----

----

----

----

| Delaware                                                             |   |  98-0513637                           |
|----------------------------------------------------------------------|--------|--------------------------------------------|
|  (State or other jurisdiction of incorporation or organization) |   |  (I.R.S. Employer Identification No.) |

|   |  2010 FM 2673                                                                |   |
|--------|-----------------------------------------------------------------------------------|--------|
|   |  Canyon Lake, Texas 78133                                                    |   |
|   |  (Address of principal executive offices)                                    |   |
|   |                                                                              |   |
|   |  (972) 865-6192                                                              |   |
|   |  (Registrant’s telephone number, including area code)                  |   |
|   |                                                                              |   |
|   |  Securities registered pursuant to Section 12(b) of the Act:  None |   |
|   |                                                                              |   |
|   |  Securities registered pursuant to Section 12(g) of the Act:                 |   |
|   |  Common Stock, $0.0001 par value                                             |   |
|   |  (Title of Class)                                                            |   |

|   |  Large accelerated filer |  o |                                                |  Accelerated filer         |  o |   |
|--------|-------------------------------|---------|-----------------------------------------------------|---------------------------------|---------|--------|
|   |                          |    |                                                |                            |    |   |
|   |  Non-accelerated filer   |  o |  (Do not check if a smaller reporting company) |  Smaller reporting company |  x |   |

----

----

ITEM

|                                                           | Page      |
|----------------------------------------------------------------|-----------|
|                                                           |      |
| Report of Independent Registered Public Accounting Firm (2011) | F–2 |
|                                                           |      |
| Report of Independent Registered Public Accounting Firm (2010) | F–3 |
|                                                           |      |
| Balance Sheets                                                 | F-4       |
|                                                           |      |
| Statements of Operations                                       | F-6       |
|                                                           |      |
| Statements of Stockholders’ Equity (Deficit)             | F-7       |
|                                                           |      |
| Statements of Cash Flows                                       | F-9       |
|                                                           |      |
| Notes to the Financial Statements                              | F-11      |

----

SIGN

|                   | COPSYNC, INC. |                        |
|------------------------|---------------|-----------------------------|
|                   |          |                        |   |
| Date: October 11, 2012 | By:           | /s/ Ronald A. Woessner |   |
|                   |          | Ronald A. Woessner          |   |
|                   |          | Chief Executive Officer     |   |
|                   |          |                        |   |

----

IND

| Exhibit Number |   | Description                                                                                                                                                                                                                                                                                     |
|----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |   |                                                                                                                                                                                                                                                                                            |
| 3.1            |   | Amended and Restated Certificate of Incorporation filed on September 2, 2009 (Incorporated by reference to registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 20, 2009).                                                                                    |
|           |   |                                                                                                                                                                                                                                                                                            |
| 3.2            |   | Certificate of Designations of Series B Convertible Preferred Stock filed on October 14, 2009 (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).                                                                   |
|           |   |                                                                                                                                                                                                                                                                                            |
| 3.3            |   | Bylaws (Incorporated by reference to registrants Registration Statement on Form SB-2 (Registration No. 333-140320)).                                                                                                                                                                            |
|           |   |                                                                                                                                                                                                                                                                                            |
| 4.1            |   | Form of Common Stock Certificate (Incorporated by reference to registrant’s Registration Statement on Form SB-2 (Registration No. 333-140320)).                                                                                                                                           |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.2           |   | Form of Warrant, dated as of October 14, 2009, issued by registrant to the investors in its Series B Preferred Stock (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).                                            |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.3           |   | Investors’ Rights Agreement, dated as of October 14, 2009, by and among registrant and the investors in its Series B Preferred Stock (excluding exhibits) (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009). |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.4           |   | Amended and Restated Executive Employment Agreement, dated April 29, 2009, by and between Russell D. Chaney and registrant (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 20, 2009)                                   |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.5           |   | Amended and Restated Executive Employment Agreement, dated April 29, 2009, by and between J. Shane Rapp and registrant (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 20, 2009)                                       |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.6           |   | Stock Restriction Agreement, dated as of August 27, 2010, by and between Ronald A. Woessner and registrant.  (Incorporated by reference to the registrant’s Annual Report on Form 10-K filed with the Commission on April 15, 2011).                                            |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.7           |   | Form of Indemnification Agreement, dated as of October 14, 2009, by and between registrant and its officers and directors (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on October 20, 2009).                                       |
|           |   |                                                                                                                                                                                                                                                                                            |
| 10.8           |   | Registrant’s 2009 Long-Term Incentive Plan (Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-161882)).                                                                                                                       |
| 10.9           |   | Form of Warrant, issued by the registrant to certain investors (Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the Commission on April 6, 2011).                                                                                                |
| 10.10          |   | Form of Convertible Note, issued by the registrant to certain investors (Incorporated by reference to the registrant’s Current Report on Form 8-k filed with the Commission on April 6, 2011).                                                                                            |

----

| 23.1*       |   | Consent of Independent Registered Public Accounting Firm            |
|-------------|--------|--------------------------------------------------------------------------|
| 23.2*       |   | Consent of Morrill & Associates, LLC                            |
| 23.3*       |   | Consent of Morrill & Associates, LLC                            |
| 31.1*  |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.  |
| 31.2*       |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.  |
| 32*         |   | Section 1350 Certifications.                                        |

| * | Filed herewith. |
|---|-----------------|

----

IND

|                                                    | Page      |
|---------------------------------------------------------|-----------|
|                                                    |      |
| Report of Independent Registered Public Accounting Firm | F–2 |
|                                                    |      |
| Report of Independent Registered Public Accounting Firm | F–3 |
|                                                    |      |
| Balance Sheets                                          | F-4       |
|                                                    |      |
| Statements of Operations                                | F-6       |
|                                                    |      |
| Statements of Stockholders’ Equity (Deficit)      | F-7       |
|                                                    |      |
| Statements of Cash Flows                                | F-9       |
|                                                    |      |
| Notes to the Financial Statements                       | F-11      |

