy petition been
      filed by or against the business of which such person was an executive
      officer or a general partner, whether at the time of the bankruptcy or for
      the two years prior thereto.




Section 16(a) Beneficial
Ownership Reporting Compliance


Section
16(a) of the Securities Exchange Act of 1934, as amended, requires all of
EchoMetrix’s officers and directors, and persons who own more than ten percent
of a registered class of EchoMetrix’s equity securities, to file reports of
ownership and changes in ownership of equity securities of EchoMetrix with the
SEC and any applicable stock exchange. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish EchoMetrix with
copies of all Section 16(a) forms that they file. Based solely upon a review of
Forms 3, 4, and 5 furnished to EchoMetrix during 2009, EchoMetrix believes that
Randy Zelin filed a Form 4 late, and Peter Sealey, Frank Chester, Erica Zalbert
and David Lewis each filed a Form 3 late.




Item
11. Executive Compensation





Each of
our named executive officers has entered into a three year employment agreement
with EchoMetrix. 
Pursuant to the respective employment agreement, each executive officer receives
an annual base salary, a non-ISO option grant, paid health insurance and between
three to four weeks of vacation annually.  The employment agreements
require the named executive officers to maintain the confidentiality of
EchoMetrix information and subject them to non-competition and non-solicitation
restrictions during their employment.





The
following table shows the compensation earned by each of the named executive
officers for the years ended December 31, 2009 and 2008.


SUMMARY COMPENSATION TABLE
 Name and Principal
                                                
                                                
                                                
                                                Salary
                                                  (1)
                                                
                                                
                                                Bonuses
                                                
                                                
                                                Option Grants
                                                  (2)
                                                
                                                
                                                All Other
                                                  Compensation
                                                
                                                
                                                TotalPosition
                                                
                                                Year
                                                
                                                ($)
                                                
                                                
                                                ($)
                                                
                                                
                                                ($)
                                                
                                                
                                                ($)
                                                
                                                
                                                ($)(a)
                                                
                                                (b)
                                                
                                                (c)
                                                
                                                
                                                (d)
                                                
                                                
                                                (e)
                                                
                                                
                                                (f)
                                                
                                                
                                                (g)Jeffrey
      Greene,Chief(4)
                                                
                                                2009
                                                
                                                $
                                                229,846
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                450,000
                                                
                                                
                                                $
                                                26,000
                                                
                                                
                                                $
                                                705,846Executive
      Officer(4)
                                                
                                                2008
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                70,000
                                                
                                                
                                                $
                                                70,000William
      J. Bozsnyak, Former(3)
                                                
                                                2009
                                                
                                                $
                                                150,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                3,549,395
                                                (3)
                                                
                                                $
                                                100,000
                                                
                                                
                                                $
                                                250,000Chairman
      and Chief Executive (3)
                                                
                                                2008
                                                
                                                $
                                                150,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                105,000
                                                (3)
                                                
                                                $
                                                100,000
                                                
                                                
                                                $
                                                250,000Erica
      Zalbert,Chief
      Financial
                                                
                                                2009
                                                
                                                $
                                                146,538
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                105,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                251,538Officer
                                                
                                                2008
                                                
                                                $
                                                66,000
                                                (5)
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                14,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                80,000Brian
      P. O’Connor, FormerChief
                                                
                                                2009
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Operating
      Officer
                                                
                                                2008
                                                
                                                $
                                                139,615
                                                (6)
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                139,615Peter
      Charles, Vice President
      and
                                                
                                                2009
                                                
                                                $
                                                29,596
                                                (7)
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                65,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                94,596Director of Corporate
      Affairs
                                                
                                                2008
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
 
 26





(1)           
Salary represents base salary earned in 2009 and 2008.





(2)           Represents
the amount recognized by EchoMetrix for financial statement reporting purposes
in accordance with the recognition and measurement provisions of Share Based
Compensation as defined in FASB Codification, topic 718, which requires
compensation costs related to share-based payment transactions, including
employee stock options, to be recognized in the financial
statements.





