**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





**(Mark
      One)**


**x**
              
              **ANNUAL
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934**
 
 For
        the
        Fiscal Year Ended December 31, 2007
 
 **o**
              
              **TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934**
 For
        the
        transition period from ____________ to _____________





Commission
      File No. 333-140204




**INTELLIHOME,
                INC.**(Name
                of Small Business Issuer in its
                Charter)




Texas
            
            76-0672176(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)




5150
                  Franz Road, Suite 100Katy,
                  Texas 77493(Address
                  of principal executive offices)(Zip
                  code)





Issuer's
      telephone number, including area code:   (281) 391-4199





Securities
                registered under Section 12(b) of the Exchange Act:





Title
                of each class
            
            Name
                of each exchange on which each is registeredNone
            
            None





Securities
      registered under Section 12(g) of the Exchange Act:





None(Title
                of Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. **o**





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports); and (2) has been subject
      to such filing requirements for the past 90 days. Yes **x** No  **o**





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. **x**





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




The
                Issuer’s revenues for the fiscal year ended December 31, 2007 were
                $887,003.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant on April 1, 2008, based on the last sales
      price
      on the OTC Bulletin Board as of such date, was approximately
      $845,000.





The
      number of shares of the registrant’s common stock, $0.001 par value per share,
      outstanding as of April 1, 2008 was 25,942,000.





DOCUMENTS
      INCORPORATED BY REFERENCE





None





Transition
      Small Business Disclosure Format:  Yes  **o**No**x**









**TABLE
      OF CONTENTS**





PagePART
                IITEM
                1.
            DESCRIPTION
                OF BUSINESS
            
            3ITEM
                2.
            DESCRIPTION
                OF PROPERTY
            
            11ITEM
                3.
            LEGAL
                PROCEEDINGS
            
            11ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            
            11PART
                IIITEM
                5.
            MARKET
                FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER
                PURCHASES OF EQUITY SECURITIES
            
            11ITEM
                6.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS
            
            12ITEM
                7.
            FINANCIAL
                STATEMENTS
            
            20ITEM
                8.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            
            20ITEM
                8A.
            CONTROLS
                AND PROCEDURES
            
            20ITEM
                8B.
            OTHER
                INFORMATION
            
            21PART
                IIIITEM
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
            
            22ITEM
                10.
            EXECUTIVE
                COMPENSATION
            
            23ITEM
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            
            24ITEM
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            
            25ITEM
                13.
            EXHIBITS
            
            26ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            
            27SIGNATURES
            
            
            28





2




**FORWARD-LOOKING
      STATEMENTS**





This
      annual report on Form 10-KSB contains forward-looking statements within the
      meaning of the federal securities laws. These forwarding-looking statements
      include without limitation statements regarding our expectations and beliefs
      about the market and industry, our goals, plans, and expectations regarding
      our
      activities and results, our intentions and strategies regarding future
      operations and transactions, our intentions and strategies regarding the
      formation of strategic relationships, our beliefs regarding the future success
      of our business, our expectations and beliefs regarding competition,
      competitors, the basis of competition and our ability to compete, our beliefs
      and expectations regarding our ability to hire and retain personnel, our beliefs
      regarding period to period results of operations, our expectations regarding
      revenues, our expectations regarding future growth and financial performance,
      our beliefs and expectations regarding the adequacy of our facilities, and
      our
      beliefs and expectations regarding our financial position, ability to finance
      operations and growth and the amount of financing necessary to support
      operations. These statements are subject to risks and uncertainties that could
      cause actual results and events to differ materially. We undertake no obligation
      to update forward-looking statements to reflect events or circumstances
      occurring after the date of this annual report on Form 10-KSB.





As
      used
      in this annual report on Form 10-KSB, unless the context otherwise requires,
      the
      terms “we,” “us,” “the company,” and “Intellihome” refer to Intellihome, Inc., a
      Texas corporation.





**PART
      I**





**ITEM
              1.**
            **DESCRIPTION
                OF BUSINESS**





**Overview**





IntelliHome,
      Inc., originally formed as The Jon Ashton Corporation and doing business as
      Advanced Protective Technology Security Services, based in Katy Texas, is a
      Texas corporation formed in February 2001. We provide a comprehensive range
      of
      low-voltage products and services to homeowners, builders and commercial
      customers to facilitate the creation and operation of the modern “smart home” or
“smart building”. Our products and services include security systems, fire
      alarms, home theater systems, intercom systems, phone, central vacuum systems,
      whole house audio/video, home automation, computer networking and integrated
      structured cabling to facilitate state-of-the-art home and commercial
      technologies.





We
      market
      our products and services through multiple channels with an emphasis on the
      builder market but also including direct sales to consumers. We have developed
      a
      market penetration strategy to establish an initial presence and exclusivity,
      or
      near exclusivity, through contracting with builders and upselling products
      and
      services to homebuyers.





Our
      offices are located at 5150 Franz Road, Suite 100, Katy, Texas 77493, telephone
      (281) 391-4199.





**History
      and Development**





We
      were
      formed in 2001 by Mark Trimble and John Peper, veterans of the home security
      industry, to market security monitoring services and the installation of basic
      infrastructure to support monitoring services, including structured integrated
      cabling. Our initial focus was on building a sales and service team targeting
      end-users to market the monitoring services of ADT Security and the installation
      of related hardware.





Beginning
      in 2003, we expanded the scope of our product offerings implementing a home
      builder program designed to establish ongoing relationships with builders in
      the
      new construction market with the goals of becoming the preferred provider of
      structured integrated cabling and related equipment during the construction
      phase and establishing preferred relationships with the builders’ home buyers in
      order to facilitate the upselling of a comprehensive range of “smart home”
products and services.





In
      2004,
      ADT Security implemented changes to its dealer program the effect of which
      was
      to substantially limit our ability to sell the monitoring services of ADT
      Security. As a result, we lost substantially all of our sales force servicing
      that market and we experienced severe declines in our revenues from the sale
      of
      security monitoring contracts.


3




During
      2006, we established a relationship with another security monitoring service
      under which that service may purchase monitoring contracts on more favorable
      terms than ADT Security, including acquiring contracts not meeting the revised
      criteria for purchase by ADT Security. With an improved Contract Funding model,
      we believe that the generation of Contract Funding business is once more
      economically viable and we have begun efforts to rebuild that
      business.





With
      the
      implementation of our builder program, and due to limited resources to allocate
      among our various operations, our end-user sales team was reduced and revenues
      from security monitoring contracts declined in recent years while sales to
      builders have grown. With the receipt of $300,000 from a private placement
      in
      late 2006 and early 2007, we began investing in inventory and hiring of sales
      and installation personnel in an effort to attract and service large scale
      builder accounts as well as to reinvigorate our security monitoring sales
      efforts in the end-user market.





Following
      completion of our 2006/2007 private placement, we filed a registration statement
      with the Securities and Exchange Commission (the “SEC”) to register the resale
      of shares issued in, or in connection with, the private placement. The
      registration statement became effective and our common stock began trading
      on
      the OTC Bulletin Board in late 2007.





**Industry
      Overview**





Sales,
      installation and service to facilitate creation and operation of the modern
      “smart home” or “smart building” lies at the convergence of the developing
“structured cabling” industry and the broad technologies application
      industry.





*▪
      Structured Cabling* .





The
      structured cabling industry has developed in response to rapid technological
      advances and a growing demand among consumers to incorporate those technologies
      to create the so-called “smart home” or “smart building”. With the pending
      explosion of digital technology applications, the Telecommunications Industry
      Association (“TIA”) and the Electronic Industries Association (“EIA”), in the
      mid-1980s, began developing methods for cabling buildings with the intent of
      developing a uniform wiring system to support multi-vendor products and
      environments. In 1991, TIA/EIA released the first structured cabling standards
      for commercial building telecommunications cablings. Those standards were
      followed by a series of updates and addendums.





The
      TIA/EIA structured cabling standards define how to design, build and manage
      a
      cabling system that is structured, or designed in blocks that have specific
      performance characteristics, and integrated to create a unified system. During
      the 1990s, the initial commercial telecommunications cabling systems were
      reengineered and downsized for residential applications to meet the specific
      demands and cost parameters of consumers.





The
      primary market for structured cabling is in new construction, both residential
      and commercial. In the residential market, high-end construction, particularly
      custom homes, were early adopters of structured cabling. In the late 1990s
      and
      early 2000s builders of lower priced homes, including national tract builders,
      began installing basic structured cabling in virtually all new homes. According
      to a February 2003 survey, structured cabling was offered as a standard building
      feature by approximately 30% of the respondents and was offered as an option
      by
      approximately 49% of the respondents. Industry publications indicate that the
      structured cabling market has grown from approximately $123 million in 2000
      to
      $1.4 billion in 2004. We believe that the structured cabling industry remains
      early in its life and expect the industry to continue to grow and the
      installation of structured cabling to become the de facto standard in new
      construction.





*▪
      Technology Applications* .





Technology
      applications sales and service to serve the “smart home” or “smart building” is
      a diverse and evolving industry, encompassing security and safety products
      and
      services, audio/video products and services, communications products and
      services and home automation and convenience products and services.




4




Collectively,
      we believe these markets account for multiple billions of dollars of sales
      annually in the United States alone. The consumer electronics industry
      generally, including the “smart home” industry, is characterized by rapid
      innovation and intense competition as new technologies are introduced resulting
      in the obsolescence of relatively new technologies, shortened product life
      cycles and intense price competition in all but the newest technologies. We
      believe that demand for enhanced automation and life-style “smart home”
applications will continue to grow, driven by evolving consumer technology
      expectations and falling prices attributable to more wide-spread sales and
      intense competition among all but the latest technologies. As an example, plasma
      televisions were largely a very high priced novelty purchased by audio/video
      technology buffs as recently as the early 2000s. By 2005, demand for plasma
      televisions had increased sharply and prices had fallen by 50% or
      more.




Within
      the security and safety products markets, we believe that the quality and
      cost-effectiveness of monitoring services, as well as perception regarding
      crime
      and security, are the principal factors that impact consumer spending habits.
      We
      believe the security and safety products and monitoring services market accounts
      for more than $1 billion of sales annually in the United States. Largely driven
      by the economies involved in creating monitoring centers to serve large customer
      bases, we believe that the monitoring market is dominated by large competitors
      such as ADT Security and Brinks Home Security. We believe that installers of
      security and safety products and marketers of monitoring services must maintain
      relationships with established national monitoring services in order to
      successfully enter the market for monitoring services.




**Products
      and Services**





We
      offer
      a comprehensive range of products and services designed to facilitate the
      deployment of state-of-the-art home and commercial electronics, communications
      and security applications. At the core of our solutions offerings is our
      structured integrated cabling, offering pre-packaged, custom and semi-custom
      wiring solutions to service all of the low-voltage products and services in
      both
      residential and commercial settings. Additionally, or in conjunction with
      structured integrated cabling, we offer a broad array of security and safety
      products and services, audio video products and services, home automation
      products and services and communication and networking products and
      services.





Principal
      product and service offerings include:





*▪
      Structured Integrated Cabling* .





Structured
      integrated cabling solutions is a core offering. Our cabling solutions are
      designed to provide the essential infrastructure to support current and future
      advanced technology applications, including security and safety systems, audio
      video systems, home automation and communications and networking.





Our
      cabling solutions include the design and installation of structured wiring
      and
      outlets to support, in an integrated fashion, virtually all low-voltage
      applications in a home or commercial setting. Our cabling solutions are designed
      to be both versatile and adaptable to integrate, in a comprehensive and easy
      to
      use system, broad and diverse applications. Our cabling solutions can
      accommodate and support both current technology applications and future
      application additions or upgrades.





We
      have
      developed, and offer, pre-packaged cabling solutions designed to meet the needs
      and budgets of a range of customers. Additionally, we offer semi-custom cabling
      solutions based on upgrades to our pre-packaged cabling solutions to meet
      specific customer demands and fully custom cabling solutions for high-end
      customer installations and applications. Pre-packaged cabling solutions
      typically include providing and installing cabling in a pre-determined number
      of
      rooms with a pre-determined number of outlets to support security, audio/video,
      voice and data applications. Upgrades and custom solutions may include
      additional rooms and outlets as well as cabling to support more advanced
      applications such as surround sound, whole home audio, home networking and
      home
      automation.





*▪
      Security and Safety Systems* .





Security
      and safety system installation and monitoring is a second core offering. We
      sell
      and install all essential home security and safety hardware, including keypads,
      window and door contacts, outlets, sirens, motion detectors, smoke and fire
      detectors and related equipment. We also sell third party monitoring services
      to
      support our security and safety system installations.




5




Security
      and safety systems installation and monitoring are offered in a variety of
      standard packages and on a custom basis to meet customer demands. Basic
      installations typically include window and door contacts and an alarm designed
      to detect unauthorized entry and alert the customer. Upgraded security and
      safety systems may include internal and external motion detectors, fire and
      smoke detectors, panic buttons to alert police, fire and medical personnel,
      video monitoring and advanced monitoring and notification.





We
      offer
      third party monitoring services on a contract basis, ranging up to three years,
      or on a month-to-month basis. We typically purchase third party monitoring
      services at negotiated bulk rates and resell those services to customers at
      a
      premium. We may hold those monitoring contracts and collect monthly monitoring
      fees over the life of the contracts or sell those contracts in bulk to the
      monitoring service provider. See “Monitoring Service Arrangements.”




*▪
      Audio/Video Systems* .





We
      design, sell and install a wide range of audio/video equipment and systems
      including speakers, state-of-the-art audio equipment such as receivers,
      amplifiers and CD players, and home theater equipment such as plasma, LCD and
      big screen projection televisions, surround sound amplifiers and receivers
      and
      DVD and VCR players.




Audio/video
      equipment sales and installation products and services range from basic in-wall
      speakers to whole house audio and state-of-the-art home theater. Basic
      installations typically consist of in-wall or ceiling speakers installed in
      conjunction with basic structured cabling installations. Upgraded installations
      are typically designed to maximize the utility of the structured cabling to
      expand speaker installations to facilitate surround sound capabilities and
      whole
      house audio, including outdoor living areas, and to add home theater
      applications.





We
      maintain relations with multiple wholesale suppliers of name brand audio/video
      equipment allowing us to source at favorable pricing and resell and install
      at
      retail pricing a broad range of audio/video equipment ranging from entry-level
      systems to high-end state-of-the-art systems.





*▪
      Voice and Data Networking* .





We
      sell
      and install a variety of voice and data networking and communications equipment
      including telephone systems, intercom systems, modems and other equipment
      designed to provide state-of-the-art voice and data communications throughout
      a
      house.





Voice
      and
      data networking product installations are supported by structured cabling
      allowing property owners to create an integrated local area network within
      a
      property to support digital phone service, shared computer peripheral equipment,
      Internet access and in-home monitoring and communications. Voice and data
      networking equipment installations are typically upgrades purchased during
      or
      shortly after construction of new housing or commercial properties.





We
      maintain relations with multiple wholesale suppliers of name brand voice and
      data networking equipment allowing us to source at favorable pricing and resell
      and install at retail pricing a broad range of the most popular products to
      the
      specifications of each customer.





*▪
      Home Automation and Convenience* .