----

REPORT 

----

REPORT 

----

COPSYNC

Bal

| ASSETS                          |   |
|---------------------------------|--------|
|                            |   | December 31, |   |   | December 31, |   |
|                            |   | 2011 |   |   | 2010 |   |
|                            |   |   |   |   |   |   |
| CURRENT ASSETS                  |   |   |   |   |   |   |
|                            |   |   |   |   |   |   |
| Cash and cash equivalents       |   | $ | 1,074,317 |   |   | $ | 240,154 |   |
| Accounts receivable, net        |   |   | 106,919 |   |   |   | 148,939 |   |
| Prepaid expenses                |   |   | 60,425 |   |   |   | 46,021 |   |
|                            |   |   |   |   |   |   |   |   |
| Total Current Assets            |   |   | 1,241,661 |   |   |   | 435,114 |   |
|                            |   |   |   |   |   |   |   |   |
| PROPERTY AND EQUIPMENT          |   |   |   |   |   |   |   |   |
|                            |   |   |   |   |   |   |   |   |
| Computer hardware               |   |   | 57,561 |   |   |   | 52,363 |   |
| Computer software               |   |   | 20,713 |   |   |   | 18,259 |   |
| Fleet vehicles                  |   |   | 108,384 |   |   |   | 156,183 |   |
| Furniture and fixtures          |   |   | 7,872 |   |   |   | 50,832 |   |
|                            |   |   |   |   |   |   |   |   |
| Total Property and Equipment    |   |   | 194,530 |   |   |   | 277,637 |   |
| Less: Accumulated Depreciation  |   |   | (83,269 | ) |   |   | (128,056 | ) |
|                            |   |   |   |   |   |   |   |   |
| Net Property and Equipment      |   |   | 111,261 |   |   |   | 149,581 |   |
|                            |   |   |   |   |   |   |   |   |
| OTHER ASSETS                    |   |   |   |   |   |   |   |   |
|                            |   |   |   |   |   |   |   |   |
| Software development costs, net |   |   | 1,309,416 |   |   |   | 1,745,896 |   |
| Debt issuance costs, net        |   |   | - |   |   |   | 4,208 |   |
|                            |   |   |   |   |   |   |   |   |
| Total Other Assets              |   |   | 1,309,416 |   |   |   | 1,750,104 |   |
|                            |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                    |   | $ | 2,662,338 |   |   | $ | 2,334,799 |   |

----

| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                             |   | December 31, |   |   | December 31, |   |
|                                                                                                                                                             |   | 2011 |   |   | 2010 |   |
| CURRENT LIABILITIES                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                                             |   |   |   |   |   |   |
| Accounts payable and accrued expenses                                                                                                                            |   | $ | 528,951 |   |   | $ | 590,465 |   |
| Accrued settlement costs                                                                                                                                         |   |   | - |   |   |   | 220,000 |   |
| Deferred revenues                                                                                                                                                |   |   | 1,033,833 |   |   |   | 746,513 |   |
| Convertible notes payable                                                                                                                                        |   |   | - |   |   |   | 6,249 |   |
| Notes payable, current portion                                                                                                                                   |   |   | 84,145 |   |   |   | 149,621 |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Total Current Liabilities                                                                                                                                        |   |   | 1,646,929 |   |   |   | 1,712,848 |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| LONG-TERM LIABILITIES                                                                                                                                            |   |   |   |   |   |   |   |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Deferred revenues                                                                                                                                                |   |   | 553,615 |   |   |   | 373,951 |   |
| Convertible notes payable                                                                                                                                        |   |   | 612,731 |   |   |   | 29,162 |   |
| Notes payable, non-current portion                                                                                                                               |   |   | 35,844 |   |   |   | 104,984 |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Total Long-Term Liabilities                                                                                                                                      |   |   | 1,202,190 |   |   |   | 508,097 |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Total Liabilities                                                                                                                                                |   |   | 2,849,119 |   |   |   | 2,220,945 |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                    |   |   | - |   |   |   | - |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                   |   |   |   |   |   |   |   |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Series A Preferred stock, par value $0.0001 per share, 100,000 shares authorized; 100,000 shares issued and outstanding, respectively                  |   |   | 10 |   |   |   | 10 |   |
| Series B Preferred stock, par value $0.0001 per share, 400,000 shares authorized; 375,000 shares issued and outstanding, respectively                  |   |   | 37 |   |   |   | 37 |   |
| Common stock, par value $0.0001 per share, 500,000,000 shares authorized; 148,251,688 and 130,106,113 shares issued and outstanding, respectively |   |   | 14,826 |   |   |   | 13,011 |   |
| Common stock to be issued, 2,459,061 and 2,175,000 shares, respectively                                                                                     |   |   | 284,315 |   |   |   | 104,000 |   |
| Common stock warrants to be issued                                                                                                                               |   |   | 131,961 |   |   |   | 131,961 |   |
| Additional paid-in-capital                                                                                                                                       |   |   | 9,886,601 |   |   |   | 7,650,100 |   |
| Accumulated deficit                                                                                                                                              |   |   | (10,504,531 | ) |   |   | (7,785,265 | ) |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Total Stockholders' Equity (Deficit)                                                                                                                             |   |   | (186,781 | ) |   |   | 113,854 |   |
|                                                                                                                                                             |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                             |   | $ | 2,662,338 |   |   | $ | 2,334,799 |   |

