FORM 10-K

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 2009


                        COMMISSION FILE NUMBER 000-49805

                               MACHINETALKER, INC.
                -----------------------------------------------
             (Exact name of registrant as specified in its charter)


        DELAWARE                                        01-05922991
 ----------------------                      ----------------------------------
(State of Incorporation)                    (I.R.S. Employer Identification No.)


             513 DE LA VINA STREET, SANTA BARBARA, CALIFORNIA 93101
             -----------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (805) 957-1680
             -----------------------------------------------------
               Registrant's telephone number, including area code

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:


                                                  NAME OF EACH EXCHANGE ON
   TITLE OF EACH CLASS                                WHICH REGISTERED
---------------------------                     ----------------------------
      COMMON STOCK                                          OTC


         Indicate  by check  mark if the  registrant  is a  well-known  seasoned
issuer, as defined in Rule 405 of the Securities Act.
                                                                  Yes |_| No |X|

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

                                                                  Yes |_| No |X|

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.
                                                                             |X|

<PAGE>

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

Large accelerated filer       [___]          Accelerated filer             [___]
Non-accelerated filer         [___]          Smaller reporting company     [_X_]
(Do not check if a smaller
reporting company)

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

         The aggregate  market value of voting stock held by  non-affiliates  of
the  registrant  was  approximately  $1,449,640 as of June 30, 2009 (computed by
reference to the last sale price of a share of the registrant's  Common Stock on
that date as reported by OTC Bulletin Board).

         There were 261,976,794  shares  outstanding of the registrant's  Common
Stock as of April 15, 2010.


<PAGE>

                                TABLE OF CONTENTS

PART 1
ITEM 1       Business                                                        2
ITEM 2       Properties                                                      11
ITEM 3       Legal Proceedings                                               11
ITEM 4       Reserved                                                        11

PART II
ITEM 5       Market for Common Equity and Related Stockholder Matters        11
ITEM 6       Selected Financial Data                                         12
ITEM 7       Management's Discussion and Analysis or Plan of Operation       13
ITEM 8       Financial Statements and Supplementary Data                     17
ITEM 9       Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure                                        33
ITEM 9A(T)   Controls and Procedures                                         33
ITEM 9B      Other Information                                               34

PART III
ITEM 10      Directors, Executive Officers, and Corporate Governance         35
ITEM 11      Executive Compensation                                          37
ITEM 12      Security Ownership of Certain Beneficial Owners and Management
             and Related Stockholder Matters                                 38
ITEM 13      Certain Relationships and Related Transactions, and
             Director Independence                                           39
ITEM 14      Principal Accounting Fees and Services                          40
ITEM 15      Exhibits, Financial Statement Schedules                         41

SIGNATURES                                                                   42


















                                      -1-

<PAGE>
                                     PART I

ITEM 1. BUSINESS
----------------
GENERAL

         MachineTalker, Inc. ("MTI" or "we") is a Delaware corporation formed to
engage  in  the  business  of  developing  and  marketing  a  wireless   control
technology.  From  inception  until mid 2004,  we focused our  operations on the
development  of our  wireless  control  technology.  We made our first  sales of
product and services in 2004. These sales, however, were not sufficient to cover
all expenditures for product development and marketing, resulting in significant
net losses since  inception  through  December 31, 2009.  While we are currently
shifting the focus of our operations  from  developing new products to marketing
and selling our existing  products,  presently we do not have sufficient working
capital and cannot assure that we will be successful in our efforts.

         Our  new  smart  security  network   technology   allows   governments,
businesses,  and  individuals to deploy  wireless  security  systems  rapidly to
protect and monitor things,  places,  and people.  Current  security systems are
static and rely on centralized control over various types of detectors or nodes.
Without  independent  intelligence  and a way to  communicate  with one another,
individual  security nodes are unable to carry out functions or overcome failure
at the local level. Our technology  allows security systems to become dynamic by
creating "smart"  security  networks at the local level. The remote and wireless
devices  developed  by  us  ("MachineTalkers"  or  "Talkers")  contain  powerful
microprocessors, on-board sensors, detectors, readers or actuators, and wireless
radios.  Talkers(R) automatically form an ad hoc wireless mesh network, creating
intelligent  nodes,  each capable of processing data in real-time and on a local
basis.  Once formed,  a small community of Talkers(R)  operate  independently or
collectively to assess local  conditions or events and take action  accordingly.
These cooperating Talkers(R) form redundant and self-healing networks in case of
failure.  One or more  individual  units can be connected to modems for wireless
communication outside of the local community by way of the Internet.

         Talkers(R)  can be  used  in a  variety  of  applications.  In  2005 we
developed  a trial  application  for a  customer  who  needed a way to track and
maintain the security of numerous  shipping  containers.  Talkers(R) were placed
within the  shipping  containers  enabling the customer to track the location of
each  container  and  to  confirm  their  safety.  We  also  developed  a  trial
application  for a customer  who sought a way to relay  information  among small
Unmanned  Aerial Vehicles and ground  stations.  Talkers(R) were placed on-board
the UAV to gather and report  data to share with  adjacent  aircraft  and ground
stations.  With the implementation of our special display software,  tracking of
Talkers(R)  can be viewed on personal  computers,  laptops and PDAs.  In 2006 we
demonstrated new packaged  Talkers(R) that are to be used on pallets of cargo in
transport  and our product was HERO approved for use on pallets of munitions for
the  military.  Other  Talkers(R)  have been adapted for use in the gathering of
data from sensors in the energy audit business.  These  demonstrations are being
conducted by OEM  representative  and we continue to demonstrate our products at
trade shows and to potential customers. In 2007 we introduced wireless vibration
sensors to oil refinery  engineers  for use in  Condition-Based  Maintenance  of
large  rotating  machinery,  which means that finding a change in the  vibration
pattern when taken over time will indicate that the machinery may be failing and
has to be repaired.  We also  purchased  two  subsidiaries:  Wideband  Detection
Technologies,  Inc and  Micro  Wireless  Technologies,  Inc.  In both  cases the
Company acquired  licenses to technology that complements the Talker(R)  product
line. The WDTI product provides for intrusion  detection and the MWTI technology
provides  microscopic sensor technology.  In 2008 the Company added GSM Cellular
network connection and GPS analysis to the Talkers(R) so that the Talkers(R) can
travel within  refrigeration  trailers to monitor perishable goods and report to
an Internet  Server on the  temperature  and travel  location in relation to the
time  of  day,  and in  order  to  alert  the  shipper  when  the  refrigeration
temperature strays out of safety range.