(3 )    
      On February 10, 2009 (the “Separation Agreement
Effective Date”), in connection with Mr. Bozsnyak’s resignation as Chief
Executive Officer and Chairman of the Company, the Company entered into a
separation agreement with Mr. Bozsnyak (the “Separation Agreement”).  Mr.
Bozsnyak’s agreement while employed consisted of salary of $150,000 and $100,000
paid quarterly in options to purchase our common stock.  In exchange
for salaries owed for 2009 and as part of the separation agreement, the Company
granted Mr. Bozsnyak 4,000,000 options at an exercise price of $0.11 on a
cashless or non cashless basis.  Pursuant to the Separation Agreement,
Mr. Bozsnyak will retain 3,395,556 vested options for a period of three years
from the Separation Agreement Effective Date; all other unvested options were
cancelled.





(4)       
    Mr. Greene entered into an employment agreement with the
Company effective February 10, 2009.  Other compensation represents
amounts owed prior to the effective date of his employment.





(5)         
  Ms. Zalbert commenced employment with EchoMetrix as our Chief Financial
Officer in May 2008.  Her compensation amounts reflect her
compensation for the period during which she served in this position for the
fiscal year ended December 31, 2008.





(6)           
Includes compensation through his resignation as Chief Operating Officer on
December 15, 2008.




(7)           
Mr. Charles entered into an employment agreement  in October of 2009.
His compensation amount reflects compensation for the period from inception of
his employment agreement through December 31, 2009.


The
following table shows outstanding option awards held by each of the named
executive officers as of December 31, 2009.




OUTSTANDING OPTION AWARDS (1)Name
                                    
                                    Total
                                      Outstanding
                                      Option
                                      Award
                                      (#)
                                    
                                    
                                    Number of Securities
                                      Underlying Exercisable
                                      but Unexercised Options
                                      (#)
                                    
                                    
                                    Number of
                                      Securities
                                      Underlying
                                      Unexercised
                                      Unearned
                                      Options
                                      (#)
                                    
                                    
                                    Option
                                      Exercise
                                      Price
                                      ($)
                                    
                                    Option
                                      Expiration
                                      Date(a)
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (b)
                                    
                                    
                                    (c)
                                    
                                    (d)Jeffrey
      Greene,
      Chief
                                    
                                    
                                    2,500,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,500,000
                                    
                                    
                                    $
                                    0.15
                                    
                                    (2)Executive
      Officer
                                    
                                    
                                    5,000,000
                                    
                                    
                                    
                                    5,000,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    0.10
                                    
                                    02/10/14Erica
      Zalbert,Chief
                                    
                                    
                                    200,000
                                    
                                    
                                    
                                    200,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    0.09
                                    
                                    11/18/13Financial
      Officer
                                    
                                    
                                    1,750,000
                                    
                                    
                                    
                                    250,000
                                    
                                    
                                    
                                    1,500,000
                                    
                                    
                                    $
                                    0.08
                                    
                                    06/01/14




27





(1)
              No
      options were exercised in 2009 by any named executive
      officers.(2)
              These
      options are based on performance measures and will expire 5 years from the
      date of grant. No options have been granted in
  2009.





2004
Stock Plan




The
Company’s 2004 Stock Plan (the “Plan”), which is shareholder approved, permits
the grant of share options and shares to its employees for up to 1,500,000
shares of Common Stock as stock compensation.  All stock options under
the 2004 Stock Plan are granted at the fair market value of the Common Stock at
the grant date. Employee stock options vest ratably over a three-year period and
generally expire 5 years from the grant date.  Additionally, the
Company grants options and shares to its employees outside the Plan under the
same general terms.