----

CO

|                                                                             |   | For the Years Ended |        |
|----------------------------------------------------------------------------------|--------|---------------------|-------------|
|                                                                             |   | December 31,        |        |
|                                                                             |   | 2011                |        |   | 2010 |   |
|                                                                             |   |                |        |   |   |   |
| REVENUES                                                                         |   |                |        |   |   |   |
|                                                                             |   |                |        |   |   |   |
| Hardware, installation and other revenues                                        |   | $                   | 1,344,786   |   |   | $ | 2,029,973 |   |
| Software license/subscriptions revenues                                          |   |                | 1,204,530   |   |   |   | 379,314 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| Total Revenues                                                                   |   |                | 2,549,316   |   |   |   | 2,409,287 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| COST OF REVENUES                                                                 |   |                |        |   |   |   |   |   |
|                                                                             |   |                |        |   |   |   |   |   |
| Hardware and other costs                                                         |   |                | 1,431,073   |   |   |   | 1,971,676 |   |
| Software license/subscriptions                                                   |   |                | 165,000     |   |   |   | - |   |
| Amortization of capitalized licensing costs                                      |   |                | 139,672     |   |   |   | 177,621 |   |
| Impairment on capitalized licensing costs (Note 3)                               |   |                | 296,808     |   |   |   | 580,000 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| Total Cost of Revenues                                                           |   |                | 2,032,553   |   |   |   | 2,729,297 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| GROSS PROFIT (LOSS)                                                              |   |                | 516,763     |   |   |   | (320,010 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| OPERATING EXPENSES                                                               |   |                |        |   |   |   |   |   |
|                                                                             |   |                |        |   |   |   |   |   |
| Depreciation and amortization                                                    |   |                | 42,131      |   |   |   | 39,084 |   |
| Professional fees                                                                |   |                | 337,228     |   |   |   | 1,020,157 |   |
| Salaries and wages                                                               |   |                | 2,289,419   |   |   |   | 1,377,334 |   |
| Rent                                                                             |   |                | 77,675      |   |   |   | 28,280 |   |
| Other general and administrative                                                 |   |                | 454,994     |   |   |   | 382,837 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| Total Operating Expenses                                                         |   |                | 3,201,447   |   |   |   | 2,847,692 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                             |   |                | (2,684,684  | ) |   |   | (3,167,702 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                           |   |                |        |   |   |   |   |   |
|                                                                             |   |                |        |   |   |   |   |   |
| Interest income                                                                  |   |                | 500         |   |   |   | 5,773 |   |
| Gain on settlement of debt                                                       |   |                | 100,000     |   |   |   | 392,914 |   |
| Gain on asset disposals                                                          |   |                | 9,426       |   |   |   | 648 |   |
| Interest expense                                                                 |   |                | (39,509     | ) |   |   | (68,060 | ) |
| Induced conversion expense                                                       |   |                | -           |   |   |   | (4,346 | ) |
| Impairment on investment                                                         |   |                | -           |   |   |   | (50,000 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| Total Other Income (Expense)                                                     |   |                | 70,417      |   |   |   | 276,929 |   |
|                                                                             |   |                |        |   |   |   |   |   |
| NET LOSS BEFORE INCOME TAXES                                                     |   |                | (2,614,267  | ) |   |   | (2,890,773 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| INCOME TAXES                                                                     |   |                | -           |   |   |   | - |   |
|                                                                             |   |                |        |   |   |   |   |   |
| NET LOSS                                                                         |   | $                   | (2,614,267  | ) |   | $ | (2,890,773 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| Series B preferred stock dividend                                                |   |                | (104,999    | ) |   |   | (192,645 | ) |
| Cost of Series B warrants extension                                              |   |                | (113,984    | ) |   |   | - |   |
|                                                                             |   |                |        |   |   |   |   |   |
| NET LOSS APPLICABLE TO COMMON SHAREHOLDERS                                  |   | $                   | (2,833,250  | ) |   | $ | (3,083,418 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| LOSS PER COMMON SHARE - BASIC & DILUTED                                      |   | $                   | (0.02       | ) |   | $ | (0.02 | ) |
|                                                                             |   |                |        |   |   |   |   |   |
| WEIGHTED AVERAGE NUMBER OF  COMMON SHARES OUTSTANDING - BASIC & DILUTED |   |                | 135,765,341 |   |   |   | 127,911,302 |   |

----

COP

|                                                                                                                                  |   | Preferred Stock A |    |   | Preferred Stock B |   |   | Common Stock |   |   | CommonStockTo Be |   |   | Common Stock Warrants To Be |   |   | Treasury |   |        | AdditionalPaid-in |   |   |  Accumulated |   |   | TotalShareholderEquity |    |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|--------|--------------|--------|--------|------------------|--------|--------|-----------------------------|--------|--------|----------|--------|-------------|-------------------|--------|--------|-------------------|--------|--------|------------------------|---------|
|                                                                                                                                  |   | Shares            |    |   | Amount            |   |   | Shares       |   |   | Amount           |   |   | Shares                      |   |   | Amount   |   |        | Issued            |   |   | Issued            |   |   | Stock                  |    |   | Capital |   |   | Deficit |   |   | (Deficit) |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Balance, January 1, 2010                                                                                                              |   |              | 100,000 |   |              | $      | 10     |         |   |   | 362,500          |   |   | $                           | 36     |   |     |   | 126,086,967 |              |   | $      | 12,609            |   |   | $                      | 19,633  |   |   | $ | - |   |   | $ | - |   |   | $ | 6,800,120 |   |   | $ | (4,701,847 | ) |   | $ | 2,130,561 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series B Preferred shares and warrants issued for cash at $4.00 per unit                                                         |   |              | -       |   |              |   | -      |         |   |   | 12,500           |   |   |                        | 1      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 68,032 |   |   |   | - |   |   | $ | 68,033 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued to employees for services rendered at prices ranging from $0.08 to $0.14 per share                      |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | 1,179,601   |              |   |   | 118               |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 129,214 |   |   |   | - |   |   | $ | 129,332 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for cash at $0.10 per share                                                                                  |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | 2,500,000   |              |   |   | 250               |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 249,750 |   |   |   | - |   |   | $ | 250,000 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for cash received during 2009 at $0.15 per share                                                             |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | 130,885     |              |   |   | 13                |   |   |                   | (19,633 | ) |   |   | - |   |   |   |   |   |   |   | 19,620 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued in conversion of notes payable and accrued interest at $0.10 per share, including induced conversion expense |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | 108,660     |              |   |   | 11                |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 15,201 |   |   |   | - |   |   | $ | 15,212 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued persuant to a settlement agreement at $0.10 per share                                                        |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | 100,000     |              |   |   | 10                |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 9,990 |   |   |   | - |   |   | $ | 10,000 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital contributed/co-founders' forfeiture of contractual compensation                                                          |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 82,250 |   |   |   | - |   |   | $ | 82,250 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock to be issued per an agreement with an advisory firm at $0.60 per share                                              |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | 45,000  |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   | $ | 45,000 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of restricted stock grant                                                                                                |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 15,000 |   |   |   | - |   |   | $ | 15,000 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock to be issued to a former employee at $0.09 per share                                                                     |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | 9,000   |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   | $ | 9,000 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock deposit received for common stock to be issued                                                                             |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | 50,000  |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   | $ | 50,000 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valuation of common stock warrants to be issued                                                                                  |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | 131,961 |   |   |   |   |   |   |   | - |   |   |   | - |   |   | $ | 131,961 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valuation of the vested portion of employee stock options granted during December 2009                                           |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 73,854 |   |   |   | - |   |   | $ | 73,854 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series B Preferred stock  - deemed dividends from accretion of Preferred discounts                                     |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   |   |   |   |   |   |   |   |   | 69,726 |   |   |   | (87,759 | ) |   | $ | (18,033 | ) |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valuation of warrants granted to a consulting firm during 2010                                                                   |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 12,457 |   |   |   | - |   |   | $ | 12,457 |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series B Preferred stock  - cumulative dividends                                                                            |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   |   |   |   |   | 104,886 |   |   |   | (104,886 | ) |   | $ | - |   |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for the year ended December 31, 2010                                                                                    |   |              | -       |   |              |   | -      |         |   |   | -                |   |   |                        | -      |   |     |   | -           |              |   |   | -                 |   |   |                   | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,890,773 | ) |   | $ | (2,890,773 | ) |
|                                                                                                                                  |   |              |    |   |              |   |   |         |   |   |             |   |   |                        |   |   |     |   |        |              |   |   |              |   |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010                                                                                                            |   |              | 100,000 |   |              | $      | 10     |         |   |   | 375,000          |   |   | $                           | 37     |   |     |   | 130,106,113 |              |   | $      | 13,011            |   |   | $                      | 104,000 |   |   | $ | 131,961 |   |   | $ | - |   |   | $ | 7,650,100 |   |   | $ | (7,785,265 | ) |   | $ | 113,854 |   |