HISTORY

         MTI was  formed in  January  2002 by Roland F.  Bryan,  Christopher  T.
Kleveland, and Mark P. Harris. Our founders are also shareholders of SecureCoin,
Inc.  ("SecureCoin").  As  part  of our  initial  capitalization,  our  founders
contributed  certain  intellectual  property that was developed by and purchased
from SecureCoin. SecureCoin assigned all rights to that intellectual property to
Messrs. Bryan,  Kleveland and Harris in January 2002, and those co-founders then
contributed  the  intellectual  property  rights  to us in  connection  with our
formation.  This  intellectual  property forms the core of our proprietary smart

                                      -2-

<PAGE>

security network technology that allow  governments,  businesses and individuals
to rapidly  deploy  wireless  security  systems to protect and  monitor  things,
places and people.  Talkers(R) are designed to track the  whereabouts and status
of the objects  into which they are placed.  Talkers(R)  can be grouped in small
clusters or "communities" and can be programmed to sense,  record,  process, and
act  upon  specified  events  based  upon  a  customer's  specific  needs.  Once
programmed,  Talkers(R)  are placed  into the objects  the  customer  desires to
track.  Talkers(R)  then monitor and report activity as programmed to each other
and to the customer via the  Internet.  For example,  Talkers(R)  placed  inside
shipping  containers  or on shipping  pallets can be  programmed  to monitor and
report activity  concerning the tracking and security of the shipping containers
or pallets and their cargo in transit,  including  loading and unloading freight
manifests.  The information can then be exchanged with the trucks onto which the
containers are being transported.

         Shortly after our formation in 2002, we voluntarily elected to become a
reporting  company  and  filed  a Form  10  with  the  Securities  and  Exchange
Commission.  We  subsequently  determined  not to register  any of our stock and
depleted most of our  financial  resources on the  development  of our products.
Lacking the capital we needed to prepare and file annual, quarterly, and current
reports, we filed a Form 15 in 2004 to terminate our reporting  obligations.  In
August 2005 the company  filed a  Registration  Statement on Form SB-2 which was
declared  effective by the  Securities  and Exchange  Commission on December 22,
2005. Pursuant to this filing, we became a reporting company.

THE NEED FOR THE SIMPLE MACHINE MANAGEMENT PROTOCOL(R)(SMMP(R))

         During  the 1970s and early  1980s,  a  revolution  of sorts came about
which led to what we now know as the  Internet.  An important  development  that
made this  possible  was the  establishment  of  standards,  rules,  and  shared
languages,  which  allowed  computers to "talk" to each other.  Because of these
"protocol" standards,  computer  interconnectivity exploded and the Internet was
put to use in ways that were previously unimaginable.

         MTI believes that today,  the same environment for change exists in the
world of non-computer  entities.  Many people can envision a future where almost
everything  communicates  for a useful  purpose.  Already,  our car keys deliver
wireless  commands to their car door locks and our airbags talk to the emergency
desk of the car manufacturer's network.

         Networking  of such  devices  today  is  limited  in the  same way that
computer networking was limited before universal  connectivity made the Internet
possible.  As in the case of the Internet,  we believe that all this will change
once a simple,  smart,  flexible,  and  inexpensive  communication  platform  is
introduced  that  will  enable  most  things  able to talk  to each  other.  Our
management team believes the platform will be the MachineTalker(R)  infused with
a new standard language, the Simple Machine Management Protocol ("SMMP").

         SMMP(R)  provides   MachineTalkers(R)   with  unique   characteristics,
including:

         1        A  MachineTalker(R)with  SMMP(R)can be instructed to represent
                  or be proxy for any entity to which it is attached.

         2        A  MachineTalker(R)records  and  maintains  a profile  of that
                  entity    and    shares     that     profile     with    other
                  MachineTalker(R)members of its local community.

         3        A  MachineTalker(R)automatically  forms an ad hoc mesh network
                  with its peers and they keep  track of each other and share in
                  processing information.

         4        The SMMP(R)operating system provides for peer-to-peer control,
                  power  management to prolong battery life and a simplified API
                  for ease in programming new applications.

PROPRIETARY TECHNOLOGY

         GENERAL.  Information  passed to and from  local or remote  nodes and a
centralized  control facility is similar to the central  computer/dumb  terminal
installations of the pre-Internet era. Like those early hard-wired  systems that
required every action to be processed  centrally,  today's  security systems are
severely handicapped to meet the increasing demands of information  distribution
and local control.

                                      -3-
<PAGE>

         We believe  that we have  solved  this  problem  by moving  much of the
processing   now   located  at  the   central   control   site  to   inexpensive
MachineTalkers(R)  that serve as  intelligent  proxies  for  sensor,  detectors,
readers,   or  actuators.   These  Talkers(R)  can  make  decisions  based  upon
information  provided by their local attachments or by their networked  "peers."
Each  MachineTalker(R)  can be set up to  perform  diagnostics  and to  transmit
status reports on itself and on other members of its "community."

         Like the  Internet  revolution,  we believe  that the  MachineTalker(R)
revolution   will   be   driven   by  a   change   in   networking   technology.
MachineTalkers(R) are managed by the SMMP(R) that forms the basis for the ad hoc
wireless network and the peer-to-peer relationships.

         AUTOMATIC NETWORK CONFIGURATION (ANC(TM)). The significant advantage of
wireless  networking is the ability to bring new nodes on-line without  plugging
in cables or physically  reconfiguring a local network. This advantage dovetails
with  the   MachineTalker(R)   concept  of   Automatic   Network   Configuration
("ANC(TM)"),  whereby  the  addition  of a new  "Talker(R)"  to a  community  of
Talkers(R) will happen simply by powering it up or coming into the sphere of the
"community." This means that a number of sensing devices,  made "intelligent" by
attachment to  MachineTalkers(R),  can be moved,  or  supplemented  in the field
without having to connect them because they will  automatically  become absorbed
as a member  of a local  community  of  sensors.  In  practical  terms,  service
personnel can add new types of sensors or replace failed sensors  without having
to interrupt  network  operation.  We believe that the  foregoing  benefits will
justify the deployment of the MachineTalker(R) technology by our target customer
base. Once adopted however,  we believe that the real value of  MachineTalker(R)
technology  lies in the vast  potential  that is  unlocked  as  these  networked
entities  or  sensors  acquire  and share  intelligence  and  knowledge  amongst
themselves in a decentralized and flexible model.