Director
Compensation





Directors
who are employees of the Company do not receive any fees for their service on
the Board. We use equity-based incentive compensation to attract and retain
qualified candidates to serve on our Board. Our non-employee directors receive
quarterly equity compensation in the form of stock options to purchase shares of
the Company's common stock.




DIRECTOR COMPENSATION TABLEName
                                  
                                  
                                  
                                  
                                  Fees
                                    Earned
                                    or Paid in
                                    Cash
                                    ($)
                                  
                                  
                                  Stock
                                    and
                                    Option
                                    Awards
                                    ($)
                                  
                                  
                                  Total
                                    ($)Randy
      S. Zelin
                                  
                                  
                                  2009
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  $27,073
                                  (4)
                                  
                                  $
                                  27,0632008
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  50,500
                                  (3)
                                  
                                  $
                                  50,500Peter
      Sealey    (2)
                                  
                                  
                                  2009
                                  
                                  
                                  $
                                  
                                  
                                  
                                  $
                                  6,073
                                  (5)
                                  
                                  $
                                  6,0732008
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Frank
      Chester  (2)
                                  
                                  
                                  2009
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  6,073
                                  (5)
                                  
                                  $
                                  6,0732008
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -David Lewis (2)
                                  
                                  
                                  2009
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  6,073
                                  (5)
                                  
                                  $
                                  6,0732008
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -




(1)
            No options were exercised in 2009
      by any directors.


(2)
            Mr. Sealey, Mr. Chester, and Mr.
      Lewis joined the Board in
2009.


(3)
            Represents amounts recognized by
      EchoMetrix for financial statement reporting purposes of 450,000 shares of
      restricted common stock.


(4)
            Represents
      amounts recognized by EchoMetrix for financial statement reporting
      purposes of 150,000 shares of restricted common stock and 71,948 options
      to purchase common stock.


(5)
            Represents
      amounts recognized by EchoMetrix for financial statement reporting
      purposes of 71,948 options to purchase common
  stock.





28





Item
12. -Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters





The
following table sets forth certain information, as of March 30, 2010, with
respect to the beneficial ownership of our Common Stock by each: (i) holder of
more than five percent (5%) of the outstanding shares of our Common Stock; (ii)
our executive officers and directors; and (iii) all our executive officers and
directors as a group.  The Company's issued and outstanding voting
securities at the close of business on March 30, 2010, consisted of 81,024,164
shares of Common Stock.  Unless otherwise indicated, the address of
each of the named persons is care of EchoMetrix, Inc., 6800 Jericho Turnpike,
Suite 208E, Syosset, New York 11791.





SharesBenefically
                            
                            
                            PercentageName
                            
                            Owned
                            
                            
                            BeneficiallyRock Island Capital, LLC(1)
                            
                            
                            100,884,231
                            
                            
                            
                            55.46
                            %William
      Bozsnyak
                            
                            
                            14,581,306
                            
                            
                            
                            16.31
                            %David Lewis(1)
                            
                            
                            13,775,000
                            
                            
                            
                            14.53
                            %Lewis
      Asset Management Fund & LAM Opportunity Fund
                            
                            
                            13,135,174
                            
                            
                            
                            14.35
                            %Gene
      Bicknell
                            
                            
                            7,046,426
                            
                            
                            
                            8.70
                            %Jeffrey
      Greene
                            
                            
                            5,000,000
                            
                            
                            
                            5.81
                            %Frank
      Chester
                            
                            
                            2,621,234
                            
                            
                            
                            3.20
                            %Peter
      Sealey
                            
                            
                            571,948
                            
                            
                            
                            *Peter
      Charles
                            
                            
                            500,000
                            
                            
                            
                            *Randy
      S. Zelin
                            
                            
                            706,948
                            
                            
                            
                            *Erica
      Zalbert
                            
                            
                            450,000
                            
                            
                            
                            *All
      directors and executive officers as a group (7 persons)
                            
                            
                            18,625,130
                            
                            
                            