----

|                                                                                                                   |   | Preferred Stock A |    |   | Preferred Stock B |   |   | Common Stock |   |   | CommonStock To Be |   |   | CommonStockWarrantsTo Be |   |   | Treasury |   |        | AdditionalPaid-in |   |   | Accumulated |   |   | Total ShareholderEquity |    |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|--------|--------------|--------|--------|-------------------|--------|--------|--------------------------|--------|--------|----------|--------|-------------|-------------------|--------|--------|-------------|--------|--------|-------------------------|---------|
|                                                                                                                   |   | Shares            |    |   | Amount            |   |   | Shares       |   |   | Amount            |   |   | Shares                   |   |   | Amount   |   |        | Issued            |   |   | Issued      |   |   | Stock                   |    |   | Capital |   |   | Deficit |   |   | (Deficit) |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |
| Capital contributed/co-founders' forfeiture of contractual compensation                                                |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | -           |              |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   |   |   |   |   | 79,000 |   |   |   | - |   |   | $ | 79,000 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Valuation of the vested portion of employee and non-employee stock options                                             |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | -           |              |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   |   |   |   |   | 160,759 |   |   |   | - |   |   | $ | 160,759 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock shares issued to former employee at $0.09 per share                                                       |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | 100,000     |              |   |   | 10          |   |   |                    | (9,000  | ) |   |   | - |   |   |   |   |   |   |   | 8,990 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for conversion of a convertible note at $0.10 per share                                            |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | 522,465     |              |   |   | 52          |   |   |                    | -       |   |   |   | - |   |   |   |   |   |   |   | 52,194 |   |   |   | - |   |   | $ | 52,246 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Two million common stock shares returned to treasury stock at $0.09 per share                                          |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | (2,000,000  | )                 |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   | (180,000 | ) |   |   | 180,000 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Two million common stock shares issued at $0.09 per share to CEO                                                       |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | 2,000,000   |              |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   | 180,000 |   |   |   | (180,000 | ) |   |   | - |   |   | $ | - |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of restricted stock grants                                                                                |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   | 60,000 |   |   |   |   |   |   | $ | 60,000 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One million common stock shares returned to treasury stock at $0.06 per share                                          |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | (1,000,000  | )                 |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   | (60,000 | ) |   |   | 60,000 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One million common stock shares issued pursuant to a legal settlement at $0.06 per share                          |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | 1,000,000   |              |   |   | 100         |   |   |                    | -       |   |   |   | - |   |   |   | - |   |   |   | 59,900 |   |   |   | - |   |   | $ | 60,000 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One million common stock shares issued  from treasury stock pursuant to a legal settlement at$0.06 per share |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | 1,000,000   |              |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   | 60,000 |   |   |   | - |   |   |   | - |   |   | $ | 60,000 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock subscribed                                                                                    |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   | 500,000     |              |   |   | 50          |   |   |                    | (50,000 | ) |   |   |   |   |   |   |   |   |   |   | 49,950 |   |   |   |   |   |   | $ | - |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Common stock shares issued for cash at $0.10 per share                                                          |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | 16,023,110  |              |   |   | 1,603       |   |   |                    | -       |   |   |   | - |   |   |   |   |   |   |   | 1,600,709 |   |   |   | - |   |   | $ | 1,602,312 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock deposit for common stock shares to be issued                                                                     |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | -           |              |   |   | -           |   |   |                    | 60,000  |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   | $ | 60,000 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock shares to be issued to two resellers for cash payments at $0.10 per share                                 |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | -           |              |   |   | -           |   |   |                    | 165,000 |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   | $ | 165,000 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock shares to be issued for services provided by reseller                                                     |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    | 14,315  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 14,315 |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series B preferred stock  - cumulative dividends                                                             |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | -           |              |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   |   |   |   |   | 104,999 |   |   |   | (104,999 | ) |   | $ | - |   |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for the year endedDecember 31, 2011                                                                           |   |              | -       |   |              |   | -      |         |   |   | -                 |   |   |                     | -      |   |     |   | -           |              |   |   | -           |   |   |                    | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,614,267 | ) |   | $ | (2,614,267 | ) |
|                                                                                                                   |   |              |    |   |              |   |   |         |   |   |              |   |   |                     |   |   |     |   |        |              |   |   |        |   |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2011                                                                                             |   |              | 100,000 |   |              | $      | 10     |         |   |   | 375,000           |   |   | $                        | 37     |   |     |   | 148,251,688 |              |   | $      | 14,826      |   |   | $                       | 284,315 |   |   | $ | 131,961 |   |   | $ | - |   |   | $ | 9,886,601 |   |   | $ | (10,504,531 | ) |   | $ | (186,781 | ) |