         PATENT  APPLICATION.  Application  No.  20040114557 for a United States
patent in the names of Roland F.  Bryan,  Mark P.  Harris,  and  Christopher  T.
Kleveland and assigned to MTI entitled "Self  Coordinated  Machine  Network" was
filed on April 23, 2002, by our former  intellectual  property  counsel,  Lyon &
Lyon,  LLP. In 2005 we contacted  our patent  examiner who permitted us to amend
our  application  to  include  additional  claims.  We filed an  amended  patent
application  in May 2005.  Our Patent  No.:  US  7,184,423,B2  was issued to the
Company on 27 February 2007, Titled "Self Coordinated Machine Network."

         ABSTRACT OF THE PATENT DISCLOSURE.  A self coordinated  machine network
is  established by two or more machines in proximity with each other via a wired
or wireless network infrastructure.  The machines are configured to establish an
ad hoc network  between  them for sharing  information  related to their  common
applications.   New   machines   that  come  into   proximity   of  the  network
infrastructure are automatically  configured to join an existing ad hoc network.
Machines  that  power  down  or  are  removed  from  proximity  of  the  network
infrastructure  are eliminated from the ad hoc network.  Communications  between
the  constituent  machines  of the ad hoc  network  allow the  machines  to self
coordinate  the network and  redundantly  store  information  pertaining  to the
common and disparate applications of the various machines that comprise the self
coordinated  machine network.  The same is the case for the internal  components
that make up the machine; in that self-contained  subassemblies that take action
in response to stimulus or change in status, like keyboards,  card readers, bill
changers and  electronic  devices,  can be similarly self  coordinated  with the
addition to each sub-assembly of the present invention;  whereby cabling between
such  sub-assemblies  is  minimized  or even  eliminated  by use of the wireless
version of the present invention.

PRODUCTS

         We currently  offer  several  smart  security  network  components  for
rapidly deploying wireless security systems, including:

         MACHINETALKER(R).  MachineTalker(R)  is a  high  performance  unit  for
applications  requiring extensive local processing and/or gateway connections to
higher level networks (such as Internet, Ethernet, 802.11 and WiFi).

         MINITALKER(R).   MiniTalker(R)  is  similar  in  functionality  to  the
MachineTalker(R),  but has lower  performance  levels,  reduced size,  and lower
power  consumption.  As an option,  this unit may include on-board sensors for a
particular application.

                                      -4-
<PAGE>

         TAGTALKER(R).  TagTalker(TM) is an ultra low power,  very low cost unit
for applications requiring limited local processing.

         TOUGHTALKER(TM).   ToughTalker(TM)   is  a  more   rugged   version  of
MiniTalker(R) and is designed for use in harsh, industrial environments where it
must operate more reliably through shock and vibration,  such as inside shipping
containers.

         CONTAINERTRACKER(TM).   We   recently   completed   development   of  a
demonstration  software  program  to  support  ToughTalkers(TM)  which have been
placed aboard a community of shipping  containers.  The  demonstration  software
enables a user to monitor the containers and control  interaction  with on-board
Talkers(R).  The  ContainerTracker(TM)  software includes the ability to create,
insert,  and read-back a freight manifest that shows what has been loaded within
a  container,  from where the  container  came,  and to where the  container  is
supposed  to go. The  manifest  can also be  accessed  by a  hand-held  personal
digital assistant when a container is encountered in the field.

         ASSETTRACKER(TM).  In June 2005, we released AssetTracker(TM),  a small
portable  battery powered roving unit that integrates a  ToughTalker(TM)  with a
Global  Positioning  System Modem. When an  AssetTracker(TM)  is plugged into an
automobile's  cigarette  lighter,  the  devise  will send  location  data over a
cellular  telephone  connection  which can then be monitored on the Internet and
tracked on a map. Additionally, an AssetTracker(TM) can also feed the connection
with  information  from other  Talkers it  encounters  within  its  vicinity  or
community.  We are  currently  testing  this  devise in Texas  with a  potential
customer.

SPECIFICATIONS

         SMMP(R) OPERATING SYSTEM. All of our MachineTalker(R)  products use the
SMMP(R)  language  developed by MTI. SMMP(R) is an operating system and protocol
that facilitates the establishment of ad hoc wireless networks. MachineTalker(R)
modules  maintain  profiles  of  all  devices  and  interchange  information  to
facilitate  redundancy,  establish  network  relationships  and build autonomous
communities of MachineTalkers(R).

          RADIO TECHNOLOGIES.  Our  MachineTalker(R)  products utilize a modular
architecture  to meet the  requirement of disparate  applications,  meaning that
different types of radios can be used. The MachineTalker(R)  demonstration units
utilize a single chip RF  transceiver  operating in the 902-928 MHz ISM band. We
are a voting  member of the IEEE  802.15.4  Committee,  which has  introduced  a
standard for a low power RF transceiver  that utilizes direct  sequence,  spread
spectrum.  The  802.15.4  standard is intended to meet the  requirements  of low
power  networks  in  the  future,  such  as   MachineTalker(R).   Several  large
semiconductor manufacturers have announced products to fulfill a wide variety of
applications.  Position  Location and high performance can be obtained by our RF
transceiver using pulsed spread spectrum techniques.

         MICROPROCESSOR.  The MachineTalker(R) is based on a low power extremely
powerful 8-bit RISC processor (Atmel ATmega 128).  Depending on the application,
the  MachineTalker(R) can make use of the on-board  Analog-to-Digital  Converter
("ADC") and various  serial and parallel  interfaces.  The chip contains 128k of
flash memory for program and data  storage.  Recent  adaptations  have the added
processing power supplied by ARM9 processors.

         LOW POWER OPERATION.  Depending on the duty cycle specified for a given
application,  the  MachineTalker(R)can  have a  battery  life of 2+  years on AA
batteries.

         SENSORS. The  MachineTalker(R)can be interfaced to a variety of sensors
including micro electro-mechanical systems ("MEMS") and advanced nanotechnology,
including:

        o        Temperature o Humidity
        o        Gas (all types)
        o        BioHazard
        o        Pressure
        o        Light Measurement
        o        Magnetometer (compass)
        o        Ultrasonic distance

                                      -5-
<PAGE>

        o        GPS o Displacement
        o        Gyroscope (MEMS)
        o        Hall Effect (magnetic proximity)
        o        Biometric (Fingerprint)
        o        Accelerometers (vibration, tilt)
        o        Sound Detection
        o        Corrosion Detection
        o        Proximity sensors (human)

         INTERNET  ACCESS.  Remote  and  wireless  MachineTalkers(R)  with their
detectors and sensors are now accessible via the Internet.  The Company supports
roving  Talkers that report  directly  over GSM cellular  connections  with data
acquisition  and  mapping  of  locations  via  Internet  services.  All types of
activities can be easily monitored in real-time from anywhere in the world. Such
access can also be made by  attachment  of our  products  to  standard  personal
computers, laptops, and PDAs; all acting as "network gateways."