                            24.92
                            %





(1)
            Rock
      Island Capital, LLC, with an address of One Aventura Blvd, 20900 NE
      30th
      Ave, Aventura FL, 33180, has four members, one of which is David Lewis who
      serves on our board of directors. The amounts beneficially owned by Rock
      Island include Mr. Lewis’s ownership.  Included in the total
      beneficial ownership is (i) 27,502,750 Series B Preferred Stock owned by
      Rock Island Capital, LLC; (ii) 22,500,000 shares of Common Stock which is
      majority owned  by Mr. Richard Grossfeld (7,875,000 shares) and
      Mr. Jamie Safier (7,875,000 shares) and Mr. David Lewis (6,525,000
      shares); (iii) 50,000,000 warrants to purchase the Company’s common stock
      which is majority owned by Mr. Richard Grossfeld (8,750,000 warrants) and
      Mr. Jamie Safier (8,750,000 warrants) and Mr. David Lewis (7,250,000
      warrants).





* less
than one percent





Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of the Company's common
stock beneficially owned by them. A person is deemed to be the beneficial owner
of securities which may be acquired by such person within 60 days from the date
on which beneficial ownership is to be determined, upon the exercise of options,
warrants or convertible securities.  Each beneficial owner's
percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable within such 60 day period, have been
exercised.




29




Item
13. Certain Relationships and Related Transactions, and Director
Independence




Due to
stockholders




At
December 31, 2009 and 2008, the Company was indebted to its former CEO, William
Bozsnyak, in the amounts of $43,718 and $163,718, respectively, for working
capital advances made to the Company.  In accordance with Mr.
Bozsnyak’s separation agreement dated February 2009, in the fiscal year ended
December 31, 2009, the Company repaid $120,000 of the loan previously made for
working capital advances. For the years ended December 31, 2009 and 2008,
interest expense was charged in the amounts of $1,008 and $10,639,
respectively.  The interest rate used in this calculation is the same
interest rate paid to the Company’s short term lender under the revolving line
of credit described in Note 5, (5.5% and 7.25%) at December 31, 2009 and 2008,
respectively.  At December 31, 2009 and 2008, $164,100 and $163,092 in
accrued interest was due to Mr. Bozsnyak, respectively.





At
December 31, 2009 and 2008, $100,019 and $360,588, respectively, was owed for
unpaid salaries and accrued vacation to Mr. Bozsnyak and Mr. O’Connor. During
the year ended December 31, 2009, the Company repaid approximately $104,000 of
unpaid salaries, of which approximately $86,000 was in accordance with Mr.
Bozsnyak’s February 2010 separation agreement. Also in connection with his
separation agreement, the Company reversed $88,997 of stock based compensation
related to the value of unissued options from 2008 that were owed to Mr.
Bozsnyak at December 31, 2008 in accordance with his employment
agreement.




Due to
affiliates




In
December of 2008, the Company and Mr. O’Connor entered into a separation
agreement when he resigned. Pursuant to the agreement, in full consideration of
all unpaid compensation totaling $172,222, the Company agreed to a lump sum cash
payment of $40,000 and the remaining $132,222 of compensation was to be paid in
options (881,481 cashless options at an exercise price of $0.15) of the
Company.  In October of 2009, the Company entered into a settlement
agreement with the former Chief Operating Officer, Mr.
O’Connor.  Pursuant to the settlement agreement, the Company arranged
for a third party to purchase 750,000 shares of the Company’s common stock owned
by Mr. O’Connor for $110,000. In consideration for the stock purchase agreement,
Mr. O’Connor forgave the $40,000 lump sum cash payment, the 881,481 options and
a debt of $47,671 from prior years due to an affiliate of the Company in which
Mr. O’Connor owns.




Director
Independence




The Board
of Directors have determined that Messrs.  Peter Sealey, Randy Zelin,
Frank Chester and David Lewis are each independent directors as of December 31,
2009.