----

COP

|                                                                                   |   | For the Years Ended |       |
|----------------------------------------------------------------------------------------|--------|---------------------|------------|
|                                                                                   |   | December 31,        |       |
|                                                                                   |   | 2011                |       |   | 2010 |   |
|                                                                                   |   |                |       |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                   |   |                |       |   |   |   |
|                                                                                   |   |                |       |   |   |   |
| Net loss                                                                               |   | $                   | (2,614,267 | ) |   | $ | (2,890,773 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |   |                |       |   |   |   |   |   |
| Depreciation and amortization                                                          |   |                | 181,803    |   |   |   | 216,705 |   |
| Amortization of note discount                                                          |   |                | 14,589     |   |   |   | 31,452 |   |
| Induced conversion expense                                                             |   |                | -          |   |   |   | 4,346 |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| Employee and non-employee stock compensation                                           |   |                | 160,759    |   |   |   | 218,272 |   |
| Common stock issued for services rendered                                              |   |                | -          |   |   |   | 69,000 |   |
| Issuance of common stock for services rendered                                         |   |                | -          |   |   |   | 12,666 |   |
| Amortization of restricted stock grants                                                |   |                | 60,000     |   |   |   | - |   |
| Capital contributed/co-founders' forfeiture of contractual compensation                |   |                | 79,000     |   |   |   | 82,250 |   |
| Gain on asset disposals                                                                |   |                | (9,426     | ) |   |   | (648 | ) |
| Gain from settlement of debt                                                           |   |                | (100,000   | ) |   |   | (392,914 | ) |
| Impairment of capitalized software                                                     |   |                | 296,808    |   |   |   | 580,000 |   |
| Impairment of investment                                                               |   |                | -          |   |   |   | 50,000 |   |
| Change in operating assets and liabilities:                                            |   |                |       |   |   |   |   |   |
| Accounts receivable                                                                    |   |                | 42,020     |   |   |   | (108,568 | ) |
| Debt issuance costs                                                                    |   |                | 4,208      |   |   |   | 12,500 |   |
| Prepaid expenses                                                                       |   |                | 12,061     |   |   |   | (7,179 | ) |
| Deferred revenues                                                                      |   |                | 481,299    |   |   |   | 587,171 |   |
| Accounts payable and accrued expenses                                                  |   |                | (83,596    | ) |   |   | 480,138 |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| Net Cash Used in Operating Activities                                                  |   |                | (1,474,742 | ) |   |   | (1,055,582 | ) |
|                                                                                   |   |                |       |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                   |   |                |       |   |   |   |   |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| Software development costs                                                             |   |                | -          |   |   |   | (158,142 | ) |
| Proceeds from asset disposals                                                          |   |                | 60,000     |   |   |   | - |   |
| Purchases of property and equipment                                                    |   |                | (30,057    | ) |   |   | (19,172 | ) |
|                                                                                   |   |                |       |   |   |   |   |   |
| Net Cash Provided/(Used) by in Investing Activities                                    |   |                | 29,943     |   |   |   | (177,314 | ) |
|                                                                                   |   |                |       |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                   |   |                |       |   |   |   |   |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| Payments on notes payable                                                              |   |                | (161,081   | ) |   |   | (18,485 | ) |
| Proceeds received on convertible notes                                                 |   |                | 612,731    |   |   |   | - |   |
| Proceeds from common stock to be issued                                                |   |                | 165,000    |   |   |   | - |   |
| Proceeds from stock deposit for common stock to be issued                              |   |                | 60,000     |   |   |   | 50,000 |   |
| Proceeds from issuance of common stock for cash                                        |   |                | 1,602,312  |   |   |   | 50,000 |   |
| Proceeds from issuance of series B preferred shares for cash                           |   |                | -          |   |   |   | 250,001 |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| Net Cash Provided by Financing Activities                                              |   |                | 2,278,962  |   |   |   | 331,516 |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                   |   |                | 834,163    |   |   |   | (901,380 | ) |
|                                                                                   |   |                |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         |   |                | 240,154    |   |   |   | 1,141,534 |   |
|                                                                                   |   |                |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                               |   | $                   | 1,074,317  |   |   | $ | 240,154 |   |

----

|                                                                                |   | For the Years Ended |    |
|-------------------------------------------------------------------------------------|--------|---------------------|---------|
|                                                                                |   | December 31,        |    |
|                                                                                |   | 2011                |    |   | 2010 |   |
| SUPPLEMENTAL DISCLOSURES:                                                           |   |                |    |   |   |   |
|                                                                                |   |                |    |   |   |   |
| Cash paid for interest                                                              |   | $                   | 3,735   |   |   | $ | 4,181 |   |
| Cash paid for taxes                                                                 |   | $                   | 4,978   |   |   | $ | - |   |
|                                                                                |   |                |    |   |   |   |   |   |
|                                                                                |   |                |    |   |   |   |   |   |
| NON-CASH INVESTING AND FINANCING ACTIVITIES:                                        |   |                |    |   |   |   |   |   |
|                                                                                |   |                |    |   |   |   |   |   |
| Purchase of fleet vehicles financed by notes payable                                |   | $                   | -       |   |   | $ | 73,687 |   |
| Common stock issued in lieu of accrued expenses                                     |   | $                   | -       |   |   | $ | 126,665 |   |
|   Common stock issued in conversion of notes payable and accrued interest |   | $                   | 52,246  |   |   | $ | 10,866 |   |
|                                                                                |   |                |    |   |   |   |   |   |
| Series B Preferred stock dividends                                                  |   | $                   | 104,999 |   |   | $ | 192,645 |   |
| Financing of Insurance Policy                                                       |   | $                   | 26,465  |   |   | $ | 23,120 |   |
|                                                                                |   |                |    |   |   |   |   |   |
|                                                                                |   |                |    |   |   |   |   |   |

----

COP

| At December 31, 2011, the Company had cash and cash equivalents of approximately $1,075,000, a working capital deficit of approximately $635,000 and an accumulated deficit of $10,680,000.  Due to these circumstances, the Company’s management monitors and attempts to minimize, to the extent possible, all cash expenditures.  The Company’s management believes it will generate sufficient revenues to meet its working capital needs in future periods.  Because of these conditions, the Company will require additional working capital to continue operations and develop its business in the current fiscal year. The Company intends to raise additional working capital to support its operations, either through private placements and/or bank financing.  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| There are no assurances that the Company will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements and/or bank financing necessary to support the Company’s working capital requirements. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not be able to continue its operations or execute its business plan.                                                                                                                                                                                                                                     |

|                      |   | 2011   |      |   | 2010   |   |
|---------------------------|--------|--------|-----------|--------|--------|--------|
| Cash in bank              |   | $      | 1,056,156 |   |   | $      | 167,967 |   |
| Money market funds        |   |   | 18,161    |   |   |   | 72,187 |   |
|                      |   |   |      |   |   |   |   |   |
| Cash and cash equivalents |   | $      | 1,074,317 |   |   | $      | 240,154 |   |