WIRELESS DATA ACQUISITION AND INDUSTRIAL PROCESS CONTROL

         REMOTE INTELLIGENCE.  Wireless MachineTalker products can be configured
to service a wide range of detectors and sensors.  Powered from a primary source
or from  batteries  or by solar  panel,  these  products  can bring  intelligent
processing power to a remote installation where they can operate autonomously to
measure and control  processes and report by radio or by cellular  connection to
the  Internet.  Two  examples of  applications  targeted for  Talkers(R)  are as
follows:

         o        EVENT DETECTION,  QUALIFICATION AND REPORTING - Talkers(R) can
                  be instructed to measure  parameters  for comparison to a norm
                  and to  report  or  raise  the  alarm,  through  radio or over
                  cellular  modem.  The  latest  version,   CBM6,  has  built-in
                  switches and can activate or terminate processes if programmed
                  to do so. Certain Talkers(R) carry sensors for temperature and
                  detection of light, moisture, motion, direction (of movement),
                  leaks, salinity and intrusion.

         o        THE MACHINETALKER CBM6 VERSION - The CBM6 operates to digitize
                  analog signals produced by vibration  sensors mounted on large
                  industrial machines.  These vibration readings are gathered by
                  the  Talker(R),  qualified  and  passed  along  to a  software
                  program   that   analyzes    vibration   content    supporting
                  Condition-Based  Maintenance (CBM) determination.  A change in
                  the vibration  pattern  emanating  from  industrial  machinery
                  often precedes catastrophic breakdown,  and CBM is designed to
                  facilitate pre-exemptive repairs.

APPLICATIONS FOR MACHINE TALKER SMART SECURITY NETWORK TECHNOLOGY

         GENERAL.  We  intend  to become a  significant  part of the  electronic
architecture  of the worldwide  security and sensor market.  We believe that the
United  States   homeland   security  market  provides  us  with  an  attractive
opportunity,  as  well  as the  market  for  mobile  sensors.  We  believe  that
applications for our smart security network technology include the following:

        o        Transportation Security (land, sea and air)
        o        People Screening
        o        Cargo Security
        o        Container Security
        o        Mail and Mail Room Security
        o        Sensitive Sites and Public Spaces Security
        o        Weapons of Mass Destruction/Disruption
        o        Logistics and Critical Inventory Tracking

         APPLICATION  FOR KELLOGG,  BROWN & ROOT.  In December  2004, we entered
into an agreement with Kellogg,  Brown & Root ("KBR"), a division of Halliburton
Company,  pursuant  to which we agreed to  develop a  solution  to enable KBR to

                                      -6-
<PAGE>

track its 600,000  shipping  containers on a global basis.  Our solution for KBR
consisted of equipping  each KBR shipping  container with a  MiniTalker(R)  unit
programmed  with  the  shipping  manifest,   source,   destination,   and  other
information to identify the individual container when queried.  Considering that
shipping  containers  are not usually  handled with care and that they generally
pass  through  very harsh  environments  while in transit,  we designed a rugged
version  of our  MiniTalker(R)  unit  for  use in this  particular  application,
referred  to  as  a   ToughTalker(TM).   In  consideration  for  developing  and
demonstrating  applications  software and designing product variations for KBR's
intended use, KBR agreed to pay us $300,000,  $240,000 of which has been paid in
fixed  increments  as we  completed  certain  milestones  for the  project.  The
agreement  also  contains  a five  year  software  license  agreement  component
pursuant  to  which  Kellogg,  Brown & Root  has the  right  to use our  SMMP(R)
software and the right of first  refusal to  participate  with us in the sale of
our  Talkers(R)  in the area of tracking of inventory,  containers,  and similar
packages in consideration for a license fee of $200,000.  Kellogg,  Brown & Root
also had the right under the agreement to purchase up to 250 MiniTalkers(R) at a
purchase price of $100 per MiniTalker(R),  which it exercised on August 9, 2005.
Both parties agreed,  however,  that due to increased production costs, Kellogg,
Brown & Root would purchase 100  MiniTalkers(R)  at a purchase price of $250 per
MiniTalker(R),  for a total of $25,000.  Accordingly,  the maximum  value of the
agreement  was $525,000,  not including an additional  $11,145 which we received
for field services and ten sample  ToughTalkers(R) for evaluation  purposes.  By
its terms, the agreement, except for the software license agreement,  terminated
on  September  1, 2005.  As of March 31, 2006,  all  deliverable  items had been
shipped and invoiced to KBR and all payments had been received.

         NASA  PROJECT.  In July 2004,  we entered into an  agreement  with NASA
through its contracting group at SAIC,  pursuant to which we agreed to provide a
version of  MachineTalker(R)  that could be placed in an unmanned aerial vehicle
("UAV") to read multiple  sensors  (atmospheric  pressure,  accelerometers,  and
gyroscopes)  and to convey results to other  Talkers(R) in nearby UAVs in-flight
and on the ground.  In  consideration  for our product,  NASA agreed to pay us a
total of $55,000,  payable in  increments  as we completed  certain  milestones.
Delivery  of the final  product  was to take  place  within  22 weeks  after the
commencement  of the  agreement.  When NASA was unable to provide the  equipment
necessary  for us to complete  the  project,  the  agreement  was extended for a
period of one year. We completed  development  of the  application  software and
display  software for the ground  station on schedule,  and shipped the units to
NASA for flight  testing.  As of March 31,  2006,  NASA had paid us $25,000  and
$15,000,  respectively,  for those  deliverables  which had been shipped to NASA
Langley for testing.  We completed  flight  testing in October 2005 and NASA was
billed the remaining  $15,000 due to us under the agreement in November 2005. We
believe  that the NASA  test  illustrated  how  wireless  sensors  can be placed
anywhere  inside an airframe,  each with the  intelligence to make decisions and
gather data, without the need to rewire the aircraft.  Information can be passed
among sites  containing  the wireless  sensors,  to nearby  aircraft  containing
wireless sensors, and to ground stations containing wireless sensors.