Mr. Peter
Sealey, Chairman of the Company’s Board of Directors is also a director for
Socket Mobile since 2002. None of the other directors of the Company
are directors of other companies with
securities registered pursuant to section 12 of the Exchange Act or
subject to the requirements of section 15(d) of such act or any
company  registered  under the Investment Company Act of
1940.




Item
14. Principal Accountant Fees and Services





Audit
      Fees:
            Year ended December 31, 2009 -
      $  55,000


Year
ended December 31, 2008 - $  50,000




Fees
billed for audit of year end consolidated financial statements and annual
reports.




Audit-Related
      Fees:
            Year ended December 31, 2009 -
      $  28,500


Year
ended December 31, 2008 - $  28,500




30





Fees
billed for quarterly review of unaudited consolidated financial statements and
interim reports





Tax
      Fees:
            Year ended December 31, 2009 -
      $10,000


Year
ended December 31, 2008 - NONE





All Other
      Fees:
            Year ended December 31, 2009 -
      NONE


Year
ended December 31, 2008 - NONE




Audit
Committee Pre-Approval Policies and Procedures




We
currently do not have an audit committee.




Item
15. Exhibits




Exhibit No.
                  
                  Description
      of Exhibit3(i)(a)
                  
                  Certificate
      of Incorporation of the Company*3(i)(b)
                  
                  Certificate
      of Amendment effective April 26, 2005 (Incorporated herein by reference to
      Form 8-K filed May 2, 2005)3(ii)
                  
                  By-laws
      of the Company*3(iii)
                  
                  Form
      of Certificate Designations, Voting Powers, Preferences, Limitations,
      Restrictions, and Relative Rights of Series A 7% Convertible Preferred
      Stock, $0.0001 par value.
                    (Incorporated
      herein by reference to Form 8-K filed February 13,
2007)3(iv)
                  
                  Amended
      By-Laws of the Company  (Incorporated herein by reference to Form 8-K
      filed March 4, 2009)3(v)
                  
                  Amended
      Certificate of Designations, filed with the State of Delaware, dated March
      5, 2010.4.1
                  
                  Specimen
      Common Stock Certificate of the Company*4.2
                  
                  Specimen
      Class A Warrant Certificate of the Company*4.3
                  
                  Specimen
      Class B Warrant Certificate of the Company*5
                  
                  Opinion
      re: Legality (Incorporated herein by reference to Post-Effective Amendment
      No. 4 to our Form SB-2 filed with the Securities and Exchange Commission
      on May 10, 2004 -File No. 33-97687).10.3
                  
                  Warrant  Agreement,  dated  January
      22,  2003,  between the Company
      and  American  Stock Transfer and Trust
      Company*10.4
                  
                  Placement  Agent  Registration  Rights  Agreement,  dated
      January 22, 2003,  between the Company and Robert M. Cohen &
      Co, Inc.*10.5
                  
                  Form
      of Placement Agent Warrant*10.6
                  
                  Company
      2004 Stock Plan, dated January 1, 2004. **10.7
                  
                  Participation  Agreement,  dated
      February 3, 2004, between the Company and Environmental Commercial
      Technology Corp. **10.8
                  
                  Letter  Agreement,
      dated  February  3,  2004,
      between  the  Company  and  BioNeutral
      Laboratories Corporation USA. **10.9
                  
                  Letter  Agreement,
      dated  February  3,  2004,
      between  the  Company  and  BioNeutral
      Laboratories Corporation (Worldwide) Limited. **10.10
                  
                  Settlement  Agreement,  dated
      October 20, 2005, between EchoMetrix,  Inc. and BioNeutral
      Laboratories Corporation USA.  (filed
  herewith)10.11
                  
                  Registration  Rights  Agreement,  dated
      November 7, 2003, by and between the Company and S.G. Martin Securities
      LLC.**10.12
                  