We
      sell
      and install a variety of home automation and home convenience products including
      advanced lighting controls - raising and dimming lights in response to
      pre-programmed stimuli; advanced air conditioning and heating controls -
      adjusting temperature at pre-programmed times or dates or in response to
      selected stimuli to maximize comfort and energy efficiency; other advanced
      controls - turning on or off ovens, fire places, faucets and other appliances;
      central vacuum systems - providing convenient access to a vacuum throughout
      a
      house without having to carry or push a large vacuum cleaner and provide quieter
      and cleaner vacuuming; and remote access devises - allowing home or business
      owners to access and control appliances and functions via Internet from remote
      locations.





Home
      automation and convenience product installations are supported by structured
      cabling and are typically upgrades purchased during or shortly after
      construction of new housing or commercial properties.




6




We
      maintain relations with multiple wholesale suppliers of name brand home
      automation and convenience equipment allowing us to source at favorable pricing
      and resell and install at retail pricing a broad range of the most popular
      products to the specifications of each customer.





**Marketing
      and Market Strategy**





Our
      current service market is the greater-Houston, Texas market where we presently
      employ two distinct market strategies characterized, generally, as our
      homebuilder program and our security monitoring program. Subject to the
      availability of funding to invest in inventory and to hire necessary sales
      and
      installation personnel, we plan to expand both of our existing market strategies
      within our current geographic market and, ultimately, to other major markets
      within Texas and surrounding states.




▪ *Homebuilder
      Program.*





Our
      homebuilder program is designed to create favored or exclusive status with
      builders in neighborhoods with the objective of creating three distinct revenue
      sources from each account: structured cabling and security system installation
      revenue from builders and security monitoring contracts and electronic systems
      up selling revenues from home buyers.





We
      have
      developed specific programs for production, or tract, builders and for customer
      builders.





We
      maintain relationships with a number of production builders and provide services
      on a negotiated basis to those builders to provide specific products and
      services within specified neighborhoods. Typical arrangements with production
      builders include:





▪
            providing
                and installing structured cabling to support security, phones and
                audio/video;▪
            installation
                of an active security system and related equipment;
                and


▪
            providing
                six months of complimentary security system
                monitoring.





This
      program, marketed as the “Six Month Advantage Program”, benefits production
      builders by:





▪
            allowing
                the builder to deal with a single trade contractor instead of multiple
                contractors typically required to deliver the various services and
                at a
                cost that is typically less than dealing with multiple
                contractors;▪
            allowing
                builders to market homes with six months of complimentary security
                system
                monitoring; and


▪
            allowing
                builders to avoid dealing with, and turning over home buyer information
                to, multiple security monitoring services that typically market
                aggressively in new construction
                neighborhoods.





Production
      builders agreeing to participate in the Six Month Advantage Program agree to
      present to their home buyers, at closing, a packet of materials explaining
      the
      Six Month Advantage Program, including the steps required to activate the six
      month complimentary monitoring service.





Homebuyers
      desiring to receive their six months of complimentary security monitoring must
      contact us to activate the service. At that point, our sales contact will gather
      data and inform the homebuyer of special offers and favorable pricing, including
      the offer of additional complimentary security monitoring, associated with
      entering into contracts for extended security monitoring.





Where
      we
      are able to establish relationships with one or more large scale production
      builders in a neighborhood, we believe that we will be able to effectively
      keep
      out competing sellers of security monitoring services and to establish our
      company as the sole, or preferred, source for security monitoring in those
      neighborhoods.




7




In
      addition to establishing our favored status in selling security monitoring
      services through production builders participating in the Six Month Advantage
      Program, we presently work with production builders in offering their home
      buyers various “smart home” features, including home entertainment,
      communications and home automation products. We may agree to provide to
      production builders, with the builders agreeing to provide to prospective home
      buyers, literature and other marketing materials regarding “smart home” products
      and applications that we offer. Builders may also maintain sales centers, model
      homes and other facilities to display products that we offer. Home buyers
      desiring to upgrade their home with various “smart home” features will either be
      directed to our sales team or will order products through the builder which
      will
      work with our sales team creating “up sale” opportunities in conjunction with
      each home sold by the builder and subject to our program.





In
      order
      to properly service production builders participating in our Six Month Advantage
      Program, we have established a dedicated sales, installation and service team
      and, subject to available funding, we plan to expand that team and to increase
      our inventory to facilitate the delivery of prompt and quality sales,
      installation and services.




We
      maintain a separate custom builder team to service custom construction projects.
      In the custom home market, we typically work closely with the builder and the
      homebuyer early in the construction or design process to develop a comprehensive
      “smart home” system tailored to the homebuyer’s specific desires. Custom systems
      typically carry substantially higher price tags and profit margins than
      production home systems. Our level of service and existing relationships with
      custom builders are expected to position us favorably to sell electronics and
      security monitoring to customers of those builders in addition to our
      installation of structured integrated cabling.





▪ *Security
      Monitoring Program.*





We
      have
      established security monitoring accounts with over 2,300 clients. As a result
      of
      adverse changes to our ADT Security dealer program, limited financial resources
      and the roll out of our homebuilder program, we downsized our sales team and
      have conducted limited end-user sales activities under our security monitoring
      program since July 2004.





With
      the
      establishment of an alternative security monitoring service and receipt of
      funding from our 2006/2007 private placement, we are selectively increasing
      our
      sales and marketing efforts under our security monitoring program, including
      hiring additional sales and installation personnel and implementing additional
      marketing initiatives to increase our name recognition and market exposure.
      At
      December 31, 2007, our sales of monitoring services were conducted principally
      by Mark Trimble, John Peper and one part-time sales consultant. During
      2007, we sold approximately 60 monitoring contracts, or an average five new
      accounts monthly.





▪ *Other
      Market Strategies and Plans.*





In
      addition to our core market strategies, being our homebuilder program and our
      security monitoring program, we have developed various complimentary or related
      market strategies and plans that we plan to pursue, subject to further
      refinement and review and availability of funding, including:





▪
            establishment
                of a commercial team to market and provide services to large commercial
                properties, particularly in the areas of security, fire, access and
                surveillance systems;▪
            upgrade
                of marketing materials including literature and web site to better
                present
                our products and services;▪
            opening
                of strategically located showrooms to better demonstrate our products
                and
                services;▪
            acquisition
                of existing cabling and security companies in targeted high growth
                markets; and▪
            expansion
                into other markets in Texas and surrounding states with high building
                activity.





All
      of
      the foregoing plans, and our existing marketing efforts, are supplemented by
      our:




▪
            responsive
                customer service and product support;▪
            knowledgeable
                and experienced sales staff that undergo ongoing education in the
                latest
                technological advances;


▪
            efficient
                job installation; and▪
            reputation
                for quality products and services




8




**Customers**





Our
      present customers are generally categorized as residential and commercial
      end-users and builders.





End-users
      are typically residential owners, and to a lesser extent commercial property
      owners or tenants, that have contracted for security monitoring services, some
      of whom may have also contracted for the installation of hardware to support
      security monitoring services or other audio/video, communications or home
      automation products. Builder customers are typically tract and custom
      residential builders, and to a lesser extent commercial builders, that have
      contracted for our installation of structured integrated cabling, including
      in
      many instances installation of alarm equipment, outlets and other basic
      hardware, to facilitate their offering of “smart home” features.





At
      December 31, 2007, we had approximately 310 active end-user security monitoring
      accounts and 16 builders for which we provide regular installation of structured
      integrated cabling and related products.




**Monitoring
      Service Arrangements**





While
      we
      sell and install security and safety systems and sell alarm monitoring services,
      we do not presently provide alarm monitoring service. Instead, we contract
      for
      the delivery of alarm monitoring services by third party alarm monitoring
      companies. Under those arrangements, we typically negotiate favorable pricing
      for alarm monitoring based on volume purchasing and resell monitoring services
      to consumers.





At
      April
      1, 2008, we had arrangements with two alarm monitoring services, Central
      Security Group - Nationwide, a national monitoring and home security company,
      and Tutor Security, a regional monitoring company. Monitoring services are
      typically sold under contracts with terms of up to three years although
      short-term service arrangements may be offered in select circumstances. The
      monitoring company provides all ongoing monitoring and related security services
      under monitoring contracts.




We
      previously sold security monitoring contracts under an Authorized Dealer
      Agreement with ADT Security. During 2004, ADT Security substantially modified
      the terms of its dealer program, altering its account criteria such that, among
      other things, customers were subject to much more stringent qualification
      criteria and higher minimum fees. As a result of those changes, our production
      of monitoring contracts eligible for sale to ADT Security declined by
      approximately 90%. Our Authorized Dealer Agreement with ADT Security expired
      in
      December 2006 and was terminated in March 2008.





During
      2006, we entered into an Agreement for Ongoing Purchase and Sale of Installed
      Monitoring Contracts with Central Security Group. Under the agreement, we became
      a non-exclusive authorized dealer with the authority to solicit and sell
      monitoring contracts on behalf of Central Security Group and providing that
      all
      qualifying monitoring accounts will be sold to and purchased by Central Security
      Group. Qualified accounts are purchased and sold for a multiple of the monthly
      billing rate based on guidelines established by Central Security Group. All
      payments with respect to accounts sold to Central Security Group are subject
      to
      certain chargebacks in the event purchased accounts are canceled or become
      non-performing. The agreement terminates in 2009 subject to automatic renewal
      for additional one-year periods unless terminated by either party and subject
      to
      the rights of Central Security Group to terminate based on certain performance
      criteria.





We
      also
      maintain a monitoring services arrangement with Tutor Security, Inc. Pursuant
      to
      that arrangement, we may purchase from time to time monitoring services for
      our
      customers. We utilize the monitoring services of Tutor Security for accounts
      that are not eligible accounts required to be sold to another monitoring
      company.





**Competition**





The
      market for in-home and commercial security systems and advanced audio/video,
      communications and home automation and convenience products is highly
      competitive. There are no substantial barriers to entry and we expect that
      competition will intensify. Suppliers of similar and competing products include
      a broad array of specialty electronics stores, large electronics retailers
      and a
      variety of small companies offering security, electronic and other products
      in
      conjunction with various service offerings. Many of our competitors have
      substantially greater financial, technical and marketing resources and greater
      name recognition.




9


We
      believe that the principal competitive factors in our market are price, service
      and range of products and services. We differentiate our products and services
      through the offering of comprehensive integrated solutions including structured
      cabling and superior service.




Within
      the greater-Houston builder market, our primary target market for structured
      cabling, we believe that competition is limited with one principal competitor,
      Ranger American, and a few smaller companies, such as On Duty, offering a
      similar range of end-to-end bundled products and services including structured
      cabling. Electricians and other building trades may offer various wiring and
      component installation services to builders.





In
      the
      event that competitors, including new competitors and existing competitors
      expanding their offerings, enter our target markets, particularly the offering
      of end-to-end bundled solutions through the builder market, we may face
      significant price competition. Although we believe that we are favorably
      positioned to compete in our principal markets, there is no assurance that
      we
      will be able to compete successfully against current and future competitors
      or
      that competitive pressures will not have a material adverse effect on our
      business, results of operations and financial condition.




**Regulation**





Certain
      aspects of our operations are subject to various government
      regulations.





In
      particular, our security systems installation and sales operations are subject
      to regulation by the Texas Private Security Bureau. Under those regulations,
      the
      Private Security Bureau oversees various aspects of the security industry,
      including the sale, installation and monitoring of alarm systems. Those
      regulations require, among other things, that companies and individuals engaged
      in the sale, installation and monitoring of alarm systems complete certain
      minimum training requirements, register with the Bureau, hold appropriate
      licenses and comply with various operating rules. We, and our alarm sales and
      installation personnel, hold all required licenses and have completed, and
      will
      complete, all required training to engage in the alarm sales and installation
      business. Failure to comply with any of the licensing, training or operating
      rules of the Bureau could result in termination of our right to sell and install
      alarm systems. Moreover, the Bureau may impose additional requirements or fees
      that could create a burden on us that could result in our being unable to
      operate in the alarm sale and installation market on a profitable basis or
      at
      all.





Our
      cabling installation and other installation services may also be subject to
      various building codes and regulations imposed by various local and municipal
      governments and authorities in the localities and developments in which we
      provide such services. Such building codes and regulations may require us to
      obtain various permits, comply with certain standards and undergo inspections
      in
      connection with installations. Such requirements may vary widely among
      developments and municipalities in which we operate creating confusion and
      risk
      of non-compliance. Moreover, compliance with such regulations may result in
      increased costs, delays in commencement or completion of services and the need
      to modify completed installations.





Our
      installation services and other activities may also be subject to various worker
      health and safety regulations and transportation regulations. Those regulations
      set certain standards for health and safety conditions in the workplace as
      well
      as standards for the operation of vehicles used in transporting materials.
      Any
      violation of those regulations could lead to fines, penalties and governmental
      orders to remedy non-compliance with those rules. We have adopted certain
      health, safety and vehicle operation guidelines for our employees in an effort
      to assure compliance with applicable regulations in those regards. However,
      regulations affecting health, safety and vehicle operation are subject to change
      from time to time in the future and there can be no assurance that our
      operations will not be adversely impacted in the future by any such
      changes.





Our
      operations are, as of April 1, 2008, limited primarily to the greater-Houston,
      Texas market. In the event of expansion into other markets, both within and
      outside of Texas, we may be subject to similar, additional or more burdensome
      regulations imposed by state and local governmental authorities, all of which
      could adversely affect our operations.





10





**Employees**





At
      December 31, 2007, we had 12 full time employees. We intend to recruit and
      hire
      additional sales and installation personnel and administrative personnel as
      appropriate to support our proposed operations going forward and subject to
      the
      availability of adequate funding. We intend to evaluate and adopt certain
      standard employee benefits in order to attract and retain qualified
      personnel.




None
      of
      our current employees are represented by labor unions or are subject to
      collective bargaining agreements. We believe that our relations with our
      employees are excellent.





**ITEM
              2.**
            **DESCRIPTION
                OF PROPERTY**





Our
      executive offices are located in 1,500 square feet of office/warehouse space
      at
      5150 Franz Rd., Suite 100, Katy, Texas 77493. Such space is held pursuant to
      a
      month-to-month lease providing for monthly rental payments of $1,250. Such
      facilities house our executive offices as well as all sales and support
      functions. We believe that our present facilities need to be expanded in order
      to accommodate additional inventory to support planned growth.





**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





We
      are
      subject to legal proceedings from time to time in the ordinary course of our
      business. As of December 31, 2007, we were not aware of any pending or
      threatened legal proceedings that could, in management’s opinion, have a
      material adverse impact on our business, assets or operations.





**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





None





**PART
      II**





**ITEM
              5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS**





Our
      common stock commenced trading on the OTC Bulletin Board (“OTCBB”) under the
      symbol “IHME” in October 2007. The following table sets forth the range of high
      and low sales prices on the OTCBB for each quarter since the commencement of
      trading.


High
              
              LowCalendar
                  Year 2007Fourth
                  Quarter
              
              $
              0.51
              
              $
              0.07




At
      April
      1, 2008, the closing price of the common stock on OTCBB was $0.14.





As
      of
      April 1, 2008, there were approximately 470 holders of our common
      stock.