BUSINESS AND REVENUE MODELS

         Our business strategy is straight-forward:  (1) apply  MachineTalker(R)
smart  security  network  technology to the $80 billion  worldwide  security and
sensor products and systems market, (2) initially sell MachineTalker(R)  devices
through  channel  partners and  distributors  in this market,  and (3) later on,
further develop MachineTalker(R) proprietary technology and products for sale to
manufacturers and operators of virtually all machines, appliances and devices.

         Our  management  believes  that most of our revenues will come from the
sale of  MachineTalker(R)  devices.  We  also  plan  to  earn  revenues  through
licensing of our proprietary technology to equipment manufacturers.

MARKETING AND SALES PLAN

         We compete in worldwide  security  products and systems market, as well
as the market for sensors.  The Freedonia  Group forecasts that the world market
for  security  products  and systems  will  expand  dramatically  through  2006,
approaching $80 billion, and perhaps double to $160 billion by 2011.  Heightened
fears of terrorism in the wake of the  September  11, 2001 attacks on the United
States,  in tandem with rising  conventional  crime rates in many countries,  is
expected to be the major  factor  driving  growth.  Also  important  will be the
robust pace of new product  development,  especially in the electronic  security
segment. MTI intends to become a significant part of the electronic architecture
of the worldwide security products and systems market.

                                      -7-
<PAGE>

         MARKETING  STRATEGY.  Our  marketing  strategy is to create a favorable
environment in which to sell our MachineTalker(R) smart security network devices
and wireless process control systems. The Talkers(R) service a wide selection of
sensors  and  can  determine  at a  remote  site  if the  temperature  or  other
environmental  condition  remains within  specification.  The latest  Talkers(R)
operate  electronic  switches that can turn on and off processes  that are under
the Talker's control.  The products gather data from attached  sensors,  process
that data,  make  decisions on site, and report changes over the mesh network or
by cellular  telephone to servers on the Internet.  MachineTalkers are therefore
very useful in monitoring  moving  machinery to detect changes that may indicate
impending  failures,  thus supporting an efficient  condition-based  maintenance
tool at the remote  site.  We continue to apply  versions of the  Talkers(R)  to
eliminate  problems in both the security  based market and for remote,  wireless
process control.

         PRODUCT   AND   SERVICE   DIFFERENTIATION.    We   believe   that   the
differentiating  attributes  of the  MachineTalker(R)wireless  control  solution
include:

        o        The only complete smart security system to easily create,
                 deploy and manage local wireless security systems
        o        Dynamic ("smart") networks
        o        Creates communities of wireless sensors via SMMP(R)
        o        Low cost, easy-to-install wireless components
        o        Designed for diverse types of applications
        o        Highly scalable
        o        Highly reliable

         VALUE  PROPOSITION.  Our value  proposition is simple:  we believe that
MachineTalker(R)smart  security  networks  allow  governments,   businesses  and
individuals  to deploy  wireless  security  systems  rapidly to protect  people,
places and things at a reasonable cost.

         POSITIONING.  We believe that MachineTalker(R) can be positioned as the
superior solution for creating,  deploying, and managing local wireless security
systems.  We believe that  MachineTalker(R)  offers a complete  solution that is
inexpensive,  efficient and scalable.  We plan to reposition our  competitors by
demonstrating that their offerings are inadequate, too costly and not dynamic.

         SALES  STRATEGY.  After  creating a high level of  perceived  value and
building significant demand for sales through our marketing campaign,  we intend
to sell our smart security  network devices  aggressively  throughout the United
States. If and when we achieve initial success in the domestic  marketplace,  we
plan to expand our sales efforts into the international marketplace.

         SALES MARGIN STRUCTURE.  We believe that the majority of our sales will
be derived  from channel  partners  and  certified  integration  partners.  As a
result,  our sales margin  structure must be appropriate  for these  independent
organizations. Our proposed margin structure includes:

         1.   Direct Sales - Full suggested list price.
         2.   Channel Partners/Certified Integration Partners Sales - 40% off
              suggested list price.
         3.   Manufacturer's Representatives - 10% commission.

         FIELD SALES  FORCE.  Under our current  business  model we plan to hire
approximately  two  salespeople  who  are  also  experienced  engineers  ("Sales
Engineers").  The  majority  of our sales  efforts  are  expected to be targeted
toward Original Equipment  Manufacturers ("OEMs") and will be handled internally
through these Sales Engineers. MTI has chosen to use Sales Engineers because OEM
accounts  require  considerable  customer  education  and  post-sales  technical
support  directly from MTI. Our price  points,  pricing  structure,  and profits
justify a technical "person-to-person" selling strategy.

         MANUFACTURERS'  REPRESENTATIVES.  We can supplement our own field sales
force by entering into agreements with manufacturers'  representatives.  Because
manufacturers'  representatives  carry  several  product/service  lines that are
compatible  with our products  and  services,  we plan to select  manufacturers'

                                      -8-
<PAGE>

representatives  carrying complementary and compatible products and services, as
well  as  manufacturers'  representatives  that  sell  dissimilar  products  and
services yet ones that are appropriate to their customers' customer.

DISTRIBUTION CHANNELS

         We plan to sell our smart security network  components  through several
channels of distribution, including the following:

         DIRECT  SALES TO END USERS.  Under our current  policy we only sell our
products   directly  to  end-users  when  other  channels  of  distribution  are
unavailable.  We anticipate that direct sales will occur most often with smaller
customers.

         CHANNEL  PARTNERS AND/OR  CERTIFIED  INTEGRATION  PARTNERS.  We plan to
identify  a  number  of  independent  organizations  that may  serve as  channel
partners,  certified  integration  partners,  or both. These  organizations  are
likely  to have  well-established  relationships  with  mid-size  to large  size
customers.  Many may also provide  specific  vertical market  applications.  Our
requirements for channel partners and certified  integration  partners  include:
established branding,  established market segment, solid reputation, high volume
transactions and independent marketing and services organizations.

INVESTMENT IN SENSE-COMM TECHNOLOGY LLC

         In  November  2006,  we issued  600,000  shares of our common  stock to
purchase  10% of  Sense-Comm  Technology  LLC  ("Sense-Comm").  Sense-Comm  is a
limited  liability company formed in August 2006 by a small group of individuals
to become a distributor and reseller of our intelligent  wireless network sensor
controlling technology to the energy and petroleum industries.

ACQUISITION OF WIDEBAND DETECTION TECHNOLOGIES, INC.