----

COP

|  Computer hardware/software   |  3 years      |
|------------------------------------|--------------------|
|  Fleet vehicles          |  5 years      |
|  Furniture and fixtures  |  5 to 7 years |

----

COP

----

COP

|   |   | 1) for new customers – a multiple-element arrangement involving a) the subscription fee, b) integration of the COPsync software and a hardware appliance (where the hardware and software work together to deliver the essential functionality of the service) to include related services for hardware installation and agency and officer set-up and training and c) if applicable, software integration services for enhanced service offerings; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | 2) for existing customers – the subscription fees for the annual renewal of an agency’s COPsync subscription service, upon the completion of the agency’s initial subscription period. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | 1) For multiple-element arrangements involving new customers – contractually the lesser period of time of sixty days from contract date or the date officer training services are completed.  Additionally, the Company requests the agency to complete a written customer acceptance at the time training is completed, which will override the contracted criteria discussed immediately above. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | 2) The subscription fee – the date the officer training is completed and written customer acceptance is received. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   |   | 3) Software integration services for enhanced service offerings – upon the Company’s completion of the integration efforts and verification that the enhanced service offering is available for use by the agency. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

COP

|   | 1) Integration of the COPsync software and a hardware appliance (where the hardware and software work together to deliver the essential functionality of the service) to include related services for hardware installation and agency and officer set-up and training – immediately upon delivery. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) The subscription fee – ratably over the contracted subscription period commencing on the delivery date. |
|--------|------------------------------------------------------------------------------------------------------------------|

|   | 3) Software integration services for enhanced service offerings – immediately upon the Company’s completion of the integration and verification that the enhanced service is available for the agency’s use. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4) Renewals – ratably over the renewed subscription or service period commencing on the completion of the previous subscription or service period. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

COP

|                                     |   | 2011   |       |   | 2010   |   |
|------------------------------------------|--------|--------|------------|--------|--------|--------|
| Convertible Debentures Outstanding       |   |   | 6,257,700  |   |   |   | 500,000 |   |
| Warrants Outstanding                     |   |   | 7,130,582  |   |   |   | 4,125,000 |   |
| Stock Options Outstanding                |   |   | 7,445,833  |   |   |   | 7,100,000 |   |
| Preferred Stock Outstanding              |   |   | 15,100,000 |   |   |   | 15,100,000 |   |
| Dividends on Preferred Stock Outstanding |   |   | 2,491,246  |   |   |   | 1,318,607 |   |
|                                     |   |   |       |   |   |   |   |   |
| Total Common Stock Equivalents           |   |   | 38,425,361 |   |   |   | 28,143,607 |   |

----

COP

|                                         |   | December 31, |      |
|----------------------------------------------|--------|--------------|-----------|
|                                         |   | 2011         |      |   | 2010 |   |
|  Capitalized software development costs |   | $            | 2,724,082 |   |   | $ | 2,724,082 |   |
|  Accumulated amortization               |   |         | (537,858  | ) |   |   | (398,186 | ) |
|  Sub-total                              |   |         | 2,186,224 |   |   | $ | 2,325,896 |   |
|  Cumulative Impairment charge           |   |         | (876,808  | ) |   |   | (580,000) |   |
|  Total                                  |   | $            | 1,309,416 |   |   | $ | 1,745,896 |   |

| Year Ended December 31, |   | Expense |    |
|-------------------------|--------|---------|---------|
| 2012                    |   | $       | 436,480 |   |
| 2013                    |   | $       | 436,480 |   |
| 2014                    |   | $       | 436,456 |   |

----

COP

|                              |   | 2011   |                                                                                                          |   | 2010   |   |
|-----------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Deferred tax assets:              |   |   |                                                                                                          |   |   |   |
| Net operating loss carry-forwards |   | $      | 2,101,200                                                                                                     |   |   | $      | 1,485,800 |   |
|                              |   |   |   -                                                                                                      |   |   |   |   - |   |
|                              |   |   |                                                                                                          |   |   |   |   |   |
| Total deferred tax assets         |   |   | 2,101,200                                                                                                     |   |   |   | 1,485,800 |   |
|                              |   |   |                                                                                                          |   |   |   |   |   |
| Valuation allowance               |   |   | (2,101,200                                                                                                    | )      |   |   | (1,485,800 | ) |
|                              |   |   |                                                                                                          |   |   |   |   |   |
| Net deferred tax assets           |   | $      |                   - |   |   | $      |                  - |   |

|                                |   | 2011   |                                                                      |   | 2010   |   |
|-------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|--------|--------|
| Expected federal income tax benefit |   | $      | (888,900                                                                  | )      |   | $      | (982,900 | ) |
| Stock expense                       |   |   | 20,400                                                                    |   |   |   | 68,400 |   |
| Stock option and warrant expense    |   |   | 54,700                                                                    |   |   |   | 74,200 |   |
| Other                               |   |   | 31,800                                                                    |   |   |   | 40,100 |   |
| Adjustment – NOL prior year   |   |   | 166,600                                                                   |   |   |   | –  |   |
| Change in valuation allowance       |   |   | 615,400                                                                   |   |   |   | 800,200 |   |
| Income tax benefit                  |   | $      |            – |   |   | $      |           – |   |