                  Software  Purchase
      and Service  Agreement,  dated as of August 15,
      2003,  by and between the Company and Edocusign, Inc.
      **





31





10.13
              
              Employment
      Agreement, dated April 26, 2005, between the Company and Joseph
      Carrizzo
                (Incorporated
      herein by reference to Form 8-K filed April 28, 2005)10.14
              
              Securities  Purchase  Agreement
      by and among the Shareholders of E-Top-Pics, Inc. and the Company dated as
      of April  26,  2005.
                (Incorporated  herein
      by reference to Form 8-K filed June 14, 2005)10.15
              
              Employment  Agreement,  dated
      May 1, 2005,  between
      the  Company  and  William
      Bozsnyak
                (Incorporated
      herein by reference to Form 8-K filed May 3, 2005)10.16
              
              Employment  Agreement,  dated
      May
      1,  2005,  between  the  Company  and  Brian  O’Connor
      (Incorporated herein by reference to Form 8-K filed June 14,
      2005)10.17
              
              Accounts
      Receivable  Purchase  Agreement,  dated
      September 15, 2005, between E-Top-Pics, Inc.
      and  Commercial  Capital  Lending,  LLC  (Incorporated  herein
      by reference to Form 8-K filed September 21, 2005)10.18
              
              Secured  Guaranty,  dated
      September 15,
      2005,  between  EchoMetrix,  Inc. and
      Commercial
      Capital  Lending,  LLC
                (Incorporated  herein
      by reference  to Form 8-K filed  September 21,
      2005)10.19
              
              Supply  Agreement,  dated
      September 27,
      2005,  between  E-Top-Pics,  Inc. and Fuji
      Photo Film U.S.A., Inc.
                (Incorporated
      herein by reference to Form 8-K filed October 3, 2005)10.20
              
              Exchange
      Agreement dated as of November 2, 2005, among EchoMetrix, Inc.,
      AmberAlertAgent, Inc.  (“AAA”)  and
      the  stockholders  of AAA
                (incorporated
      herein by reference to 8-K  filed November 10,
    2005)10.21
              
              Consulting  Agreement,  dated
      November 2, 2005, among
      EchoMetrix,  Inc.,  AmberAlertAgent
      Development  Company,  LLC,  and  certain  principals  of  AmberAlertAgent
      Development Company, LLC. ***10.22
              
              Employment
      agreement, dated April 24, 2006 between the Company and John
      Caruso
                (Incorporated
      herein by reference to Form 8-K filed May 8, 2006)10.23
              
              Lease
      Agreement, dated June 1, 2006, between the Company and RA 6800 Jericho
      Turnpike LLC
                (Incorporated
      herein by reference to Form 8-K filed June 12, 2006)10.24
              
              Settlement
      Agreement, dated July 14, 2006 between the Company and BioNeutral
      Laboratories Corporation USA
                (Incorporated
      herein by reference to Form 8-K filed July 20, 2006)10.25
              
              Amendment
      to Employment  Agreement,  dated January 29,
      2007,  between the  Company  and
      William  Bozsnyak ****10.26
              
              Series
      A Preferred Stock Purchase Agreement dated February 7, 2007 by and between
      the Registrant and Edward Kaplan.
                (Incorporated
      herein by reference to Form 8-K filed February 13,
2007)10.27
              
              Series
      A Preferred Stock Purchase Agreement dated February 8, 2007 by and between
      the Registrant and The LAM Opportunity Fund, LTD.
                (Incorporated
      herein by reference to Form 8-K filed February 13,
2007)10.28
              
              Series
      A Preferred Stock Purchase Agreement dated February 8, 2007 by and between
      the Registrant and Lewis Opportunity Fund, LP.
                (Incorporated
      herein by reference to Form 8-K filed February 13,
2007)10.29
              
              Series
      A Preferred Stock Purchase Agreement dated February 20, 2007 by and
      between the Registrant and The LAM Opportunity Fund, LTD.
                (incorporated
      herein by reference to Form 8-K filed February 26,
2007)10.30
              