         On July 20,  2007,  Wideband  Detection  Technologies,  Inc., a Florida
corporation ("WDT"), UTEK Corporation,  a Delaware corporation ("UTEK"), and MTI
entered into an agreement and plan of acquisition  (the "APA") pursuant to which
MTI agreed to acquire 100% of the total issued and outstanding stock of WDT from
UTEK in exchange for 3,000,000 shares of MTI's common stock (the "Shares") based
on a value of $0.08 per share as of the close of business on July 20, 2007.  The
Shares have piggyback  registration  rights.  Upon the closing of the APA, which
occurred on July 20, 2007, WDT became a wholly owned subsidiary of MTI.

ACQUISITION OF MICRO WIRELESS TECHNOLOGIES, INC.

         On December  20, 2007,  Micro  Wireless  Technologies,  Inc., a Florida
corporation ("MWT"), UTEK Corporation,  a Delaware corporation ("UTEK"), and MTI
entered into an agreement and plan of acquisition  (the "APA") pursuant to which
MTI agreed to acquire 100% of the total issued and outstanding stock of MWT from
UTEK in exchange for  46,500,000  shares of MTI's  common  stock (the  "Shares")
based on a value of $0.04 per share as of the close of business on December  20,
2007. The Shares have  piggyback  registration  rights.  Upon the closing of the
APA, which  occurred on December 31, 2007, MWT became a wholly owned  subsidiary
of MTI.  As of the  closing  of the MWT APA,  UTEK  owned a total of  49,500,000
shares of MTI's common stock which represented  approximately 22.3% of the total
issued and outstanding stock of MTI on a fully diluted basis.

COMPETITION

         The worldwide security products and systems industry in general and the
market for security products in particular is highly competitive.  Our principal
competitors  include large scale security companies that have provided container
security in the past such as Savi  Technology  that have OEMs that are trying to
do what we are doing. Many of these competitors have longer operating histories,
greater name  recognition,  larger installed  customer bases, and  substantially
greater  financial  and  marketing  resources  than  MTI.  Because  these  other
companies  use bar code  readers  and  radio  frequency  identification  devices
without  local  intelligence  to accomplish  security and  tracking,  management
believes that one of the features  that will  distinguish  our security  systems

                                      -9-
<PAGE>

from the  competition  is our  ad-hoc  local  wireless  network  approach  to do
tracking  and  security.  Our ability to compete  successfully  in the  security
products  systems  industry  depends in large part upon our  ability to sell and
install  our smart  security  systems  and to respond  effectively  to  changing
technology.  By installing  representative  products in projects funded by large
OEM customers such as KBR, we believe that principal industry leaders will adopt
our technology. We cannot assure that we will be able to compete successfully in
the security products and systems industry,  or that future competition will not
have a material adverse effect on our business, operating results, and financial
condition.

GOVERNMENT REGULATION

         We are  subject to  various  federal,  state and local  laws  affecting
wireless communication and security businesses. The Federal Trade Commission and
equivalent  state agencies  regulate  advertising  and  representations  made by
businesses  in the sale of their  products,  which apply to us. Our  business is
also  subject to  government  laws and  regulations  governing  health,  safety,
working conditions,  employee relations, wrongful termination,  wages, taxes and
other matters applicable to businesses in general. Failure of MTI to comply with
applicable  government rules or regulations could have a material adverse effect
on our financial condition and business operations.

EMPLOYEES

         As of December 31, 2009,  we had no direct  employees and relied upon a
select  group of technical  associates  to develop  sensor  control and cellular
communications software for demonstration of Talker units to monitor and control
remote  processes and to log changes over time in protection of perishable goods
in transit. Until revenues increase or we secure additional investment,  we will
continue  to  use  this  cadre  of   technical   experts  to  tailor  the  basic
MachineTalkers to fit many different applications.

INTELLECTUAL PROPERTY

         We currently own the following registered trademarks and service marks:
(i) United  States  Trademark  Registration  No.  2848438,  issued by the United
States  Patent and  Trademark  Office on June 1, 2004 , covering  the  trademark
"TALKER," (ii) United States Trademark  Registration No. 2872244,  issued by the
United  States  Patent and  Trademark  Office on August 10,  2004,  covering the
trademark "SMMP," (iii) United States Trademark Registration No. 2872243, issued
by the United States Patent and  Trademark  Office on August 10, 2004,  covering
the trademark  "MACHINETALKER,"  (iv) United States  Trademark  Registration No.
2882375, issued by the United States Patent and Trademark Office on September 7,
2004,  covering the  trademark  "MINITALKER,"  and (v) United  States  Trademark
Registration  No.  2897704,  issued by the United  States  Patent and  Trademark
Office on October 26, 2004,  covering the trademark  "SIMPLE MACHINE  MANAGEMENT
PROTOCOL" with no claim made to the exclusive  right to use "MACHINE  MANAGEMENT
PROTOCOL" apart from the entire mark, (vi) United States Trademark  Registration
No. 3004886,  issued by the United States Patent and Trademark Office on October
4, 2005,  covering the  trademark  "TAGTALKER,"  (vii) United  States  Trademark
Registration  No.  3329348,  issued by the United  States  Patent and  Trademark
Office on November 6, 2007, covering the trademark "MACHINETALKER IRFID," (viii)
United States Trademark  Registration  No. 3329347,  issued by the United States
Patent and Trademark Office on November 6, 2007,  covering the trademark "IRFID"
(word only),  (ix) United States Trademark  Registration No. 3344070,  issued by
the United States Patent and Trademark Office on November 27, 2007, covering the
trademark  "IRFID"  (stylized),  (x) United States  Trademark  Registration  No.
3288781, issued by the United States Patent and Trademark Office on September 4,
2007,  covering the trademark "CAP," (xi) United States  Trademark  Registration
No. 3386280, issued by the United States Patent and Trademark Office on February
19, 2008, covering the trademark  "WEBTALKER," and (xii) United States Trademark
Registration  No.  77205781,  issued by the United  States  Patent and Trademark
Office on March 19, 2009, covering the trademark "GREENTALKER."

         In April 2002, a Patent  Application  to the United  States  Patent and
Trademark  Office  ("USPTO")   entitled  "Self   Coordinated   Machine  Network"
application No.  20040114557  was filed,  regarding a self  coordinated  machine
network  established  by two or more machines in proximity with each other via a
wired or  wireless  network  infrastructure.  The  machines  are  configured  to
establish an ad hoc network between themselves for sharing  information  related
to their  common  applications.  New  machines  that come into  proximity of the
network  infrastructure  are  configured  to join an  existing  ad hoc  network.
Machines  that  power  down  or  are  removed  from  proximity  of  the  network

                                      -10-
<PAGE>

infrastructure  are eliminated from the ad hoc network.  Communications  between
the  constituent  machines  of the ad hoc  network  allow the  machines  to self
coordinate  the network and  redundantly  store  information  pertaining  to the
common and disparate applications of the various machines that comprise the self
coordinated  machine  network.  An assignment of this application to us from the
inventors,  Roland F. Bryan,  Mark P. Harris,  and  Christopher T. Kleveland was
filed with the USPTO on April 23,  2002.  The patent was granted on February 27,
2007,  as Patent  No.:  US7,184,423,  B2,  entitled  "Self  Coordinated  Machine
Network."