We
      have
      not paid any cash dividends since inception and presently anticipate that all
      earnings, if any, will be retained for development of our business and that
      no
      dividends on our common stock will be declared in the foreseeable future. Any
      future dividends will be subject to the discretion of our board of directors
      and
      will depend upon, among other things, future earnings, operating and financial
      condition, capital requirements, general business conditions and other pertinent
      facts. Therefore, there can be no assurance that any dividends on our common
      stock will be paid in the future.





11





**ITEM
              6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS**





**General**





We
      are
      engaged in the sale, installation and servicing of “smart home” products and
      services, including security systems, fire alarms, home theater systems,
      intercom systems, phone, central vacuum systems, whole house audio/video, home
      automation, computer networking and integrated structured cabling to facilitate
      state-of-the art home and commercial technologies.





Our
      principal focus, historically, has been the sale of security monitoring services
      and related security systems and, in recent years, the installation of
      integrated structured cabling to support advanced home network
      technologies.





Our
      revenues are derived principally from:





▪
            security
                system monitoring fees (“monitoring fees”);▪
            sale
                of monitoring fee contracts (“contract funding”); and▪
            sale
                and installation of integrated structured cabling, and related outlets
                and
                equipment, to builders (“commercial installation fees”) and consumers
                (“consumer installation fees”), including advanced home and commercial
                electronics and hardware (including advanced security, fire, access
                and
                surveillance systems, home theater systems, intercom systems, vacuum
                systems, phone systems, whole house audio/video, home automation
                systems
                and computer networking appliances) (collectively, “installation
                fees”).





Monitoring
      fees are derived from direct sales to consumers of security system monitoring
      service and are recurring fees separate from one time consumer installation
      fees
      derived from initial installation of security hardware. Consumers typically
      enter into three-year contracts for monitoring service and pay a monthly fee
      for
      ongoing monitoring service, although shorter contracts may be entered subject
      to
      higher monthly fees. We act as principal in the monitoring contracts, and not
      as
      a commissioned agent, and retain all rights and responsibility under the
      contracts for delivering monitoring service and billing and collecting
      monitoring fees. We, in turn, buy services of third party monitoring service
      companies to provide actual security system monitoring.





Contract
      funding revenues are derived from the sale of security system monitoring
      contracts to monitoring service companies. We offer substantially all monitoring
      contracts for sale to the contracted monitoring company. The applicable
      monitoring service typically establishes criteria with respect to monitoring
      contracts they will purchase. Such criteria typically include minimum monthly
      monitoring charges, minimum duration of monitoring contracts and minimum
      customer credit scores. Where a contract satisfies the established purchase
      criteria, the monitoring company may, at its option, purchase each of the
      monitoring contracts for an initial fee which is a multiple of the monthly
      monitoring fee based on volume, quality and experience guidelines established
      by
      the monitoring company. Initial payments from monitoring companies for purchased
      contracts are subject to chargebacks in the event that purchased contracts
      are
      canceled or become non-producing within a specified period, typically ranging
      from three months to one year. A portion of the purchase price of contracts
      sold
      will be held back at purchase to fund potential chargebacks. The applicable
      holdback is a percentage based principally on the chargeback experience as
      adjusted over time. If contracts are terminated or become non-performing within
      the prescribed period, funds held back by the monitoring company are applied
      against the chargeback amount and any excess chargebacks are recovered through
      future holdbacks or payment of the deficiency. As the period over which
      chargebacks may apply lapses, the required holdback is adjusted and any excess
      amounts held back are remitted to us. In addition to the initial payments
      received from the sale of monitoring contracts, where contracts continue to
      be
      in place after a prescribed period, typically three years, we are entitled
      to
      receive monthly revenue sharing fees based on a percentage of revenues collected
      with the percentage varying based on various criteria relating, primarily,
      to
      the volume of contracts sold to the monitoring services and continuing in force.
      We have historically experienced minimal chargebacks on monitoring contracts
      sold. Similarly, we have historically received minimal revenue sharing fee
      payments following the initial payments relating to contracts remaining in
      place
      beyond prescribed periods.





Because
      the upfront cost of generating monitoring contracts eligible for sale to a
      monitoring company often represent as much as two years of potential monitoring
      revenues under a contract, the sale of contracts to monitoring companies
      historically served as a key financing source allowing us to recover upfront
      costs and realize a profit on a contract at the time of sale instead of over
      the
      life of a contract and allowing us to reinvest the proceeds from sale of those
      contracts to generate additional contracts.





Revenues
      from contracts retained by us and not sold to the monitoring company are
      classified as monitoring fees while payments from the sale of contracts to
      monitoring companies are classified as contract funding revenues.




12




Installation
      fees are derived from the sale and installation of basic monitoring hardware
      (e.g., keypads, window and door contacts, outlets, sirens, motion detectors
      and
      related equipment), integrated structured cabling and related outlets and
      equipment. We sell installation services and related hardware to, or through,
      production builder, custom and semi-custom builders, and derive commercial
      installation fees from such sales, and direct to consumers from which we derive
      consumer installation fees. We typically sell to production, or tract, builders
      pre-packaged cabling solutions based on pre-determined numbers of rooms and
      outlets and hardware with semi-custom solutions being offered as add-ons to
      pre-packaged solutions. We typically sell to custom builders custom cabling
      solutions designed to the specifications of the builder and homebuyer prior
      to
      commencement of, or early in the process of, construction. Builders pay standard
      prices for pre-packaged cabling solutions, which prices may reflect volume
      and
      other negotiated discounts or mark-ups. Custom and semi-custom cabling solutions
      are paid by builders based on negotiated pricing. Direct sales to customers,
      and
      receipt of consumer installation fees, are typically limited to sales of
      equipment in conjunction with the sale of security monitoring services and,
      in
      select cases, sales of equipment upgrades in connection with builder contracts.
      Equipment delivered pursuant to installation contracts includes upgrades
      requested by a builder or consumer as reflected in the installation contract
      and
      may include enhanced security systems, vacuum systems, home theater systems,
      home automation systems and similar products. Installation contracts, including
      both commercial and consumer contracts, typically are of a short duration,
      in
      most instances one or two days, and provide for payment for all cabling,
      equipment and related services in a single payment based on completion of
      delivery of the contracted products and services. In limited instances,
      installation contracts may provide for multiple deliverables and multiple
      payments.




Our
      operating expenses relate primarily to:





▪  cost
      of
      monitoring;


▪  cost
      of
      installation;


▪  compensation
      and benefits;


▪  truck
      expenses; and


▪  general
      and administrative costs.





Cost
      of
      monitoring consists principally of amounts paid to monitoring companies for
      the
      provision of monitoring services with respect to security monitoring contracts
      not purchased by the monitoring company. Monitoring costs are based on
      standardized fee schedules or negotiated rates.





Cost
      of
      installation consists principally of cost of cabling, hardware and equipment
      purchased for resale to customers and for builder pre-packaged custom solutions.
      Cabling, hardware and equipment are purchased from wholesale suppliers. We
      maintain relationships with various wholesale suppliers and attempt to negotiate
      favorable pricing for products based on volume purchases. Hardware and equipment
      representing upgrades to standard installation packages is typically not held
      in
      inventory but is purchased as necessary to fill specific installation
      contracts.





Compensation
      and benefits consist of salary, wages, commissions and benefits paid to
      installation, service, maintenance, office personnel and sales
      personnel.





Truck
      expenses consist of fuel, insurance, maintenance, lease costs and depreciation
      associated with operation of our fleet of vehicles utilized in installation,
      service and sales.





General
      and administrative expenses include office expenses including rent, utilities,
      maintenance, supplies and taxes, professional fees, insurance and other
      corporate overhead.





**Operating
      Developments and Plans**





From
      inception in 2001 until 2003, our operations were focused on direct sales of
      security monitoring services of ADT Security. During that period, we sold the
      bulk of our monitoring contracts to ADT Security with the funds provided by
      the
      sale of those contracts providing our primary source of financing to support
      and
      grow our business.




13


In
      2004,
      ADT Security modified its dealer program, increasing fees and customer standards
      for purchased contracts and substantially reducing available sales commissions
      for non-purchased contracts. Those modifications substantially altered the
      terms
      of monitoring contracts eligible to be purchased by ADT, requiring, among other
      things, that eligible contracts be priced at higher levels and customers have
      substantially higher credit scores than those previously required for eligible
      contracts. A substantial majority of the contracts we had historically sold
      to
      ADT did not satisfy the modified criteria of ADT. As a result of such
      modifications, the volume of monitoring contracts generated and eligible to
      be
      sold to ADT Security dropped by nearly 90% from 2004 to 2005, our ADT Security
      related sales force was substantially eliminated and the ongoing production
      of
      monitoring contracts for sale to ADT Security became no longer economically
      viable.





Because
      we have historically lacked the resources to carry the cost of generating
      eligible contracts and recoup that cost over the life of a contract, we were
      unable to transition contracts that would previously have been sold to ADT
      into
      retained contracts. As a result, our overall volume of monitoring contracts
      generated dropped dramatically following the changes to the ADT dealer
      program.





In
      2003
      we began to focus on the development of our Home Builder Program as a principal
      growth vehicle. With the adverse changes to our ADT Security business and the
      shift in our focus away from direct sales of security monitoring services and
      to
      our Home Builder Program, our sales of security monitoring contracts further
      flattened and the volume of contracts sold to ADT Security further declined.
      Additionally, in order to establish and grow our Home Builder Program, we
      devoted personnel and resources, including investing in inventory, to support
      our Home Builder Program. As a result of the decline in sale of monitoring
      contracts to ADT Security and investments in our Home Builder Program, we
      implemented certain cost reduction measures including terminating certain
      employee benefit programs, including our health insurance program. The
      elimination of our health insurance program and other employee benefit programs
      adversely affected our ability to hire and retain sales personnel which, in
      turn, resulted in curtailed sales activity and results in our ADT Dealer
      Program.





During
      2006, we established a relationship with another security monitoring service
      under which that service may purchase monitoring contracts on more favorable
      terms than ADT Security, including acquiring contracts not meeting the current
      criteria for purchase by ADT Security. With an improved contract funding model,
      we believe that the generation of contract funding business is once more
      economically viable and we have begun efforts to rebuild that
      business.





In
      August
      2006, we completed the private placement of units of common stock and Series
      B
      Convertible Preferred Stock. We received net proceeds of $255,000 from the
      2006
      private placement. In January 2007, we sold additional units for $45,000. We
      have utilized proceeds of the private placement to support planned growth of
      our
      Home Builder Program and renewed sales growth under our security monitoring
      and
      contract funding programs. Specifically, we have invested in inventory and
      hired
      personnel to support increased volume in our Home Builder Program. Based on
      discussions with various builders, we believe that we can secure exclusive
      relationships with one or more large production builders within selected markets
      if we can demonstrate the financial ability to support substantial volume
      increases under our Six Month Advantage Program in which we provide six months
      of complimentary security monitoring services to home buyers. Additionally,
      we
      have reinstated certain employee benefit programs, including health insurance,
      in order to attract and retain sales personnel necessary to renew the growth
      in
      sales under our security monitoring and contract funding program. As a result,
      we hired 2 additional sales employees and 2 additional installation employees
      during late 2006. During the second quarter of 2007, we let go or reduced to
      part-time certain of the newly hired personnel based on performance. There
      can
      be no assurance that we will be successful in securing additional builder
      participation in our Home Builder Program, or exclusive relationships with
      any
      such builders, or that we will be successful in growing sales under our security
      monitoring and contract funding program.





In
      January 2007, following completion of our private placement and pursuant to
      the
      terms of that private placement, we filed a registration statement on Form
      SB-2
      covering the resale of shares issued in the private placement. The registration
      statement was declared effective by the Securities and Exchange Commission
      on
      July 12, 2007 and, as a result, we are now subject to the reporting requirements
      of Section 15(d) of the Securities Exchange Act of 1934. Pursuant to the terms
      of our outstanding Series A Convertible Preferred Stock, during 2007, the
      principal holder of shares of our Series A Preferred Stock paid $114,585 of
      costs associated with the SB-2 registration statement. All such amounts paid
      by
      the holder of our Series A Preferred Stock are treated as increases in paid-in
      capital attributable to the Series A Preferred Stock.




14


In
      September 2007, two of our directors arranged a loan to us in the amount of
      $25,000 to support operations. The directors are the borrowers under the loan
      facility and we received the loan proceeds and agreed to repay the loan. The
      loan bears interest at 10.25% and is repayable in monthly installments of
      interest only. The loan was originally due March 19, 2008. During the first
      quarter of 2008, the principal balance of the loan was reduced by $2,500 and
      the
      loan was renewed with an extended maturity date of September 19,
      2008.





In
      November 2007, a shareholder loaned the company $25,000 with interest accruing
      at 8% and the loan being payable in full with interest on February 26, 2008.
      During the first quarter of 2008, the loan was extended to May 26,
      2008.





During
      2007, holders of an aggregate of 1,300,000 shares of our Series A Convertible
      Preferred Stock and 2,475,000 shares of our Series B Convertible Preferred
      Stock
      converted those shares into, and we issued, 3,775,000 shares of common stock.
      All accrued dividends on the converted Series B Convertible Preferred Stock
      were
      automatically extinguished on conversion.





**Critical
      Accounting Policies**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements. Those financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America except as indicated in the notes to the accompanying
      financial statements. We believe certain critical accounting policies affect
      our
      more significant judgments and estimates used in the preparation of our
      financial statements. The following describes the critical accounting policies
      used in reporting our financial condition and results of
      operations.





*Revenue
      Recognition*





Our
      products and services are generally sold based upon purchase orders or contracts
      with our customers that do not have right of return provisions or other
      significant post-delivery obligations. We recognize revenue from product sales
      when title passes to the customer, the customer assumes the risks and rewards
      of
      ownership and collectibility is reasonably assured. Service revenue is
      recognized when the services are rendered and collectibility is reasonably
      assured.





For
      contracts containing multiple deliverables, we analyze each activity within
      the
      contract to ensure that we adhere to the separation guidelines of Emerging
      Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple
      Deliverables,” and the revenue recognition guidelines of Staff Accounting
      Bulletin No. 104, “Revenue Recognition.” For service-only contracts and service
      elements of multiple deliverable arrangements, service fees are recognized
      only
      when defined and awarded by the customer.





Our
      revenues are generally characterized as installation fees, monitoring fees
      and
      contract funding fees. Consumer installation fees and monitoring fees arising
      from the sale to consumers of security monitoring services and related equipment
      installation are treated as separate units of accounting in accordance with
      EITF
      00-21 with consideration allocated to these separate units of accounting using
      the relative fair value method. Each relates to a distinct activity that is
      priced separately, has value to the customer on a standalone basis and can
      be
      acquired from multiple vendors.





Installation
      fees arise from contracts or purchase orders to supply and install integrated
      cabling, related outlets and equipment to builders and to consumers.
      Installation contracts and purchase orders typically provide for a single price
      for all cabling, outlets and equipment supplied and installed, including the
      actual installation services. Installation contracts and purchase orders are
      typically of a very short duration, requiring one to two days for completion.
      We
      recognize revenues from installation contracts using the completed contract
      method of accounting with revenue recognized when installation services are
      completed. Installation fees accounted for under the completed contract method
      represented 80% of revenues during 2007.





Monitoring
      fees arise from security monitoring contracts retained by us and typically
      involve payment of a fixed monthly fee for monitoring services over the term
      of
      the applicable contract (typically 3 to 36 months). Monitoring fees are
      recognized monthly as services are provided pursuant to the terms of customer
      contracts.