----

COP

|                       |   | Collateral |   |   | Interest |   |   | Monthly  |   |     |   | December 31, |      |
|----------------------------|--------|------------|--------|--------|----------|--------|--------|----------|--------|----------|--------|--------------|-----------|
| Type                       |   | (If any)   |   |   | Rate     |   |   | Payments |   | Maturity |   | 2011         |      |   | 2010 |   |
|                       |   |       |   |   |     |   |   |     |   |     |   |         |      |   |   |   |
| Bank                       |   | Autos      |   |   |     | 6.75   | %      |     | $      | 482      |   | Apr. 2014    |      | $ | 12,404 |   |   | $ | 17,231 |   |
| Bank                       |   | Autos      |   |   |     | 8.25   | %      |     | $      | 811      |   | Nov. 2012    |      |   | 7,615 |   |   |   | 17,176 |   |
| Bank                       |   | Autos      |   |   |     | 6.75   | %      |     | $      | 308      |   | Sep. 2013    |      |   | 6,062 |   |   |   | 9,239 |   |
| Bank                       |   | Autos      |   |   |     | 6.75   | %      |     | $      | 562      |   | Oct. 2015    |      |   | 14,831 |   |   |   | 27,699 |   |
| Bank                       |   | Autos      |   |   |     | 7.00   | %      |     | $      | 799      |   | Nov. 2014    |      |   | 25,066 |   |   |   | 32,708 |   |
| Insurance                  |   |       | -      |   |     |   | 5.30   | %        |   | $        | 2,626  |         | Nov. 2012 |   |   | 24,011 |   |   |   | 20,552 |   |
| Settlement                 |   |       | -      |   |     |   | ** 0   | %        |   | $        | 10,000 |         | Mar. 2012 |   |   | 30,000 |   |   |   | 130,000 |   |
| Total notes payable        |   |       |   |   |     |   |   |     |   |     |   | $            | 119,989   |   |   | $ | 254,605 |   |
| Less: Current portion |   |       |   |   |     |   |   |     |   |     |   | $            | (84,145   | ) |   | $ | (149,621 | ) |
|                       |   |       |   |   |     |   |   |     |   |     |   |         |      |   |   |   |   |   |   |   |   |
| Long-term portion          |   |       |   |   |     |   |   |     |   |     |   | $            | 35,844    |   |   | $ | 104,984 |   |

|                                                     |   |   |    |   |
|----------------------------------------------------------|--------|--------|---------|--------|
| 2012                                                     |   | $      | 84,145  |   |
| 2013                                                     |   |   | 23,141  |   |
| 2014                                                     |   |   | 12,703  |   |
| 2015 & thereafter                                    |   |   | -       |   |
| Total                                                    |   | $      | 119,989 |   |
| ** Imputed interest was immaterial in 2011 and 2010 |   |   |    |   |

----

COP

|                                                    |   | December 31, |    |
|---------------------------------------------------------|--------|--------------|---------|
|                                                    |   | 2011         |    |   | 2010 |   |
|                                                    |   |         |    |   |   |   |
|  Total convertible notes payable                   |   | $            | 612,731 |   |   | $ | 50,000 |   |
|  Less; unamortized note discount                   |   | $            | --      |   |   | $ | (14,589 | ) |
|                                                    |   |         |    |   |   |   |   |   |
|  Convertible notes payable, net                    |   | $            | 612,731 |   |   | $ | 35,411 |   |
|  Less: current portion                             |   | $            | --      |   |   | $ | (6,249 | ) |
|                                                    |   |         |    |   |   |   |   |   |
|  Convertible notes payable, net, long-term portion |   | $            | 612,731 |   |   | $ | 29,162 |   |

----

COP

----

COP

----

COP

|                                                                        |   |                 |      |   |                 |   |    |        |   |   |    |   |
|-----------------------------------------------------------------------------|--------|----------------------|-----------|--------|----------------------|--------|---------|-------------|--------|--------|---------|--------|
|                                                                        |   | At December 31, 2011 |      |   | At December 31, 2010 |   |
| Common stock to be issued per:                                              |   | # of Shares          |      |   | $ Value              |   |    | # of Shares |   |   | $ Value |   |
|                                                                        |   |                 |      |   |                 |   |    |        |   |   |    |   |
| An agreement with an advisory firm at $0.60 per share                       |   |                 | 75,000    |   |                 | $      | 45,000  |        |   |   | 75,000  |   |   | $ | 45,000 |   |
| Common stock to be issued to former employee at $0.09 per share             |   |                 | -         |   |                 |   | -       |        |   |   | 100,000 |   |   |   | 9,000 |   |
| A stock deposit received for common stock to be issued at $0.10 per share   |   |                 | -         |   |                 |   | -       |        |   |   | 500,000 |   |   |   | 50,000 |   |
| Two private placements for cash at $0.10 per share                          |   |                 | 600,000   |   |                 |   | 60,000  |        |   |   | -       |   |   |   | - |   |
| Two reseller agreements for paid license fees as provided by the agreements |   |                 | 1,640,909 |   |                 |   | 165,000 |        |   |   | -       |   |   |   | - |   |
| A single reseller for provided services                                     |   |                 | 143,152   |   |                 |   | 14,315  |        |   |   | -       |   |   |   | - |   |
|                                                                        |   |                 |      |   |                 |   |    |        |   |   |    |   |   |   |   |   |
| Total number of shares and value                                            |   |                 | 2,459,061 |   |                 | $      | 284,315 |        |   |   | 675,000 |   |   | $ | 104,000 |   |

----

COP

|  Risk-free interest rate   |                  |   | 1.76% - 2.85 | % |
|---------------------------------|-----------------------|--------|--------------|---|
|  Expected life             | 36 months - 60 months |   |
|  Expected volatility  |                  |   | 232% - 244   | % |
|  Dividend yield       |                  |   | 0.0          | % |

|                           |   |   |                  |   | Weighted Average |    |
|--------------------------------|--------|--------|-----------------------|--------|------------------|---------|
|                           |   | Shares |                  |   | Exercise Price   |    |
| Outstanding, January 1, 2010   |   |   | 19,039,800            |   |             | $       | 0.06 |   |
|                           |   |   |                  |   |             |    |   |   |
| Granted                        |   |   | 350,000               |   |             | $       | 0.20 |   |
|                           |   |   |                  |   |             |    |   |   |
| Cancelled                      |   |   | (15,000,000)          |   |             | $  | 0.05 |   |
| Expired                        |   |   | (264,800)             |   |             | $  | 0.60 |   |
|                           |   |   |                  |   |             |    |   |   |
| Outstanding, December 31, 2010 |   |   | 4,125,000             |   |             | $       | 0.10 |   |
|                           |   |   |                  |   |             |    |   |   |
| Exercisable, December 31, 2010 |   |   | 4,125,000             |   |             | $       | 0.10 |   |
|                           |   |   |                  |   |             |    |   |   |
| Granted                        |   |   |   3,255,582 |   |             | $       | 0.20 |   |
|                           |   |   |                  |   |             |    |   |   |
| Expired                        |   |   | (250,000)             |   |             | $  | 0.20 |   |
|                           |   |   |                  |   |             |    |   |   |
| Outstanding, December 31, 2011 |   |   | 7,130,582             |   |             | $       | 0.20 |   |
|                           |   |   |                  |   |             |    |   |   |
| Exercisable, December 31, 2011 |   |   | 7,130,582             |   |             | $       | 0.20 |   |