         All of our employees have executed agreements that impose nondisclosure
obligations  on the  employee  and  pursuant to which the employee has agreed to
assign to us (to the extent  permitted by  California  law) all  copyrights  and
other  inventions  created by the employee  during  employment MTI. We have also
implemented  a trade secret  protection  policy that  management  believes to be
adequate to protect our intellectual property and trade secrets.

SEASONALITY

         Our   operations   are  not   expected   to  be  affected  by  seasonal
fluctuations,  although  our cash flow may be  affected by  fluctuations  in the
timing of cash receipts from our customers.


ITEM 2. PROPERTIES
------------------

         We currently lease  approximately  1,541 square feet of office space at
513 De La Vina Street, Santa Barbara,  California 93101 at a base rental rate of
approximately $1,200 per month pursuant to a month to month lease.


ITEM 3. LEGAL PROCEEDINGS
-------------------------

         We are not currently a party to any material legal proceedings.


ITEM 4. RESERVED
----------------


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------------------

COMMON STOCK

         The Company's  common stock trades under the symbol  "OTCBB-MACH."  For
the period from May 15, 2009 until  September  21, 2009,  the  Company's  common
stock was dropped to the Pink Sheets because we were late filing the 2008 Annual
Report and our Quarterly Report on Form 10-Q for the first fiscal quarter ending
March 31, 2009. We are now current in our public reports with the Securities and
Exchange  Commission,  and our  common  stock is listed  for  trading on the OTC
Bulletin Board. The range of high and low bid quotations for each fiscal quarter
within the last two fiscal years was as follows:

                                      -11-
<PAGE>

              YEAR ENDED DECEMBER 31, 2009                  HIGH          LOW
         --------------------------------------            ------        ------
         First Quarter ended March 31, 2009                $0.05         $0.028
         Second Quarter ended June 30, 2009                $0.04         $0.01
         Third Quarter ended September 30, 2009            $0.012        $0.01
         Fourth Quarter ended December 31, 2009            $0.05         $0.01

              YEAR ENDED DECEMBER 31, 2008                  HIGH          LOW
         --------------------------------------            ------        ------
         First Quarter ended March 31, 2008                $0.084        $0.03
         Second Quarter ended June 30, 2008                $0.07         $0.03
         Third Quarter ended September 30, 2008            $0.035        $0.005
         Fourth Quarter ended December 31, 2008            $0.006        $0.005

----------------
         The  above  quotations  reflect  inter-dealer  prices,  without  retail
markup,  mark-down,  or  commission  and may not  necessarily  represent  actual
transactions.

         As of March 31, 2010,  there were  approximately  290 record holders of
the  Company's  common  stock,  not  including  shares held in "street  name" in
brokerage  accounts  which  is  unknown.  As  of  March  31,  2010,  there  were
approximately 261,976,794 shares of common stock outstanding on record.

DIVIDENDS

         The Company has not  declared or paid any cash  dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.

EQUITY COMPENSATION PLAN INFORMATION

         Effective  February  15,  2002,  our  Board of  Directors  adopted  the
MachineTalker,  Inc. 2002 Stock Option Plan for Directors,  Officers,  Employees
and Key  Consultants  (the "Plan") under which a total of  20,000,000  shares of
Common Stock have been reserved for issuance  pursuant to the grant and exercise
of up to 20,000,000 stock options.  The Plan has been approved by the holders of
our  outstanding  shares.  The following  table sets forth  certain  information
regarding the Plan as of December 31, 2009:
<TABLE>
<CAPTION>

                                                                                            NUMBER OF SECURITIES
                             NUMBER OF SECURITIES TO BE     WEIGHTED-AVERAGE EXERCISE      REMAINING AVAILABLE FOR
                               ISSUED UPON EXERCISE OF     PRICE OF OUTSTANDING STOCK   FUTURE ISSUANCE UNDER EQUITY
                              OUTSTANDING STOCK OPTIONS              OPTIONS                 COMPENSATION PLANS
                             --------------------------    --------------------------   ----------------------------
<S>                          <C>                           <C>                          <C>
Equity compensation plans                 0                            $0                         4,000,000
approved by security
holders
</TABLE>

         For the  fiscal  year  ended  December  31,  2009,  we  issued no stock
options.

WARRANTS

         For the fiscal year ended  December 31, 2009,  we issued no warrants to
purchase shares of registered or unregistered common stock.


ITEM 6. SELECTED FINANCIAL DATA.
-------------------------------

         Not applicable.

                                      -12-
<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF RESULTS OF  OPERATIONS  AND
FINANCIAL CONDITION
--------------------------------------------------------------------------------

CAUTIONARY STATEMENTS

         This   Form   10-K   contains    financial    projections   and   other
"forward-looking  statements," as that term is used in federal  securities laws,
about  MachineTalker  Inc.'s  ("MachineTalker,"  "we,"  "us," or the  "Company")
financial  condition,  results of  operations  and  business.  These  statements
include,  among  others:  statements  concerning  the potential for revenues and
expenses and other matters that are not historical  facts.  These statements may
be made  expressly in this Form 10-K.  You can find many of these  statements by
looking for words such as "believes," "expects," "anticipates,"  "estimates," or
similar expressions used in this Form 10-K. These forward-looking statements are
subject to  numerous  assumptions,  risks and  uncertainties  that may cause the
Company's  actual  results to be materially  different  from any future  results
expressed  or implied by the  Company in those  statements.  The most  important
facts that could prevent the Company from  achieving  its stated goals  include,
but are not limited to, the following:

         (a)      volatility or decline of the Company's stock price;

         (b)      potential fluctuation in quarterly results;

         (c)      failure of the Company to earn revenues or profits;

         (d)      inadequate  capital to continue the business and  inability to
                  raise  the  additional  capital  or to obtain  the  additional
                  financing needed to implement its business plans;

         (e)      failure to commercialize  the Company's  technology or to make
                  sales;

         (f)      absence of demand for the Company's products and services;

         (g)      rapid and significant changes in markets;

         (h)      litigation  with or legal claims and  allegations  against the
                  Company by outside parties;

         (i)      insufficient revenues to cover operating costs;

         (j)      failure  to  obtain  purchase  orders  or  contracts  for  our
                  products and services,  and failure of our potential customers
                  to order products or services from us; and

         (k)      significant dilution of ownership in the Company caused by the
                  issuance  of  additional  securities  by  the  Company  in the
                  future.