              Series
      A Preferred Stock Purchase Agreement dated February 20, 2007 by and
      between the Registrant and Lewis Opportunity Fund, LP.
                (Incorporated
      herein by reference to Form 8-K filed February 26,
2007)10.31
              
              Series
      A Preferred Stock Purchase Agreement dated March 9, 2007 by and between
      the Registrant and Michael Zuhoski.
                (Incorporated
      herein by reference to Form 8-K filed June 6, 2007)10.32
              
              Series
      A Preferred Stock Purchase Agreement dated March 9, 2007 by and between
      the Registrant and Diane Supinsky.
                (Incorporated
      herein by reference to Form 8-K filed June 6, 2007)10.33
              
              Series
      A Preferred Stock Purchase Agreement dated May 16, 2007 by and between
      theRegistrant
      and Lewis Opportunity Fund, LP.(Incorporated
      herein by reference to Form 8-K filed June 6, 2007)10.34
              
              Series
      A Preferred Stock Purchase Agreement dated May 16, 2007 by and between the
      Registrant and The LAM Opportunity Fund, LTD.(incorporated
      herein by reference to Form 8-K filed June 6,
  2007)





32





10.35
                  
                  Series
      A Preferred Stock Purchase Agreement dated June 1, 2007 by and between the
      Registrant and Lewis Opportunity Fund, LP.
                    (Incorporated
      herein by reference to Form 8-K filed June 6, 2007)10.36
                  
                  Separation
      Agreement between the Company and Mr. William Bozsnyak dated February 10,
      2009.(Incorporated
      herein by reference to Form 10-K filed April 14, 2009)10.37
                  
                  Employment
      agreement, dated February 10, 2009 between the Company and Jeffrey Greene.
      (Incorporated herein by reference to Form 10-K filed April 14,
      2009)10.39
                  
                  Certificate
      of Designation filed with the State of Delaware (Incorporated herein by
      reference to the Company’s 10-Q filed November 14,
2009)10.40
                  
                  Series
      B Preferred Stock Purchase Agreement dated September 9, 2009 by and
      between the Company and Rock Island Capital, LLC (Incorporated herein by
      reference to the Company’s 10-Q filed November 14,
2009)10.41
                  
                  Amended
      Stock Purchase Agreement to Series B Preferred dated March 4,
      201014
                  
                  Code
      of Ethics of the Company.**21
                  
                  List
      of Subsidiaries***


*
                Incorporated
      herein by reference to the Company’s Form SB-2 filed with the Securities
      and Exchange Commission (File No. 33-97687).**
                Incorporated
      herein by reference to the Company’s Form 10-KSB filed with the Securities
      and Exchange Commission on March 16, 2004.***
                Incorporated
      herein by reference to the Company’s Form 10-KSB filed with the Securities
      and Exchange Commission on April 17, 2006****
                Incorporated
      herein by reference to the Company’s Form 10-KSB filed with the Securities
      and Exchange Commission on April 11,
2007


33




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.




EchoMetrix, Inc.


(Registrant)





By:
                  /s/
      Jeffrey GreeneJeffrey
      Greene, Chief Executive OfficerDate:
      March 30, 2010By:
                  /s/Erica
      ZalbertErica
      Zalbert, Chief Financial OfficerDate:
      March 30, 2010




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.





Name
                      Title
                      Date/s/
      Peter SealeyPeter Sealey
                      Chairman
                      March
      30, 2010s/
      Frank ChesterFrank
      Chester
                      Director
                      March
      30, 2010/s/
      Randy S. ZelinRandy S. Zelin
                      Director
                      March
      30, 2010/s/
      David LewisDavid
      Lewis
                      Director
                      March
      30, 2010/s/ Peter CharlesPeter
      Charles
                      Director
                      March
      30,
2010





34