15


Contract
      funding revenue arises from the sale of monitoring contracts to a monitoring
      company. Contracts are typically sold to monitoring companies for a fixed
      upfront fee that is a multiple of the monthly monitoring fee based on volume,
      quality and experience guidelines established by the monitoring company. The
      upfront payment is subject to chargebacks in the event that purchased contracts
      are canceled or become non-producing within a specified period, typically
      ranging from three months to one year. A portion of the purchase price of
      contracts sold will be held back at purchase to fund potential chargebacks.
      The
      hold back is periodically released to the monitoring company or to us based
      on
      actual chargebacks and the lapse of the chargeback period. In addition to the
      initial payments received from the sale of monitoring contracts, where contracts
      continue to be in place after a prescribed period, typically three years, we
      are
      entitled to receive monthly revenue sharing fees based on a percentage of
      revenues collected with the percentage varying based on various criteria
      relating, primarily, to the volume of contracts sold to the monitoring services
      and continuing in force. We have historically experienced minimal chargebacks
      on
      monitoring contracts sold. Similarly, we have historically received minimal
      revenue sharing fee payments following the initial payments relating to
      contracts remaining in place beyond prescribed periods. Upon sale of a contract,
      we recognize the full purchase price of the contract as revenue in the amount
      equal to the cash received plus the amount of the holdback that is recorded
      as
      an account receivable. Chargebacks are charged against the account receivable.
      Revenue sharing fees are recognized as revenue when the amount of such fees
      becomes fixed and determinable under the terms of the contract.





*Long-Lived
      Assets*





Assets
      held and used, including property, plant and equipment and intangible assets,
      are reviewed for impairment whenever events or circumstances indicate that
      the
      carrying amount of an asset may not be recoverable. For purposes of evaluating
      the recoverability of long-lived assets to be held and used, a recoverability
      test is performed based on assumptions concerning the amount and timing of
      estimated future cash flows and assumed discount rates, reflecting varying
      degrees of perceived risk. Impairments to long-lived assets to be disposed
      of
      are recorded based upon the fair value of the applicable assets. Since judgment
      is involved in determining the fair value and useful lives of long-lived assets,
      there is a risk that the carrying value of our long-lived assets may be
      overstated or understated.





*Accounts
      Receivable*





Accounts
      receivable are recorded at the invoiced amount and do not bear interest. The
      allowance for doubtful accounts is our best estimate of the amount of probable
      credit losses on existing accounts receivable. We review our allowance for
      doubtful accounts quarterly. Account balances are charged off against the
      allowance after all means of collection have been exhausted and the potential
      for recovery is considered remote. At December 31, 2007, we had an
      allowance for doubtful accounts of $502.




**Results
      of Operations**





*Revenue*





Revenue
      for 2007 increased 16.9% to $887,003 from $759,075 during 2006. The principal
      components of revenues for the periods were as follows:





2007
            
            2006Installation
                fees
            
            $
            712,823
            
            $
            626,581Monitoring
                fees
            
            
            93,515
            
            
            87,047Contract
                funding
            
            
            45,141
            
            
            25,610Other
            
            
            35,524
            
            
            19,837Total
            
            $
            887,003
            
            $
            759,075





The
      increase in installation fees was primarily attributable to increased marketing
      efforts facilitated by our hiring of additional installation and marketing
      personnel following the receipt of funding from our private placement. With
      the
      downturn in new housing construction as a result of disruption of the mortgage
      markets, our installation fees derived from our builder programs may be
      adversely affected pending a restoration of stability and growth in the new
      home
      construction market. Because we have a very small share of this market at this
      time, and because the greater-Houston housing market has been relatively stable
      compared to other markets, we do not believe the downturn in the market has
      materially affected our installation fees to date. However, should the
      construction downturn deepen or continue over an extended period, we may
      experience slowing and stagnant growth in installation fees in the builder
      market.





The
      increase in contract funding revenues was primarily attributable to a renewed
      emphasis on our contract funding business which accompanied the commencement
      of
      sales of contracts to Central Security Group. The volume of monitoring contracts
      eligible to be purchased by Central Security Group is greater than that under
      our previous arrangement with ADT Security.




16


The
      increase in monitoring fees was attributable to the renewed emphasis on
      generation of monitoring contracts and higher retentions of monitoring contracts
      resulting from a decline in contracts sold to ADT Security prior to the
      commencement of our relationship with Central Security Group.





*Cost
      of Monitoring and Installation*





Cost
      of
      monitoring and installation for 2007 increased 11.9% to $381,416 from $340,812
      during 2006.





As
      a
      percentage of revenues, cost of monitoring and installation decreased to 43.0%
      in 2007 from 44.9% in 2006. The increase in cost of monitoring and installation
      was attributable to increased business and the decrease as a percentage of
      revenues was principally attributable to improved pricing from various
      suppliers, including Central Security Group.





*Truck
      Expense*





Truck
      expense, reflecting the cost of ownership and operation of our installation
      and
      service vehicles, decreased by 1.6% to $76,539 for 2007 from $77,795 for 2006.
      As a percentage of revenues, truck expense decreased from 10.2% in 2006 to
      8.6%
      in 2007.





The
      decrease in truck expense was principally attributable to reduced maintenance
      costs, partially offset by higher gas costs, the addition of a leased truck
      and
      costs arising from vehicles operated by additional personnel hired during the
      fourth quarter of 2006.





*General
      and Administrative Expense*





General
      and administrative expense increased by 28.9% to $221,837 for 2007 from $172,112
      for 2006. As a percentage of revenues, G&A increased from 22.7% in 2006 to
      25.0% in 2007.





The
      increase in G&A during 2007 was principally attributable to the commencement
      of certain promotional efforts and investments to support planned growth in
      all
      market segments beginning the fourth quarter of 2006 following the receipt
      of
      funding from the 2006 private placement and the commencement of our reporting
      requirements as a public company. As a result of those efforts, we anticipate
      that our G&A will continue at an increased level for the foreseeable
      future.





*Compensation
      and Benefits*





Compensation
      and benefit expenses increased by 6.4% to $417,264 for 2007 from $392,086 for
      2006. As a percentage of revenues, compensation and benefit expenses decreased
      from 51.7% in 2006 to 47.0% in 2007.





The
      increase in compensation and benefit expense was principally attributable to
      the
      hiring of additional personnel and reinstating certain benefit programs during
      the fourth quarter of 2006 following the receipt of funding from the 2006
      private placement in order to attract personnel to support increased sales
      efforts under the security monitoring and contract funding programs and sales
      and service of additional builders in our Home Builder Program. During the
      second quarter of 2007, we let go, or reduced to part-time, certain of the
      newly
      hired personnel for performance reasons. Accordingly, our compensation expense
      declined on a temporary basis during the second half of 2007 but we plan to
      hire
      additional personnel to support planned growth and expect compensation expense
      to rise as additional personnel is hired.





*Interest
      Expense*





Interest
      and finance charges decreased 14.7% to $23,518 for 2007 from $27,571 for 2006.
      The decrease in interest expense was attributable to decreased debt
      levels.




17


**Financial
      Condition**





*Cash
      Position and Short-Term Liquidity*





At December
      31, 2007, we had a cash balance of $10,946 and a working capital deficit of
      $265,265 as compared to a cash balance of $77,557 and a working capital deficit
      of $184,473 at December 31, 2006.





Operations
      used cash in the amount of $123,513 during 2007 as compared to $166,047 used
      in
      operations during 2006. The decrease in cash used in operations during 2007
      was
      principally attributable to the decrease in net loss during 2007, the payment
      of
      certain operating costs by a shareholder and reductions of accounts receivable,
      partially offset by reductions of various payables.





Our
      short-term financing requirements have, in recent periods, been financed
      primarily through short-term borrowing from our principal officer, Mark Trimble,
      borrowings on credit cards, borrowings under a line of credit, borrowings from
      a
      supplier and borrowings arranged through directors and a shareholder. During
      2007 we paid off our existing line of credit, secured a $25,000 loan through
      two
      directors, secured a $25,000 loan from a shareholder and undertook efforts
      to
      establish a new line of credit and evaluate the possible sale of a portion
      of
      our monitoring contracts to support short-term financing needs. During the
      first
      quarter of 2008, we received $83,000 from the sale of a portfolio of 135
      monitoring contracts. While the receipt of funds from our 2006 private
      placement, cost control measures, increases in revenues and proceeds from a
      new
      line of credit supported operations during 2007, we anticipate that we will
      require additional financing from the sale of debt or equity securities or
      the
      sale of monitoring contracts or increased revenues and decreased costs to
      support operations during 2008. We have no commitments from Mr. Trimble, bank
      lenders, prospective purchasers of monitoring contracts or others to provide
      any
      additional funding that may be necessary to support operations in the near
      term.





Included
      in our short-term debt at December 31, 2007 is credit card debt in the amount
      of
      $97,179 relating, primarily, to inventory purchases. Such amounts have no formal
      payment terms.





*Unearned
      Revenue on Contracts*





We
      routinely offer security monitoring services in conjunction with our sale and
      installation of security systems. Contracts for security monitoring services
      typically range from three months to thirty-six months. Proceeds received from
      the sale of such contracts relating to periods for which services have not
      yet
      been provided are classified as unearned revenue on contracts and are reflected
      in current or non-current liabilities based on the period in which services
      are
      required to be rendered. At December 31, 2007, unearned revenue on
      contracts totaling $8,301 was classified as current liabilities and $624 was
      classified as non-current liabilities.




*Financing
      Facilities*





At
      December 31, 2007, financing of our business was provided through multiple
      sources, including a supplier loan, a loan arranged through two directors,
      a
      shareholder loan and a variety of credit card lending arrangements.





At
      December 31, 2007, our bank line of credit had been repaid in full and we were
      seeking to establish a new bank line of credit.




At
      December 31, 2007, we had a note payable in the amount of $20,159 payable to
      a
      supplier payable in monthly installments of $6,798 and providing for interest
      at
      7%. We were not making payments on the note, and the note was in default, at
      December 31, 2007. The note is unsecured and is guaranteed by our
      president.





At
      December 31, 2007, we had available credit of approximately $114,000 under
      multiple credit card accounts, of which approximately $97,179 was borrowed,
      including interest. Those accounts each provide for varying interest rates
      and
      minimum monthly payments with no stated maturity.





At
      December 31, 2007, we owed $25,000 on a bank credit facility arranged by two
      directors from which we received loan proceeds and which we guaranteed. The
      loan
      bears interest at 10.25% and is payable in monthly installments of interest
      only. The loan was originally due March 19, 2008. During the first quarter
      of
      2008, the principal balance of the loan was reduced by $2,500 and the loan
      was
      renewed with an extended maturity date of September 19, 2008.





At
      December 31, 2007, we owed $25,000 under a note payable to a shareholder. The
      loan bears interest accruing at 8%. The loan was originally payable in full
      with
      interest on February 26, 2008. During the first quarter of 2008, the loan was
      extended to May 26, 2008.




18


*Private
      Placement*





In
      August
      2006, we sold units in a private placement for total net proceeds of $255,000.
      The units sold in the offering consisted of an aggregate of 255,000 shares
      of
      common stock and 2,295,000 shares of Series B Preferred Stock. Subsequently,
      in
      January 2007, we received an additional $45,000 from the sale of units resulting
      in the issuance of an additional 45,000 shares of common stock and 405,000
      Shares of Series B Preferred Stock.





Proceeds
      from the private placement have been utilized to meet working capital needs
      and
      to facilitate planned growth in our Home Builder Program and efforts to grow
      revenues from contract funding.





*Capital
      Requirements*





We
      have,
      in recent years, required financial support of our principal shareholder to
      provide necessary working capital and have, in certain instances, extended
      payments of suppliers beyond their normal payment terms. In order to support
      our
      plan to grow our Home Builder Program and to restore our contract funding
      revenues, we must hire sales and installation personnel and invest in inventory.
      In order to facilitate planned hiring, we must reactivate certain benefit plans,
      including our health insurance plan. We undertook various financing transactions
      during 2006 and 2007 to support our planned operations, including raising
      $300,000 of equity pursuant to the 2006/2007 private placement. During 2007,
      we
      received proceeds of a $25,000 loan arranged through two directors and $25,000
      loaned by a shareholder. During the first quarter of 2008, we received $83,000
      from the sale of a portfolio of monitoring contracts. We are presently
      undertaking efforts to establish a new bank line of credit facility and sell
      additional monitoring contracts to support operations. We anticipate that we
      will require additional financing from the sale of debt or equity securities,
      establishment of new credit facilities, sale of monitoring contracts or improved
      operations to meet our capital requirements for the next 12 months, including
      servicing our short-term debt and investments in personnel, inventory and
      assets. We have no commitments, however, to provide a new bank line of credit,
      sell monitoring contracts or otherwise provide additional funding to support
      operations.




*Capital
      Expenditures and Commitments*





Our
      capital expenditures have historically been limited to selected purchases of
      vehicles, equipment and furniture to support our operations. Additionally,
      we
      have previously purchased alarm monitoring accounts and may do so in the future.
      During 2007, we had no capital expenditures.





At
      December 31, 2007, we had no capital expenditure commitments but have budgeted
      approximately $2,000 for management software purchases and $25,000 for vehicles
      and outfitting of vehicles with tools and purchases of computers and office
      technology to support planned growth.





*Contractual
      Obligations* .





At
      December 31, 2007, our contractual obligations requiring determinable future
      payments were limited to amounts payable under the promissory notes and supplier
      loan as discussed above. We lease our executive offices from an unrelated third
      party under a month-to-month lease and lease a vehicle from our president
      pursuant to a lease running through September 2010. Office lease payments are
      presently $1,250 per month and vehicle rental payments are presently $625 per
      month.





In
      addition to the foregoing obligations, we may be subject to charge-backs from
      time to time based on collections and retention rates on monitoring accounts
      sold to monitoring service companies. Moreover, we may elect to sell our rights
      under certain payment streams to the monitoring company subject to certain
      rights of the monitoring company to recover some or all payments made based
      on
      our ongoing compliance with various requirements and the actual collection
      results with respect to accounts covered by such arrangements. In either of
      those events, amounts owing to us in the future by the monitoring company may
      be
      reduced or, in the alternative, we may be obligated to repay to the monitoring
      company certain amounts previously paid us by the monitoring company. We have
      not historically experienced any material obligations to repay amounts paid,
      or
      offset future payments of, monitoring companies and no reasonable estimate
      can
      be made as to whether any such obligations will arise in the future and, if
      so,
      the amount of such obligations.





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any guarantees or off-balance sheet arrangements.




19


**Inflation**





Inflation
      has historically not had a material effect on our operations.





**ITEM
              7.**
            **FINANCIAL
                STATEMENTS**





Our
      financial statements, together with the independent accountant’s report thereon
      of Thomas Leger & Co., L.L.P., appear immediately after the signature page
      of this report. See “Index to Financial Statements” on page 29 of this
      report.