----

COP

|                    |        |   | Outstanding                                   |   |      | Exercisable                                   |   |
|-------------------------|-------------|--------|-----------------------------------------------|--------|-----------|-----------------------------------------------|--------|
| Range of ExercisePrices |        |   | Weighted Average NumberOutstandingat 12/31/11 |   |      | OutstandingRemainingContractualLife (in yrs.) |   |   | WeightedAverage ExercisePrice |   |   | Number Exercisableat 12/31/11 |   |   | Weighted AverageExercisePrice |   |
|                    |        |   |                                          |   |      |                                          |   |   |   |   |   |   |   |   |   |   |
|                    | 0.10        |   |                                          |   | 50,000    |                                          |   |   | 2.43 |   |   |   | 0.10 |   |   |   | 50,000 |   |   |   | 0.10 |   |
|                    | 0.20        |   |                                          |   | 7,080,582 |                                          |   |   | 2.60 |   |   |   | 0.20 |   |   |   | 7,080,582 |   |   |   | 0.20 |   |
|                    |        |   |                                          |   |      |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $                       | 0.10 - 0.20 |   |                                          |   | 7,130,582 |                                          |   |   | 2.59 |   |   | $ | 0.20 |   |   |   | 7,130,582 |   |   | $ | 0.20 |   |

----

COP

|                                                                        |   | December 31, 2011   |      | December 31, 2010 |                          |
|-----------------------------------------------------------------------------|--------|---------------------|-----------|-------------------|-------------------------------|
|                                                                        |   |    Shares |      |              | WeightedAverageExercise Price |   | Aggregate Intrinsic Value |   | Weighted Average Remaining Contractual Life |   |   |    Shares |   |   | WeightedAverageExercise Price |   | Aggregate Intrinsic Value |   | Weighted Average Remaining Contractual Life |   |
|                                                                        |   |                |      |              |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at beginning of period                                          |   |                | 7,100,000 |              |                          | $ | 0.09 |   |   |   |   |   |   |   | 3,150,000 |   |   | $ | 0.09 |   |   |   |   |   |
| Granted                                                                     |   |                | 1,075,000 |              |                          | $ | 0.10 |   |   |   |   |   |   |   | 5,600,000 |   |   | $ | 0.09 |   |   |   |   |   |
| Exercised                                                                   |   |                | –   |              |                          | $ | 0.00 |   |   |   |   |   |   | ─ |   |   | $ | 0.00 |   |   |   |   |   |
| Forfeited/ Cancelled                                                        |   |                | (729,167  | )                 |                          | $  | 0.09 |   |   |   |   |   |   |   | (1,650,000 | ) |   |   | 0.00 |   |   |   |   |   |
|                                                                        |   |                |      |              |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at period end                                                   |   |                | 7,445,833 |              |                          | $ | 0.09 |   |   |   |   | 2.51 |   |   |   |  7,100,000 |   |   | $ | 0.09 |   |   |   |   | 3.55 |   |
|                                                                        |   |                |      |              |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options vested and exercisable at period end                                |   |                | 2,310,000 |              |                          | $ | 0.09 |   |   |   | ─ |   |   |   |  665,834 |   |   | $ | 0.09 |   |   |   | ─ |   |
|                                                                        |   |                |      |              |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average grant-date fair value of options granted during the period |   | $                   | 0.10      |              |                          |   |   |   |   |   |   |   |   |   | $ | 0.09 |   |   |   |   |   |   |   |   |   |   |

|                            |               |   | Options Outstanding |   |      | Options Exercisable                                        |   |
|---------------------------------|--------------------|--------|---------------------|--------|-----------|------------------------------------------------------------|--------|
|   Range of Exercise Prices |               |   | OptionsOutstanding  |   |      | Weighted AverageRemaining Contractual Life (in years) |   |   | Weighted AverageExercise Price |   |   |   Number Outstanding |   |   | Weighted AverageExercise Price |   |
| $                               | 0.00 – $0.08 |   |                |   | 3,150,000 |                                                       |   |   | 2.92 |   |   | $ | 0.08 |   |   |   | 995,834 |   |   | $ | 0.08 |   |
| $                               | 0.09 – $0.10 |   |                |   | 4,295,833 |                                                       |   |   | 2.21 |   |   | $ | 0.10 |   |   |   | 1,314,166 |   |   | $ | 0.10 |   |
|                            |               |   |                |   | 7,445,833 |                                                       |   |   |   |   |   |   |   |   |   |   | 2,310,000 |   |   |   |   |   |

----

COP

|   Non-vested Shares |   |    Shares |       |   | Weighted AverageGrant-DateFair Value |   |
|-------------------------------|--------|---------------------|------------|--------|--------------------------------------|--------|
| Non-vested at January 1, 2010 |   |                | 6,434,166  |   |                                 | $      | 0.09 |   |
| Granted                       |   |                | 1,075,000  |   |                                 | $      | 0.08 |   |
| Forfeited                     |   |                | (729,167   | )      |                                 | $      | 0.09 |   |
| Vested                        |   |                | (1,644,166 | )      |                                 | $      | 0.08 |   |
| Non-vested                    |   |                | 5,135,833  |   |                                 | $      | 0.08 |   |

|  Risk-free interest rate   |   |    | 2.03% - 2.44 | % |
|---------------------------------|--------|---------|--------------|---|
|  Expected life             |   | 3 years |         |
|  Expected volatility  |   |    | 143% - 156   | % |
| Dividend yield             |   |    | 0.0          | % |

|  Risk-free interest rate   |   |              | 1.85% - 2.85 | % |
|---------------------------------|--------|-------------------|--------------|---|
|  Expected life             |   | 3 years - 5 years |         |
|  Expected volatility  |   |              | 164% - 170   | % |
|  Dividend yield       |   |              | 0.0          | % |

----

COP

|                 |   | 2012   |         |   | 2013   |   |
|----------------------|--------|--------|--------------|--------|--------|--------|
| Dallas Office        |   | $      | 89,865       |   |   | $      | 14,978 |   |
| Canyon Lake Office   |   | $      |  12,000 |   |   |   | - |   |
|                 |   |   |         |   |   |   |   |   |
| Total Lease Payments |   | $      | 101,865      |   |   | $      | 14,978 |   |

----

COP

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