**ITEM
              8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**





None





**ITEM
              8A.**
            **CONTROLS
                AND PROCEDURES**





**Disclosure
      Controls and Procedures**





As
      of
      December 31, 2007, we conducted an evaluation under the supervision and
      with the participation of our management, including our CEO (who also serves
      as
      our CFO), of the effectiveness of the design and operation of our disclosure
      controls and procedures. The term “disclosure controls and procedures,” as
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange
      Act of 1934, as amended (Exchange Act), means controls and other procedures
      of a
      company that are designed to provide reasonable assurance that information
      required to be disclosed by the company in the reports it files or submits
      under
      the Exchange Act is recorded, processed, summarized and reported, within the
      time periods specified in the SEC’s rules and forms. Disclosure controls and
      procedures are also designed to provide reasonable assurance that such
      information is accumulated and communicated to company management, including
      its
      principal executive and principal financial officers, or persons performing
      similar functions, as appropriate, to allow timely decisions regarding required
      disclosure. Based on this evaluation, our CEO concluded as of December 31,
      2007 that our disclosure controls and procedures were effective at the
      reasonable assurance level.





**Management’s
      Annual Report on Internal Control Over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate “internal
      control over financial reporting,” as defined in Rules 13a-15(f) and
      15d-15(f) under the Exchange Act. This rule defines internal control over
      financial reporting as a process designed by, or under the supervision of,
      a
      company’s chief executive officer and chief financial officer, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles. Our internal control over financial
      reporting includes those policies and procedures that:





·
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                company;





·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures of the
                company
                are being made only in accordance with authorizations of management
                and
                directors of the company; and





·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the company’s assets that
                could have a material effect on the financial
                statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





A
      material weakness is a significant deficiency (within the meaning of PCAOB
      Auditing Standard No. 2), or combination of significant deficiencies, that
      results in there being more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected on a timely basis by employees in the normal course of their
      assigned functions.




20


This
      annual report does not include a report of management’s assessment regarding
      internal control over financial reporting or an attestation of the
      company’s registered public accouting firm due to a transition period by rules
      of the Securities and Exchange Commission for newly public
      companies.





**Changes
      in Internal Control Over Financial Reporting**





During
      the quarter ended December 31, 2007, there were no changes in our internal
      controls over financial reporting that materially affected, or are reasonably
      likely to materially affect, internal controls over financial
      reporting.





**ITEM
              8B.**
            **OTHER
                INFORMATION**





NA





21




**PART
      III**





**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                ACT**





**Directors
      and Executive Officers**




The
      following table sets forth the names, ages and offices of our executive officers
      and directors as of December 31, 2007. The periods during which such persons
      have served in such capacities are indicated in the description of business
      experience of such persons below.




Name
            
            Age
            
            PositionMark
                Trimble
            
            51
            
            President,
                Chief Executive Officer and DirectorJohn
                Peper
            
            59
            
            Vice
                President and DirectorSteven
                Trimble
            
            53
            
            Treasurer
                and DirectorDavid
                Hammeke
            
            54
            
            Director




Mark
      Trimble and Steven Trimble are brothers and David Hammeke is the brother-in-law
      of Mark and Steven Trimble. Otherwise, there are no family relationships among
      any of the current executive officers and directors.





Each
      of
      our directors serves for a term of one year or until their successors are
      elected or their earlier resignation or death. Except for officers serving
      under
      employment agreements, each of our officers serves at the discretion of the
      board of directors.





The
      following is a biographical summary of the business experience of the present
      directors and executive officers:





*Mark
      Trimble* has
      served as our President, Chief Executive Officer and a director since founding
      the company in 2001. Previously, Mr. Trimble spent 12 years in management and
      sales in the home security industry, including serving as Regional Manager
      over
      the South Texas operations of Smith Alarm Systems from 1999 to 2001 and as
      Manager of the Texas Gulf Coast Region for ADT Security from 1995 to 1999.
      Previously, Mr. Trimble served in various functions with Baker Hughes, Inc.
      from
      1980 to 1989, including seven years as a District Manager.




*John
      Peper* has
      served as Vice President and a Director since our inception in 2001. Mr. Peper
      has over 30 years of experience in the security industry and has been
      responsible for the sales, installation and operation of a broad range of
      securities solutions ranging from single family residence security and
      structured cabling to multi-million dollar access control video systems,
      anti-terrorism systems and comprehensive burglary, fire, surveillance and access
      systems for large commercial operations. Prior to co-founding the company,
      Mr.
      Peper served as Sales Manager at Smith Alarms from 1999 to 2001, as Sales
      Manager at ADT Security from 1995 to 1999, as Project Manager at Advanced Entry
      Systems from 1992 to 1995 and as National Accounts Director at Sensormatic
      from
      1987 to 1992. Mr. Peper received his B.S. in Psychology from the University
      of
      Florida in 1976.





*Steven
      Trimble* has
      served as a Director since our inception in 2001. Mr. Trimble has over 14 years
      of experience in the energy business. Since 2003, Mr. Trimble has been Director
      of Gas Trading for Louis Dreyfus Energy Services, a global energy trading
      company. From 2001 to 2003, Mr. Trimble served as Director of Gas Trading for
      Duke Energy. Mr. Trimble received his B.A. in Business from Ft. Hays State
      University in 1977.





*David
      Hammeke* has
      served as a Director since our inception in 2001. Since 1981, Mr. Hammeke has
      been employed by Halliburton Oil & Gas as a tool operator and technical
      advisor specializing in well completions.





**Code
      of Conduct and Ethics**





We
      have
      adopted a written code of conduct and ethics that applies to all our directors,
      officers and employees, including our chief executive officer and our chief
      financial and accounting officer. A current copy of the code can be found as
      an
      exhibit to this Annual Report on Form 10-KSB *.* In
      addition, we intend to post on our website or file under cover of Form 8-K
      all
      disclosures that are required by law concerning any amendments to, or waivers
      from, any provision of the code.





**Board
      Committees**





We
      do not
      presently maintain an audit committee or any other committee of our board of
      directors. We are presently evaluating the appointment of independent directors
      and the establishment of committees. Because we do not presently maintain an
      audit committee, we have no audit committee financial expert.




22




We
      do not
      maintain a nominating committee and have not, as yet, established any procedures
      whereby shareholders may recommend nominees for election to our board of
      directors.





**ITEM
              10.**
            **EXECUTIVE
                COMPENSATION**




**Summary
        Compensation Table**
  The
        following table includes information concerning compensation of our CEO and
        all
        executive officers whose compensation exceeded $100,000 during
        2007:


**Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Option**
                **Awards**
                **($)**
              
              **Non-Equity**
                **Incentive
                  Plan**
                **Compensation**
                **($)**
              
              **All
                  Other**
                **Compensation**
                **($)**
              
              **Total**
                **($)**Mark
                  Trimble, CEO and CFO
              
              
              2007
              
              
              54,843
              
              
              —
              
              
              —
              
              
              5,500
              (1)
              
              60,3432006
              
              
              44,769
              
              
              —
              
              
              —
              
              
              6,000
              (1)
              
              50,769







(1)
            Consists
                of an automobile allowance.




**Employment
      Agreements**





In
      October 2005, we entered into employment agreements with our principal officers,
      Mark Trimble and John Peper. The employment agreements of both Mr. Trimble
      and
      Mr. Peper are for terms ending December 31, 2010 and include non-disclosure
      and
      non-compete provisions.




Mr.
      Trimbles’ employment agreement provides for a base salary of $58,200 in 2006,
      $64,200 in 2007, $70,200 in 2008, $76,200 in 2009 and $82,200 in 2010 plus
      a
      monthly auto allowance of $500 and standard benefits generally available to
      employees. A bonus plan provides that Mr. Trimble may receive bonuses based
      on
      achievement of specific revenue and EBITDA targets with the maximum bonuses
      fixed at $45,000 in 2006, $55,000 in 2007, $60,000 in 2008, $65,000 in 2009
      and
      $70,000 in 2010. Additionally, Mr. Trimble may earn a bonus in an amount equal
      to 20% of the excess, if any, of actual EBITDA in any year over target EBITDA
      if, and only if, actual revenues exceed target revenues by 20% and actual EBITDA
      exceeds target EBITDA by 50%.





Mr.
      Peper’s employment agreement provides for a base salary of $34,200 in 2006,
      $40,200 in 2007, $46,200 in 2008, $52,200 in 2009 and $58,200 in 2010 plus
      use
      of a company automobile or, at the option of the company, a monthly auto
      allowance of $500, and standard benefits generally available to employees.
      A
      bonus plan provides that Mr. Peper may receive bonuses based on achievement
      of
      specific revenue and EBITDA targets with the maximum bonuses fixed at $35,000
      in
      2006, $40,000 in 2007, $45,000 in 2008, $50,000 in 2009 and $55,000 in 2010.
      Additionally, Mr. Peper may earn a bonus in an amount equal to 20% of the
      excess, if any, of actual EBITDA in any year over target EBITDA if, and only
      if,
      actual revenues exceed target revenues by 20% and actual EBITDA exceeds target
      EBITDA by 50%.





No
      performance bonuses were earned by, or paid to, Mr. Trimble or Mr. Peper during
      either 2006 or 2007.





**2005
      Stock Option Plan**




Our
      2005
      Stock Option Plan is intended to motivate participants by means of stock options
      to achieve our long-term performance goals and to enable our employees,
      officers, director and consultants to participate in our long-term growth and
      financial success. The plan is administered by our board of directors and
      currently authorizes the issuance and grant of options for a maximum of
      1,000,000 shares. The stock options granted under the plan will be either
      incentive stock options, within the meaning of Section 422 of the Internal
      Revenue Code, or non-qualified stock options. Incentive stock options must
      be
      granted at an exercise price of not less than the fair market value of our
      common stock at the time of grant and incentive stock options granted to 10%
      or
      greater stockholders of ours must be granted at an exercise price of not less
      than 110% of the fair market value of our common stock on the date of grant.
      If
      any award under the plan terminates, expires unexercised or is cancelled, the
      shares of common stock that would otherwise have been issuable pursuant thereto
      will be available for issuance under the grant of new awards. As of December
      31,
      2007, no options had been granted under the plan.




23


**Director
      Compensation**





We
      do not
      presently compensate any of our directors for service in such capacity but
      may
      reimburse directors for direct expenses incurred as a result of their service.
      We intend to evaluate the appointment of one or more independent directors
      and,
      in connection therewith, may commence paying fees and/or granting options or
      other equity compensation for service as non-employee directors.





**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**





The
      table
      below shows the number of our shares of common stock beneficially owned as
      of
      April 1, 2008 by:




•
            each
                person or group known by us to beneficially own more than 5% of our
                outstanding common stock;




•
            each
                director;




•
            each
                executive officer named in the Summary Compensation Table under Item
                10.
                “Executive Compensation;” and




•
            all
                of our current directors and executive officers as a group.





The
      number of shares beneficially owned by each 5% holder, director or executive
      officer is determined by the rules of the SEC, and the information does not
      necessarily indicate beneficial ownership for any other purpose. Under such
      rules, beneficial ownership includes any shares over which the person or entity
      has sole or shared voting power or investment power and also any shares that
      the
      person or entity can acquire within 60 days of April 1, 2008 through the
      exercise of any stock option or other right. For purposes of computing the
      percentage of outstanding shares of common stock held by each person or entity,
      any shares that the person or entity has the right to acquire within 60 days
      after April 1, 2008 are deemed to be outstanding with respect to such person
      or
      entity but are not deemed to be outstanding for the purpose of computing the
      percentage of ownership of any other person or entity. Unless otherwise
      indicated, each person or entity has sole investment and voting power (or shares
      such power with his or her spouse) over the shares set forth in the following
      table. The inclusion in the table below of any shares deemed beneficially owned
      does not constitute an admission of beneficial ownership of those shares. As
      of
      April 1, 2008, there were 25,942,000 shares of common stock issued and
      outstanding.


**Name
                  and Address of Beneficial Owner**
              
              **Shares
                  of**
                **Common Stock**
                **Beneficially Owned**
              
              **Percentage of**
                **Common Stock**
                **Outstanding**Mark
                  Trimble(1)
              
              
              11,559,049
              
              
              44.6
              %John
                  Peper(1)
              
              
              3,694,298
              
              
              14.2
              %Steven
                  Trimble(1)
              
              
              2,326,029
              
              
              9.0
              %David
                  Hammeke(1)
              
              
              2,326,029
              
              
              9.0
              %All
                  directors and executive officers as a group (4 persons)
              
              
              19,905,405
              
              
              76.7
              %


(1)
            Address
                is c/o Intellihome, Inc., 5150 Franz Rd., Suite 100, Katy, Texas
                77439.




In
      addition to the shares of common stock outstanding at April 1, 2008, we had
      outstanding 3,833,000 shares of Series A Convertible Preferred Stock and 225,000
      shares of Series B Convertible Preferred Stock which, collectively, are
      convertible into 4,058,000 shares of common stock. All of the outstanding shares
      of Series A Convertible Preferred Stock and Series B Convertible Preferred
      Stock
      were held by Company Reporter Investments II, L.P., at December 31, 2007.
      Michael Long may be deemed the beneficial holder of all shares held by Company
      Reporter Investments II, L.P. Pursuant to the terms of the Series A Convertible
      Preferred Stock, the conversion of Series A Convertible Preferred Stock and
      Series B Preferred Stock into shares of common stock is limited such that,
      immediately following any conversion, the holder may not hold in excess of
      4.99%
      of the then outstanding shares of common stock. As a result of such limitation,
      the shares indicated as beneficially owned at April 1, 2008 exclude shares
      that
      might be deemed to be beneficially owned by Company Reporter Investments II,
      L.P. upon conversion of the Series A Convertible Preferred Stock and the Series
      B Convertible Preferred Stock.




24


**Equity
      Compensation Plan Information**





The
      following table provides information as of December 31, 2007 with respect to
      the
      shares of our common stock that may be issued under our existing equity
      compensation plans.


**Plan Category**
              
              **Number of securities to**
                **be issued upon exercise**
                **of outstanding options,**
                **warrants and rights (a)**
              
              **Weighted-average**
                **exercise price of**
                **outstanding**
                **options, warrants**
                **and rights (b)**
              
              **Number of securities**
                **remaining available for**
                **future issuance under**
                **equity compensation**
                **plans (excluding**
                **securities reflected in**
                **column (a))**Equity
                  compensation plans approved by security holders(1)
              
              
              0
              
              
              NA
              
              
              1,000,000Equity
                  compensation plans not approved by security holders
              
              
              -
              
              
              NA
              
              
              -Total
              
              
              0
              
              
              NA
              
              
              1,000,000





(1) Consists
      of shares reserved for issuance under 2005 Stock Option Plan.





**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE**





We
      have
      from time to time entered into transactions with Mark Trimble, our President
      and
      principal shareholder, pursuant to which Mr. Trimble has provided financing
      in
      the form of loans, credit card advances and a vehicle lease.





Since
      October 2004, we have leased a vehicle owned by Mr. Trimble under a lease
      originally running through September 2007 pursuant to which we paid to Mr.
      Trimble $7,500 during 2007. The term of the lease was extended during 2007
      to
      run through September 2010.





In
      September 2007, two of our directors arranged a loan to us in the amount of
      $25,000 to support operations. The directors are the borrowers under the loan
      facility and we received the loan proceeds and agreed to repay the loan. The
      loan bears interest at 10.25% and is repayable in monthly installments of
      interest. The loan was originally due March 19, 2008. During the first quarter
      of 2008, the principal balance of the loan was reduced by $2,500 and the loan
      was renewed with an extended maturity date of September 19, 2008.





We
      have
      no current written policy with respect to entering into transactions with
      members of management or affiliated companies. Any non-arm’s length transaction
      we consider will be reviewed and voted on by disinterested members of our board
      of directors and be in accordance with our articles of incorporation, bylaws
      and
      Texas law.





**Director
      Independence**





None
      of
      our present directors are independent, as independence is commonly determined
      or
      under the independence standards of any national securities
      exchange.





25





**ITEM
              13.**
            **EXHIBITS**




**Exhibit**
              
              
              
              **Incorporated
                  by Reference**
              
              **Filed****Number**
              
              **Exhibit
                  Description**
              
              **Form**
              
              **Date**
              
              **Number**
              
              **Herewith**3.1
              
              Amended
                  and Restated Articles of Incorporation
              
              SB-2/A
              
              5/8/07
              
              3.13.2
              
              Articles
                  of Amendment to Articles of Incorporation
              
              SB-2
              
              1/25/07
              
              3.23.3
              
              Bylaws
              
              SB-2
              
              1/25/07
              
              3.34.1
              
              Certificate
                  of Designation – Series A Preferred Stock
              
              SB-2/A
              
              5/8/07
              
              4.14.2
              
              Certificate
                  of Designation – Series B Preferred Stock
              
              SB-2/A
              
              5/8/07
              
              4.210.1
              
              Form
                  of Investor Rights Agreement, dated August 31, 2006
              
              SB-2
              
              1/25/07
              
              10.110.2
              
              2005
                  StockOption Plan*
              
              SB-2/A
              
              5/8/07
              
              10.210.3
              
              EmploymentAgreement, dated October 13, 2005, between The Jon Ashton Corporation
                  and
                  Mark Trimble*
              
              SB-2/A
              
              5/8/07
              
              10.310.4
              
              Employment
                  Agreement,
                  dated October 13, 2005, between The Jon Ashton Corporation and
                  John
                  Peper*
              
              SB-2/A
              
              5/8/07
              
              10.410.5
              
              Equipment
                  Lease,
                  dated September 15, 2004, between The Jon Aston Corporation and
                  Mark
                  Trimble
              
              SB-2/A
              
              5/8/07
              
              10.510.6
              
              Agreement
                  for Ongoing Purchase and Sale of Installed Monitoring Contracts
                  by and
                  between The Jon Ashton Corporation and Central Security Group -
                  Nationwide
              
              SB-2
              
              1/25/07
              
              10.610.7
              
              Series
                  A Preferred Stock Purchase Agreement
              
              SB-2/A
              
              6/27/07
              
              10.710.8
              
              Form
                  of Securities Purchase Agreement – Units
              
              SB-2/A
              
              6/27/07
              
              10.814.1
              
              Code
                  of Ethics for CEO and Senior Financial Officers
              
              
              
              
              
              
              
              X31.1
              
              Section
                  302 Certification of CEO and CFO
              
              
              
              
              
              
              
              X32.1
              
              Section
                  906 Certification of CEO and CFO
              
              
              
              
              
              
              
              X





* Compensatory
      plan or arrangement.





26





**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





**Fees
      Paid to Independent Public Accountants**




The
      following table summarizes the fees of Thomas Leger & Co., L.L.P., our
      registered public accounting firm billed to us for each of the last two fiscal
      years:


**Fee
                  Category**
              
              **FY
                  2006**
              
              **FY
                  2007**Audit
                  Fees(1)
              
              $
              39,060
              
              $
              42,905Audit-Related
                  Fees
              
              
              —
              
              
              —Tax
                  Fees
              
              
              —
              
              
              —All
                  Other Fees
              
              
              —
              
              
              —Total
                  Fees(2)
              
              $
              39,060
              
              $
              42,905







(1)
            Audit
                fees consist of fees for the audit of our financial statements, the
                review
                of the interim financial statements included in our Quarterly Reports
                on
                Form 10-QSB, and other professional services provided in connection
                with
                statutory and regulatory filings or engagements, including financial
                statements filed with our registration statement on Form SB-2 filed
                in
                January 2007.


(2)
            In
                fiscal 2006 and 2007, there were no fees billed for services other
                than
                those described above.




**Pre-Approval
      Policies and Procedures**




Because
      of the small size of our company and the lack of independent directors, we
      do
      not presently maintain an audit committee and, therefore, have not adopted
      any
      policies or procedures relating to the approval of audit and non-audit services
      that are to be performed by our registered public accounting firm.





27




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





INTELLIHOME,
              INC.Dated:
                April 14, 2008By:
            /s/
                Mark TrimbleMark
                TrimblePresident





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/
                Mark Trimble
            
            Chairman,
                Chief Executive Officer,
            
            April
                14, 2008Mark
                Trimble
            
            President
                and Director(Principal
                Executive Officer, PrincipalAccounting
                Officer and PrincipalFinancial
                Officer)/s/
                John Peper
            
            Vice
                President and Director
            
            April
                14, 2008John
                PeperDirector
            
            April
                14, 2008Steven
                Trimble/s/
                David Hammeke
            
            Director
            
            April
                14, 2008David
                Hammeke




28




INTELLIHOME,
      INC.





INDEX
      TO
      FINANCIAL STATEMENTS





Report
                of Independent Registered Public Accounting Firm
            F-1Balance
                Sheet as of December 31, 2007
            F-2Statements
                of Operations For the Years ended December 31, 2007 and
                2006
            F-4Statements
                of Shareholders’ Deficit for the Years ended December 31, 2007 and
                2006
            F-5Statements
                of Cash Flows For the Years Ended December 31, 2007 and
                2006
            F-6Notes
                to Financial Statements
            F-8





29


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors


IntelliHome,
      Inc.


Katy,
      Texas





We
      have
      audited the accompanying balance sheet of IntelliHome, Inc. as of December
      31,
      2007 and the related statements of operations, shareholders’ deficit, and cash
      flows for the years ended December 31, 2007 and 2006. These financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these financial statements based on our
      audit.





We
      conducted our audit in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for purposes of expressing an opinion
      on the effectiveness of the Company's internal control over financial reporting.
      Accordingly, we express no such opinion. An audit includes examining, on a
      test
      basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of IntelliHome, Inc. as of December
      31, 2007 and the results of its operations and its cash flows for the years
      ended December 31, 2007 and 2006 in conformity with accounting principles
      generally accepted in the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The Company has suffered recurring losses
      from
      operations and has operating cash flow deficiencies. These conditions raise
      substantial doubt about the Company’s ability to continue as a going concern.
      The financial statements do not include any adjustments that might result from
      the outcome of this uncertainty.




Thomas
      Leger & Co., L.L.P.





Houston,
      Texas


April
      4,
      2008


F-1




INTELLIHOME,
        INC.


BALANCE
        SHEET
  DECEMBER
        31, 2007




ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            10,946Accounts
                  receivable, net of allowance for doubtful accounts of
                  $502
            
            
            43,334Inventories
            
            
            15,848Prepaid
                expenses
            
            
            2,681TOTAL
                CURRENT ASSETS
            
            
            72,809PROPERTY
                AND EQUIPMENT, NET
            
            
            7,563TOTAL
                ASSETS
            
            $
            80,372LIABILITIES
                AND SHAREHOLDERS' DEFICITCURRENT
                LIABILITIESAccounts
                payable
            
            $
            74,859Credit
                cards payable
            
            
            97,179Payroll
                and other accrued liabilities
            
            
            72,655Sales
                tax payable
            
            
            14,921Notes
                payable
            
            
            70,159Unearned
                revenue on contracts
            
            
            8,301TOTAL
                CURRENT LIABILITIES
            
            
            338,074NON-CURRENT
                LIABILITIESUnearned
                revenue on contracts
            
            
            624TOTAL
                LIABILITIES
            
            
            338,698COMMITMENTS
                AND CONTINGENCIES
            
            
            -




The
                accompanying notes are an integral part of these financial
                statements.




F-2




INTELLIHOME,
        INC.
  BALANCE
          SHEET, CONTINUED
  DECEMBER
            31, 2007




SHAREHOLDERS'
                DEFICITPreferred
                stock, $.001 par value; 20,000,000 shares authorized:Series
                A convertible preferred stock, $.001 par value,6,000,000
                shares authorized and issued, 4,700,000 sharesoutstanding,
                $235,000 liquidation value, no redemption value
            
            
            4,700Series
                B convertible preferred stock, $.001 par value,2,700,000
                shares authorized and issued, 225,000 sharesoutstanding,
                $22,500 liquidation value, no redemption value
            
            
            225Common
                stock, $.001 par value; 100,000,000 shares authorized;25,075,000
                shares issued and outstanding
            
            
            25,075Additional
                paid-in capital
            
            
            553,228Retained
                deficit
            
            
            (841,554
            )Total
                shareholders' deficit
            
            
            (258,326
            )TOTAL
                LIABILITIES AND SHAREHOLDERS' DEFICIT
            
            $
            80,372




The
        accompanying notes are an integral part of these financial
        statements.




F-3


INTELLIHOME,
          INC.
  STATEMENTS
          OF OPERATIONS
 Years
                      EndedDecember
                      31,2007
                  
                  2006REVENUES:Installation
                      and monitoring revenues
                  
                  $
                  887,003
                  
                  $
                  759,075EXPENSES:Cost
                      of monitoring and installation
                  
                  
                  381,416
                  
                  
                  340,812Compensation
                      and benefits
                  
                  
                  417,264
                  
                  
                  392,086Truck
                      expenses
                  
                  
                  76,539
                  
                  
                  77,795($7,500
                        in 2007 and $7,500 in 2006paid
                        to a related party)General
                      and administrative
                  
                  
                  221,837
                  
                  
                  172,112TOTAL
                      EXPENSES
                  
                  
                  1,097,056
                  
                  
                  982,805LOSS
                      FROM OPERATIONS
                  
                  
                  (210,053
                  )
                  
                  (223,730
                  )OTHER
                      INCOME / EXPENSES:Interest
                      Income
                  
                  
                  377
                  
                  
                  66Other
                      income
                  
                  
                  8,237
                  
                  
                  926Interest
                      expense and finance charges
                  
                  
                  (23,518
                  )
                  
                  (27,571
                  )TOTAL
                      OTHER EXPENSES
                  
                  
                  (14,904
                  )
                  
                  (26,579
                  )PROVISION
                      FOR INCOME TAXES
                  
                  
                  -
                  
                  
                  -NET
                      LOSS
                  
                  
                  (224,957
                  )
                  
                  (250,309
                  )Preferred
                      dividends accrued
                  
                  
                  (16,896
                  )
                  
                  (5,936
                  )NET
                      LOSS AVAILABLE TO COMMON SHARES
                  
                  $
                  (241,853
                  )
                  $
                  (256,245
                  )Basic
                      and diluted weighted average shares outstanding
                  
                  
                  21,870,736
                  
                  
                  21,082,438Basic
                      and diluted net loss per share
                  
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )
 The
          accompanying notes are an integral part of these financial
          statements.


F-4


INTELLIHOME,INC.
  STATEMENTS
        OF CHANGES IN SHAREHOLDERS' DEFICIT
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006


Series
                  A
              
              Series
                  BPreferred
                  Stock
              
              Preferred
                  Stock
              
              Common
                  Stock
              
              Paid-In
              
              AccumulatedShares
              
              Par Value
              
              Shares
              
              Par Value
              
              Shares
              
              Par Value
              
              Capital
              
              Deficit
              
              TotalBalance
                    December 31, 2005
              
              
              6,000,000
              
              $
              6,000
              
              
              -
              
              $
              -
              
              
              21,000,000
              
              $
              21,000
              
              $
              111,405
              
              $
              (343,456
              )
              $
              (205,051
              )Shares
                  issued for cash
              
              
              
              
              
              
              
              
              2,295,000
              
              
              2,295
              
              
              255,000
              
              
              255
              
              
              252,450
              
              
              
              
              
              255,000Offering
                  costs
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (40,000
              )
              
              
              
              
              (40,000
              )Costs
                    paid on behalf of Company by Series A preferred
                    shareholder
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              70,238
              
              
              
              
              
              70,238Preferred
                    Series B dividends accrued
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,936
              )
              
              (5,936
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (250,309
              )
              
              (250,309
              )Balance,
                    December 31, 2006
              
              
              6,000,000
              
              
              6,000
              
              
              2,295,000
              
              
              2,295
              
              
              21,255,000
              
              
              21,255
              
              
              394,093
              
              
              (599,701
              )
              
              (176,058
              )Shares
                  issued for cash
              
              
              
              
              
              
              
              
              405,000
              
              
              405
              
              
              45,000
              
              
              45
              
              
              44,550
              
              
              
              
              
              45,000Costs
                    paid on behalf of Company by Series A preferred
                    shareholder
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              114,585
              
              
              
              
              
              114,585Series
                      A Preferred Stock converted to common shares
              
              
              (1,300,000
              )
              
              (1,300
              )
              
              
              
              
              
              
              
              1,300,000
              
              
              1,300Series
                      B Preferred Stock converted to common shares
              
              
              
              
              
              
              
              
              (2,475,000
              )
              
              (2,475
              )
              
              2,475,000
              
              
              2,475Preferred
                    Series B dividends accrued
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (16,896
              )
              
              (16,896
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (224,957
              )
              
              (224,957
              )Balance
                    December 31, 2007
              
              
              4,700,000
              
              $
              4,700
              
              
              225,000
              
              $
              225
              
              
              25,075,000
              
              $
              25,075
              
              $
              553,228
              
              $
              (841,554
              )
              $
              (258,326
              )


The
        accompanying notes are an integral part of these financial
        statements.
  F-5


INTELLIHOME,
          INC.
 STATEMENTS
          OF CASH FLOWS
 Years
                    EndedDecember
                    31,2007
                
                2006CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (224,957
                )
                $
                (250,309
                )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Depreciation
                    and amortization
                
                
                6,226
                
                
                5,004Non-cash
                    expenses
                
                
                114,585
                
                
                68,327Changes
                    in operating assets:Accounts
                    receivable
                
                
                26,245
                
                
                (20,565
                )Inventories
                
                
                (7
                )
                
                9,530Prepaid
                    expenses
                
                
                (668
                )
                
                (476
                )Accounts
                    payable
                
                
                (15,297
                )
                
                5,664Credit
                    cards payable
                
                
                (546
                )
                
                (2,246
                )Payroll,
                    sales tax and other accrued liabilities
                
                
                (26,637
                )
                
                19,202Unearned
                    revenue on contracts
                
                
                (2,457
                )
                
                (178
                )NET
                    CASH USED IN OPERATING ACTIVITIES
                
                
                (123,513
                )
                
                (166,047
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchase
                    of fixed assets
                
                
                (3,314
                )
                
                (1,408
                )NET
                    CASH USED IN INVESTING ACTIVITIES
                
                
                (3,314
                )
                
                (1,408
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Principal
                    payments on notes payable
                
                
                (34,784
                )
                
                (25,694
                )Proceeds
                    from shareholders' loans
                
                
                50,000
                
                
                -Sale
                    of stock
                
                
                45,000
                
                
                255,000NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                60,216
                
                
                229,306NET
                    (DECREASE) INCREASE IN CASH
                
                
                (66,611
                )
                
                61,851CASH
                    AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                
                
                77,557
                
                
                15,706CASH
                    AND CASH EQUIVALENTS AT END OF YEAR
                
                $
                10,946
                
                $
                77,557
 The
          accompanying notes are an integral part of these financial
          statements.
  F-6
 INTELLIHOME,
            INC.
  STATEMENTS
            OF CASH FLOWS, CONTINUED
 Years
                        EndedDecember
                        31,2007
                    
                    2006SUPPLEMENTAL
                          DISCLOSURE OF CASH FLOW INFORMATION:Interest
                        paid
                    
                    $
                    20,898
                    
                    $
                    26,408Taxes
                        paid
                    
                    
                    -
                    
                    
                    -SUPPLEMENTAL
                          DISCLOSURE OF NON CASH INVESTING AND FINANCING
                          ACTIVITIESIncrease
                          (decrease) in paid-in capital resulting from the
                          following:Deferred
                        offering costs, expenses and assets paid for by a Series
                        A preferred
                        shareholder
                    
                    
                    114,585
                    
                    
                    2,000Deferred
                          offering costs charged to paid in capital once the Private
                          Offering was
                          completed
                    
                    
                    -
                    
                    
                    (40,000
                    )Decrease
                          in retained earnings for preferred stock dividend
                    
                    
                    16,896
                    
                    
                    5,936Increase
                        in common stock par value resulting from the conversion of
                        Series A and B
                        preferred stock to common stock
                    
                    
                    3,775
                    
                    
                    -Decrease
                        in preferred stock par value resulting from the conversion
                        of Series A and
                        B preferred stock to common stock
                    
                    
                    3,775
                    
                    
                    -
 The
                accompanying notes are an integral part of these financial
                statements.


F-7




INTELLIHOME,
      INC.


NOTES
      TO
      FINANCIAL STATEMENTS


DECEMBER
      31, 2007





NOTE
      1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature
      of
      Operations





Intellihome,
      Inc., dba Advanced Protective Technology Security Systems (“the Company”), is a
      Texas corporation formed on February 26, 2001. The Company installs and services
      security, fire, access control and surveillance systems, as well as phone,
      cable, data and audio/video systems for commercial and residential customers
      primarily in Harris County, Texas and other surrounding counties.





Cash
      and
      Cash Equivalents





The
      Company considers all short-term debt securities purchased with a maturity
      of
      three months or less to be cash equivalents. There were no cash equivalents
      at
      December 31, 2007.





Property
      and Equipment





Property
      and equipment are carried at cost, net of accumulated depreciation. Depreciation
      of property and equipment is provided using the straight-line method over the
      estimated useful lives of the assets as follows:





Office
                Equipment
            5
                YearsOffice
                Furniture
            10
                YearsNew
                Trucks
            4
                YearsUsed
                Trucks
            3
                YearsWeb
                Site
            2 Years





Expenditures
      for maintenance and repairs and charged to earnings as incurred; additions,
      renewals and betterments are capitalized. When property and equipment are
      retired or otherwise disposed of, the related cost and accumulated depreciation
      are removed from the respective accounts, and any gain or loss is included
      in
      operations.





Income
      Recognition





Our
      products and services are generally sold based upon purchase orders or contracts
      with our customers that do not have right of return provisions or other
      significant post-delivery obligations. We recognize revenue from product sales
      when title passes to the customer, the customer assumes the risks and rewards
      of
      ownership and collectibility is reasonably assured. Service revenue is
      recognized when the services are rendered and collectibility is reasonably
      assured. The above revenue recognition policies comply with Staff Accounting
      Bulletin No. 104, “Revenue Recognition” (“SAB 104”).




F-8


For
      contracts containing multiple deliverables, we analyze each activity within
      the
      contract to ensure that we adhere to the separation guidelines of Emerging
      Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple
      Deliverables,” and the revenue recognition guidelines of SAB 104. For
      service-only contracts and service elements of multiple deliverable
      arrangements, service fees are recognized only when defined and awarded by
      the
      customer.





Our
      revenues are generally characterized as installation fees, monitoring fees
      and
      contract funding fee. Installation fees and monitoring fees arising from the
      sale to consumers of security monitoring services and related equipment
      installation are treated as separate units of accounting in accordance with
      EITF
      00-21 with consideration allocated to these separate units of accounting using
      the relative fair value method. Each relates to a distinct activity that is
      priced separately, has value to the customer on a standalone basis and can
      be
      acquired from multiple vendors.





Installation
      Fees arise from contracts or purchase orders to supply and install integrated
      cabling, related outlets and equipment to builders and to consumers and do
      not
      include any ongoing monitoring service relating to installed security monitoring
      equipment. Because the installation contracts are of a short term, typically
      one
      to two days, we recognize revenues from installation contracts using the
      completed contract method of accounting with revenue recognized when
      installation services are completed. For the years ended December 31, 2007
      and
      2006, the Company did not have any installation contracts that were not
      completed by year end.





Monitoring
      Fees are recurring fees arising from security monitoring contracts retained
      by
      us and typically involve payment of a fixed monthly fee for monitoring services
      over the term of the applicable contract. Monitoring fees are recognized monthly
      as services are provided pursuant to the terms of customer
      contracts.





Contract
      Funding revenue arises from the sale of monitoring contracts to several
      monitoring companies. Upon sale of a contract, we recognize the full purchase
      price of the contract as revenue in the amount equal to the cash received plus
      the amount of the holdback that is recorded as an account receivable and reduce
      revenue. During the years ended December 31, 2007 and 2006, $826 and $5,271
      of
      chargebacks reduced revenue, respectively. Chargebacks are charged against
      the
      account receivable. Revenue sharing fees are recognized as revenue when the
      amount of such fees becomes fixed and determinable under the terms of the
      contract.




Use
      of
      Estimates





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


F-9


Concentrations
      of Credit Risk





Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist principally of cash, and trade accounts receivable. The Company
      maintains its cash accounts in a high quality FDIC insured bank in Texas. The
      Company performs ongoing credit evaluations of its customers' financial
      conditions to ensure collections and minimize losses.





The
      Company had sales to one significant customer constituting 40% of sales in
      2007,
      and 52% of accounts receivable at December 31, 2007. In 2006, the Company had
      sales to two significant customers constituting 36% and 10% of total sales
      and
      25% and 13% respectively of accounts receivable. No other customers
      a ccounted
      for more than 10% of sales or accounts receivable during the two
      years.





Accounts
      Receivable





The
      Company’s maintains a reserve for potential credit losses on accounts
      receivable. Management reviews the composition of accounts receivable and
      performs a credit
      evaluation of the customer's financial condition to determine collectibility.
      Write-offs, or an increase in the allowance for doubtful accounts, are made
      based on this evaluation. The allowance for doubtful accounts was $502 at
      December 31, 2007.





Inventories





Inventories
      are valued at the lower of cost or market, and consist primarily of alarm
      equipment kits, cabling and wiring, and some audio/video equipment.





Impairment
      of Long-Lived Assets





The
      Company periodically assesses the recoverability of long-lived assets, including
      property and equipment and purchased accounts when there are indications of
      potential impairment, based on estimates of undiscounted future cash flows.
      The
      amount of impairment is calculated by comparing anticipated discounted future
      cash flows with the carrying value of the related asset. In performing this
      analysis, management considers such factors as current results, trends, and
      future prospects, in addition to other economic factors. No impairments were
      recorded for
      December 31, 2007 and 2006.





Advertising
      Costs





The
      Company expenses the cost of advertising as incurred. Advertising costs for
      the
      years ended December 31, 2007 and 2006 were insignificant.





Income
      Taxes





The
      Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax basis of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce tax assets to the amount expected to
      be
      realized.


F-10


Net
      Loss
      Per Share





Basic
      loss per share is computed by dividing the net loss available to common
      shareholders by the weighted average of common shares outstanding during the
      year. Diluted per share amounts assume the conversion, exercise, or issuance
      of
      all potential common stock instruments unless the effect is anti-dilutive,
      thereby reducing the loss or increasing the income per share.





Fair
      Value of Financial Instruments





The
      fair
      value of certain financial instruments, including accounts receivable, accounts
      payable and accrued liabilities, approximates their carrying value due to the
      short maturity of these instruments.





Recent
      Accounting Pronouncements





In
      February 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      155 (SFAS 155) “Accounting for Certain Hybrid Instruments — an amendment of FASB
      Statements No. 133 and 140.” SFAS 155 amends SFAS 133 to permit fair value
      measurement for certain hybrid financial instruments that contain an embedded
      derivative, provides additional guidance on the applicability of SFAS 133 and
      SFAS 140 to certain financial instruments and subordinated concentrations of
      credit risk. SFAS 155 is effective for the first fiscal year that begins after
      September 15, 2006. This did not have any impact on the Company’s financial
      statements.





In
      July
      2006, the Financial Accounting Standards Board issued FASB Interpretation
      No. 48, *“Accounting
      for Uncertainty in Income Taxes”* (“FIN 48”) *.* FIN 48 clarifies the application of SFAS No. 109, *Accounting
      for Income Taxes* ,
      by
      establishing a threshold condition that a tax position must meet for any part
      of
      the benefit of that position to be recognized in the financial statements.
      In
      addition to recognition, FIN 48 provides guidance concerning measurement,
      derecognition, classification and disclosure of tax positions. FIN 48 is
      effective for fiscal years beginning after December 15, 2006; accordingly,
      the Company adopted FIN 48 effective as of January 1, 2007. The
      adoption of FIN 48 did not have a material impact on its effective tax
      rate.





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157 “Fair Value Measurements” (SFAS 157),
      which provides expanded guidance for using fair value to measure assets and
      liabilities. SFAS 157 establishes a hierarchy for data used to value assets
      and
      liabilities, and requires additional disclosures about the extent to which
      a
      company measures assets and liabilities at fair value, the information used
      to
      measure fair value, and the effect of fair value measurements on earnings.
      Implementation of SFAS 157 is required on January 1, 2008. The Company does
      not
      anticipate that the adoption of SFAS 157 will have a material impact on the
      financial statements.


F-11


On
      September 13, 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108),
      which establishes an approach that requires quantification of financial
      statement errors based on the effects of the error on each of the company's
      financial statements and the related disclosures. SAB 108 requires the use
      of a
      balance sheet and an income statement approach to evaluate whether either of
      these approaches results in quantifying a misstatement that, when all relevant
      quantitative and qualitative factors are considered, is material. The adoption
      of SAB 108 did not have an impact on the Company’s financial
      statements.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Liabilities, Including an amendment
      of FASB Statement No. 115”* (“SFAS
      No. 159”). SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value that ** are
      not
      currently required to be measured at fair value. SFAS No. 159 also establishes
      presentation and disclosure requirements designed to facilitate ** comparisons
      between entities that choose different measurement attributes for similar types
      of assets and liabilities. SFAS No. 159 is effective as of the ** beginning
      of an entity’s first fiscal year that begins after November 15, 2007. The
      Company expects to adopt SFAS No. 159 on January 1, 2008. The Company has
      evaluated the impact of adopting SFAS No. 159 and has determined that it will
      not elect the fair value option under SFAS No.159 for any financial instruments
      that are not required to be presented at fair value under generally accepted
      accounting principles.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS
      160”). SFAS 160 establishes new accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. Before this statement, limited guidance existed for reporting
      noncontrolling interests (minority interest). As a result, diversity in practice
      exists. In some cases minority interest is reported as a liability and in others
      it is reported in the mezzanine section between liabilities and equity.
      Specifically, SFAS 160 requires the recognition of a noncontrolling interest
      (minority interest) as equity in the consolidated financials statements and
      separate from the parent’s equity. The amount of net income attributable to the
      noncontrolling interest will be included in consolidated net income on the
      face
      of the income statement. SFAS 160 clarifies that changes in a parent’s ownership
      interest in a subsidiary that do not result in deconsolidation are equity
      transactions if the parent retains its controlling financial interest. In
      addition, this statement requires that a parent recognize gain or loss in net
      income when a subsidiary is deconsolidated. Such gain or loss will be measured
      using the fair value of the noncontrolling equity investment on the
      deconsolidation date. SFAS 160 also includes expanded disclosure requirements
      regarding the interests of the parent and its noncontrolling interests. SFAS
      160
      is effective for the Company on January 1, 2009. Earlier adoption is prohibited.
      The Company does not have a noncontrolling interest in a subsidiary, nor does
      it
      file consolidated financial statements. Accordingly, the adoption of SFAS 160
      will not have any impact on its financial statements.


F-12


In
      December 2007, the FASB issued SFAS No. 141R, “ *Business
      Combinations”* .
      SFAS
      No. 141R provides companies with principles and requirements on how an acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, liabilities assumed, and any noncontrolling interest in the acquiree
      as well as the recognition and measurement of goodwill acquired in a business
      combination. SFAS No. 141R also requires certain disclosures to enable users
      of
      the financial statements to evaluate the nature and financial effects of the
      business combination. Acquisition costs associated with the business combination
      will generally be expensed as incurred. SFAS 141R is effective for business
      combinations occurring in fiscal years beginning after December 15, 2008. Early
      adoption of SFAS No. 141R is not permitted. The Company has not acquired, nor
      does it plan to acquire, an interest in another entity. Accordingly, the
      adoption of SFAS No. 141R will not have any impact on its financial statements.





NOTE
      2
      GOING CONCERN





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As reflected in the accompanying financial
      statements, the Company has incurred a loss of $224,957 for 2007 and has
      retained deficit of $841,554 at December 31, 2007. In addition, the Company
      has
      not generated cash flows from operations for the years ended December 31, 2007
      and 2006. The Company’s continued existence is dependent on its ability to
      attain profitable operations and achieving a level of revenue adequate to
      support the Company's cost structure. These factors raise substantial doubt
      about the Company’s ability to continue as a going concern. There is no
      assurance that the Company will be able to attain profitable operations or
      additional financing to support the Company’s current operations. If management
      is not successful, the Company may have to substantially cut back its level
      of
      operations that could have an adverse effect on the financial position of the
      Company. The financial statements do not include any adjustments relating to
      the
      recoverability or classification of recorded asset amounts or the amount and
      classification of liabilities that might be necessary as a result of this going
      concern uncertainty.





NOTE
      3
      RELATED PARTY TRANSACTIONS





The
      following transactions occurred between the Company and Mark Trimble, President
      and majority shareholder:





On
      September 15, 2004, the Company began leasing Mr. Trimble’s 1998 pickup for $625
      per month. The initial lease term was for three years, with a renewal option
      for
      an additional three-year term.





See
      Note
      9 - Notes Payable - Current, for a guarantee by the Company of a note to a
      bank
      for two shareholders. The proceeds of this note were loaned to the
      Company.





NOTE
      4
      PREPAID EXPENSES





Prepaid
      expenses of $2,681, in the 12/31/07 balance sheet, represent the un-expired
      portion of the Company’s general liability insurance.




F-13


NOTE
      5
      PROPERTY AND EQUIPMENT





Property
      and equipment consisted of the following at December 31, 2007:




Computers
                and peripherals
            
            $
            6,704Office
                furniture
            
            
            3,419Trucks
            
            
            54,309Web
                site design costs
            
            
            2,00066,432Accumulated
                depreciation
            
            
            (58,869
            )Property
                and equipment, net
            
            $
            7,563





Depreciation
      expenses for the years ended December 31, 2007 and 2006 were $2,626 and $1,404
      respectively.





NOTE
      6
      PURCHASED ACCOUNTS





Purchased
      accounts represent security monitoring accounts purchased in January 2003 for
      $18,000 from an unrelated security company. Based on historical records tracking
      the average life of a monitoring account, the Company’s management elected to
      amortize the cost of the accounts over a five-year period. Accumulated
      amortization to-date at December 31, 2007 was $18,000. Amortization expense
      for
      the years ended December 31, 2007 and 2006 was $3,600 for each year.





NOTE
      7
      PAYROLL AND OTHER ACCRUED LIABILITIES





Payroll
      and other accrued liabilities, as of December 31, 2007, consisted of the
      following:





Accrued
                dividends on preferred stock
            
            $
            22,832Accrued
                interest expense
            
            
            1,351Accrued
                and unpaid salary and related taxes due to shareholder/employees
                under
                their employment agreements
            
            
            48,472$
            72,655





NOTE
      8
      CREDIT CARDS PAYABLE





At
      December 31, 2007, the Company had several bank credit card debts in the amount
      of $97,179 that were classified as short-term credit card debts. The interest
      rates on these credit card debts range from 11.49% to 32.24% and require minimum
      monthly payments. The majority shareholder personally guarantees all credit
      card
      balances.


F-14


NOTE
      9
      NOTES PAYABLE - CURRENT





Current
      notes payable, at December 31, 2007, consisted of the following:





Note
                payable to an equipment supplier originally dated July 28, 2004 for
                $69,240 at 7% interest, payable in monthly installments of principal
                and
                interest of $2,523 beginning August 15, 2004. The note was re-negotiated
                on December 13, 2006, after a 14-month term of default, with a new
                principal amount of $46,495, interest at 7%, and monthly payments
                of
                $6,798 beginning December 27, 2006. The last payment on the note
                was on
                March 30, 2007. The company has defaulted under the re-negotiate
                note.
                Uncollateralized and guaranteed by the majority
                shareholder.
            
            $
            20,159The
                Company has guaranteed an uncollateralized note to a bank for two
                shareholders in the amount of $25,000 dated September 25, 2007, with
                a
                10.25% interest rate. The proceeds of the note were loaned to the
                Company.
                Interest only payments are due monthly starting October 19, 2007
                through
                February 19, 2008. A final payment of interest and principal, totaling
                $25,203.60 will be due on March 19, 2008. See Note 15 - Subsequent
                Events.
            
            
            25,000Note
                payable to a shareholder dated November 28, 2007, in the amount of
                $25,000
                with an 8% interest rate. Payment of principal and accrued interest
                will
                be due on February 26, 2008. See Note 15 - Subsequent
                Events.
            
            
            25,000$
            70,159





NOTE
      10
      UNEARNED REVENUE ON CONTRACTS





As
      part
      of its services after the sale of security monitoring systems, the Company
      offers to provide security monitoring of the premises where the equipment is
      installed. The term of the monitoring contracts sold range from three to
      thirty-six months. Proceeds from the sale of the contracts are recognized but
      not realized as income until the period in which the service is provided.
      Accordingly, unrealized income is reflected in the financial statements as
      unearned revenue on contracts. As of December 31, 2007, the unearned portion
      to
      be realized as income in the following twelve months was $8,301, while the
      portion to be realized as income beginning in 2009 and thereafter was
      $624.





NOTE
      11
      DESCRIPTION OF CAPITAL STOCK





COMMON
      STOCK





The
      Articles of Incorporation of the Company authorize the issuance of up to
      100,000,000 shares of common stock with a par value of $.001 per share.




F-15


In
      September 2006, under the terms of a Private Placement Memorandum dated October
      19, 2005, 255 units of Preferred Stock Series B were sold. Each unit consisted
      of 1,000 shares of the Company’s Common Stock, and 9,000 shares of the Company’s
      Preferred Series B convertible stock. The Company received $255,000 in cash
      for
      the units sold.





In
      January 2007, under the terms of the Private Placement Memorandum dated October
      19, 2005, 45 units of Preferred Stock Series B were sold. Each unit consisted
      of
      1,000 shares of the Company’s Common Stock, and 9,000 shares of the Company’s
      Preferred Series B convertible stock. The Company received $45,000 in cash
      for
      the units sold.





PREFERRED
      STOCK





The
      board
      of directors of the Company, has the authority, subject to certain limitations
      prescribed by law, to issue from time to time up to an aggregate of 20,000,000
      shares of preferred stock in one or more classes or series and to determine
      the
      designation and the number of shares of any class or series as well as the
      voting rights, preferences, limitations and special rights, if any, of the
      shares of any class or series, including dividend rights, dividend rates,
      conversion rights and terms, redemption rights and terms, and liquidation
      preferences.





Series
      A
      Preferred Stock





In
      October 2005, the board of directors authorized, and issued, 6,000,000 shares
      of
      Series A Convertible Preferred Stock. The rights, preferences and
      privileges of holders of the outstanding preferred stock are subject to, and
      may
      be adversely affected by, the rights of holders of shares of any additional
      preferred stock that may be designated and issued in the future.





The
      Series A Preferred Stock is entitled to dividends at the same rate as may be
      paid on the common stock if and when such dividends are declared and paid.





Upon
      any
      liquidation, dissolution or winding up of the Company, after payment of all
      debts and liabilities of the Company and subject to the rights of senior
      securities, but prior to any payment to the holders of common stock, the holders
      of the Series A Preferred Stock will be entitled to receive $0.05 per share
      plus
      accrued but unpaid dividends.





Holders
      of the Series A Preferred Stock are entitled to notice of, and to vote on,
      all
      matters submitted to a vote of the holders of common stock on the basis of
      one
      vote for each share of common stock into which the Series A Preferred Stock
      is
      convertible.





Each
      share of the Series A Preferred Stock may be converted, at the option of the
      holder, into one share of common stock, representing an effective initial
      conversion price of $0.05 per share; provided, however, that no shares of Series
      A Preferred Stock may be converted to the extent that the holder thereof would
      hold in excess of 4.99% of the outstanding common stock following conversion.
      The conversion price adjusts in the event of stock dividends and splits and
      certain distributions to stockholders, fundamental transactions, and future
      equity transactions at prices less than the then effective conversion price.
      Accrued but unpaid dividends on the preferred stock are not convertible into
      common stock.




F-16


During
      October and November of 2007, 1,300,000 shares of Series A Preferred Stock
      were
      converted to common stock, leaving 4,700,000 shares of Series A Preferred Stock
      remaining. See Note 15 - Subsequent Events.





Series
      B
      Preferred Stock





In
      October 2005, the board of directors authorized 2,700,000 shares of
      Series B Convertible Preferred Stock. 2,295,000 shares of Series B
      Preferred Stock were issued in the 2006 private placement. The remaining 405,000
      shares of Series B Preferred Stock were issued in January 2007. This sale
      completed the Private Offering. The rights, preferences and privileges of
      holders of the Series B Preferred Stock are subject to, and may be adversely
      affected by, the rights of holders of shares of any additional preferred stock
      that may be designate and issued in the future. As of December 31, 2007, $22,832
      of dividends for the Series B Preferred Stock had been accrued by the Company.





The
      Series B Preferred Stock shall be entitled to receive dividends, out of any
      assets legally available therefore, prior and in preference to any dividends
      (other than dividends payable in common stock or securities convertible into
      common stock) on the common stock, at the rate of 8% per annum or, if greater
      (as determined on a per annum basis and an as converted basis for the Series
      B
      Preferred Stock), an amount equal to that paid on the common stock, when, as
      and
      if declared by the board of directors. Such dividends shall be cumulative so
      that, such dividends shall be paid or set aside before any dividend or other
      distribution shall be paid or set aside for the common stock. Cumulative
      dividends which are accrued, payable and/or in arrears shall upon conversion
      of
      such share of Series B Preferred Stock not then or thereafter be paid and shall
      cease to be accrued, payable and/or in arrears.





Upon
      any
      liquidation, dissolution or winding up of the Company, after payment of all
      debts and liabilities of the Company, but prior to any payment to the holders
      of
      common stock and Series A Preferred Stock, the holders of the Series B Preferred
      Stock will be entitled to receive $0.10 per share plus accrued but unpaid
      dividends. Thereafter, and following payment of the liquidation preference
      on
      the Series A Preferred Stock, the holders of the Series B Preferred Stock and
      holders of common stock will share ratably in any remaining amounts
      distributable to the shareholders as if the Series B Preferred Stock had been
      converted into common stock immediately prior to liquidation; provided, however,
      that the total amount payable to the holders of the Series B Preferred Stock
      upon liquidation shall not exceed three times the original purchase price
      thereof, or $0.30 per share. For purposes of determining when the rights of
      holders of Series B Preferred Stock on liquidation shall apply, any sale or
      merger in which more than 50% of the voting power of the Company is transferred
      to third parties, and any sale of all or substantially all of the assets to
      a
      third party, shall be deemed to be a liquidation.




F-17


Holders
      of the Series B Preferred Stock are entitled to notice of, and to vote on,
      all
      matters submitted to a vote of the holders of common stock on the basis of
      one
      vote for each share of common stock into which the Series B Preferred Stock
      is
      convertible. Additionally, so long as at least 1,000,000 shares of Series B
      Preferred Stock remain outstanding, the written consent of holders of more
      than
      fifty percent of the Series B Preferred Stock is required for (1) authorization,
      creation or issuance of class of securities that is senior to or in parity
      with
      the Series B Preferred Stock, (2) any amendments to the Articles of
      Incorporation or Bylaws that are adverse to the interests of the Series B
      Preferred Stock, (3) redemption or repurchase of any stock or stock options,
      (4)
      the sale of all or substantially all of the assets of the Company or any
      reorganization, consolidation or merger with another entity in which more than
      50% of the voting power of the Company is transferred. Each share of the Series
      B Preferred Stock may be converted, at the option of the holder, into one share
      of the common stock, based on an initial conversion price of $0.10 per share;
      provided, however, that no shares of Series B Preferred Stock may be converted
      to the extent that the holder thereof would hold in excess of 4.99% of the
      outstanding common stock following conversion. The conversion price adjusts
      in
      the event of stock dividends and splits and certain distributions to
      stockholders, fundamental transactions, and future equity transactions at prices
      less than the then effective conversion price. Accrued but unpaid dividends
      on
      the preferred stock are not convertible into common stock and shall cease to
      be
      payable upon conversion.





The
      Series B Preferred Stock is subject to automatic conversion into common stock,
      at the then applicable conversion price, in the event of (1) an underwritten
      public offering of shares of common stock at a public offering price not less
      than $0.30 per share in an offering of not less than $10,000,000, or (2) the
      vote to convert by holder of two-thirds of the outstanding Series B Preferred
      Stock.





During
      October and November of 2007, 2,475,000 shares of Series B Preferred Stock
      were
      converted to common stock, leaving 225,000 shares not converted as of December
      31, 2007.





NOTE
      12
      STOCK-BASED COMPENSATION





On
      October 10, 2005, the shareholders and board of directors approved and adopted
      The Jon Ashton Corporation 2005 Stock Option Plan in order to attract and retain
      qualified employees. The Company has reserved 1,000,000 shares for this plan.
      As
      of December 31, 2007, the Company has not granted any stock options.




F-18


NOTE
      13
      INCOME TAXES





The
      following table sets forth a reconciliation of the statutory federal income
      tax
      for the years ended December 31, 2007 and 2006.


2007
              
              2006Loss
                  before income taxes
              
              $
              (224,957
              )
              $
              (250,309
              )Income
                  tax (benefit) computed at statutory rates
              
              $
              (76,485
              )
              $
              (85,105
              )Permanent
                  differences, nondeductible expenses
              
              
              301
              
              
              1,116Utilization
                  of net operating loss
              
              
              -
              
              
              -Change
                  in valuation allowance
              
              
              76,184
              
              
              84,290Other
              
              
              
              
              
              (301
              )Current
                  tax (benefit) expense
              
              $
              -
              
              $
              -




Deferred
      Income Taxes





The
      tax
      effects of the temporary differences between financial statement income and
      taxable income are recognized as a deferred tax asset and liability. Significant
      components of the deferred tax asset and liability as of December 31, 2007
      are
      set out below.




2007Deferred
                tax assetNet
                operating loss carryforward
            
            $
            264,523Provision
                of prior year NOL
            
            
            (6,277
            )Fixed
                asset tax basis difference
            
            
            227Officer
                Salaries
            
            
            6,641Reserve
                for Doubtful Accounts
            
            
            171Valuation
                allowance
            
            
            (265,285
            )Net
                deferred tax asset
            
            
            -Net
                deferred tax asset (liability)
            
            $
            -





The
      Company has approximately a $760,000 net operating loss carryforward that will
      expire from 2021 to 2027.





NOTE
      14
      COMMITMENTS AND CONTINGENCIES





The
      Company is currently leasing a pickup for Mark Trimble (See Note 3 Related
      Party
      Transactions). Payments under the lease totaled $7,500 in 2007 and $7,500 in
      2006. As of December 31, 2007, $20,000 remained under the renewed three-year
      term of the lease.


F-19


Under
      an
      office space lease agreement dated December 15, 2001, with an original term
      of
      twenty-four months, the Company is currently making $1,250 per month lease
      payments under the month-to-month provisions of the original expired lease.





Employment
      Contracts





On
      October 13 2005, the Company entered into employment agreements, effective
      October 13, 2005 and terminating December 31, 2010, with each of Mark Trimble,
      President, and John Peper, Vice President. The agreements provide for an annual
      salary, certain other fringe benefits and bonus upon attaining certain
      performance criteria set out in the employment agreement. The annual salary
      may
      be increased with approval of the board of directors and the Series A Preferred
      Stockholders.





NOTE
      15
      SUBSEQUENT EVENTS





On
      January 24, 2008, the Company entered into an Asset Purchase Agreement whereby
      the Company sold a number of alarm monitoring service contract accounts for
      a
      total price of $96,511. The terms of the Agreement include a 10% holdback
      reserve of $9,651 that was deducted from the gross proceeds by the purchaser
      to
      cover potential contract default by the customer accounts they purchased. The
      purchaser will have to pay the holdback reserve to the Company on or before
      May
      24, 2009. A reduction in the gross proceeds of $9,850 was made by the purchaser
      for monies paid to the Company prior to the sale by the accounts that are the
      subject of the sale, and where the purchaser must provide services to these
      accounts post-closing that the Company would have otherwise been obligated
      to
      provide. As a separate obligation, the Company must provide general repair
      services to the sold accounts, on an as-needed basis, for a period of twelve
      months following closing. The Company received a payment of $6,432 from the
      purchaser as consideration for this obligation. Net proceeds received under
      the
      agreement was $83,442.





The
      note
      payable to two shareholders for $25,000, originally due March 19, 2008, was
      renewed with the same terms as the original note after a $2,500 payment toward
      the principal. Under the terms of the renewed note for $22,500, monthly payments
      of interest only at 10.25% will be due monthly through August 19, 2008, with
      a
      final payment of accrued interest and full principal due on September 19, 2008.





The
      note
      payable to a shareholder for $25,000, originally due February 26, 2008, has
      been
      renewed for another 90-day term at 8%. The full principal and accrued interest
      will be due May 26, 2008.





During
      January and March of 2008, 867,000 Series A Preferred Stock shares were
      converted to common stock on a one-to-one basis, leaving 3,833,000 shares not
      converted.




F-20