         Because the statements are subject to risks and  uncertainties,  actual
results  may  differ   materially   from  those  expressed  or  implied  by  the
forward-looking  statements.  We caution you not to place undue  reliance on the
statements,  which speak only as of the date of this Form 10-K.  The  cautionary
statements  contained or referred to in this  section  should be  considered  in
connection with any subsequent written or oral  forward-looking  statements that
MTI or  persons  acting  on our  behalf  may  issue.  We do  not  undertake  any
obligation  to review or  confirm  analysts'  expectations  or  estimates  or to
release  publicly any  revisions to any  forward-looking  statements  to reflect
events or  circumstances  after the date of this  Form  10-K or to  reflect  the
occurrence of unanticipated events.

         The  following  discussion  should  be read  in  conjunction  with  our
condensed  consolidated  financial statements and notes to those statements.  In
addition to historical information,  the following discussion and other parts of
this quarterly  report contain  forward-looking  information that involves risks
and uncertainties.

OVERVIEW

         During the year ended December 31, 2009 we continued to demonstrate the
capability  to the  Talker(R)  product  line to  operate  as roving  units  with
connection  over GSM cellular  networks for posting on Internet  servers so that
they are able to report  from  anywhere  in the  world.  This  feature  has been
demonstrated  to the produce  shipping  industry as placed within  refrigeration
trailers to monitor the temperatures  maintained for perishable goods. A special
adaptation of the Talker(R)  product has been supplied for demonstration in show
booths where the Talkers are able to read, record and send the vibration content
of very high speed rotating devices referred to as "spindles",  such as the head

                                      -13-
<PAGE>

stock for large lathes and for  centrifuges.  Finding a change in the  vibration
pattern can indicate that these very expensive  spindles may be close to failure
and should be  inspected  for  problems  before they  break.  We expect that the
Internet  reporting  Talkers(R) and those being demonstrated to monitor spindles
will secure new business in the next several years.  These  examples  illustrate
that our  products  continue in two  separate  industrial  areas:  tracking  and
security of goods in transit and  storage,  and data  acquisition  by  servicing
remote sensors over wireless connections.

         The basic Talker products can be programmed either directly or over the
wireless  mesh  network and  variations  have been  demonstrated  in a number of
applications. We continue to require additional capital to promote sales growth.
Depending on the amount of additional capital available to us, we plan to invest
a  significant  portion in sales and  marketing,  manufacturing  inventory,  and
infrastructure.  We  cannot  assure  that we will be able to locate  sources  of
capital on terms favorable to us or at all.

         We currently engage outside technical consultants who are familiar with
the  MachineTalker  products in order to add the features  needed to demonstrate
the units as requested by potential  customers.  The basic  Talkers are complete
and  are  able  to  be  manufactured  in  volume  and  programmed  for  a  given
application.  Now  that we  have  products  to  demonstrate,  we need to  obtain
additional  working  capital to enable us to employ a  technical  sales staff to
better  introduce the products to OEMs and System  Integrators so that they will
adopt our technology into their applications, products and services.

CRITICAL ACCOUNTING POLICIES

         Our discussion  and analysis of our financial  condition and results of
operations are based upon our financial statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  We monitor our estimates on an on-going basis for changes in facts
and  circumstances,  and material  changes in these estimates could occur in the
future.  Changes in  estimates  are  recorded in the period in which they become
known. We base our estimates on historical experience and other assumptions that
we believe to be reasonable under the  circumstances.  Actual results may differ
from our estimates if past experience or other assumptions do not turn out to be
substantially accurate.

         We have  identified  the  policies  below as critical  to our  business
operations and the understanding of our results of operations.

         REVENUE  RECOGNITION.  We  recognize  revenue  in  accordance  with the
Securities and Exchange  Commission  ("SEC") Staff Accounting  Bulletin No. 104,
"Revenue Recognition in Financial  Statements" ("SAB 104"). We recognize revenue
upon delivery,  provided that evidence of an arrangement exists, title, and risk
of loss  have  passed  to the  customer,  fees are  fixed or  determinable,  and
collection of the related  receivable is reasonably  assured.  We record revenue
net of estimated product returns,  which is based upon our return policy,  sales
agreements,  management estimates of potential future product returns related to
current period revenue, current economic trends, changes in customer composition
and historical  experience.  We accrue for warranty  costs,  sales returns,  and
other  allowances  based on our  experience  which  tells us we have  less  than
$25,000 per year in warranty returns and allowances. Generally, we extend credit
to our  customers  and do not  require  collateral.  We perform  ongoing  credit
evaluations  of our  customers  and historic  credit losses have been within our
expectations. We do not ship a product until we have either a purchase agreement
or rental agreement signed by the customer with a payment arrangement. This is a
critical  policy,  because we want our  accounting  to show only sales which are
"final"  with a  payment  arrangement.  We do not make  consignment  sales,  nor
inventory  sales subject to a "buy back" or return  arrangement  from customers.
Accordingly,  original equipment  manufacturers do not presently have a right to
return unsold products to us.

         We also grant exclusive licenses for the use of the technology required
to  operate  our  products.   We  recognize  revenue  from  software   licensing
arrangements  under SOP 97-2  "Software  Revenue  Recognition,"  as  amended  by
SOP-98-9,  Modification of SOP 97-2,  "Software Revenue Recognition with Respect
to Certain  Transactions."  For those  contracts  that  either do not  contain a

                                      -14-
<PAGE>

services  component  or  that  have  services  which  are not  essential  to the
functionality of any other element of the contract,  software license revenue is
recognized over the contract period.

         PROVISION FOR SALES RETURNS,  ALLOWANCES  AND BAD DEBTS.  We maintain a
provision  for sales  allowances,  returns  and bad  debts.  Sales  returns  and
allowances   result   from   equipment   damaged   in   delivery   or   customer
dissatisfaction,  as provided by  agreement.  The  provision  is provided for by
reducing gross revenue by a portion of the amount  invoiced  during the relevant
period. The amount of the reduction is estimated based on historical experience.

         RESERVE FOR  OBSOLETE/EXCESS  INVENTORY.  Inventories are stated at the
lower of cost or market. We regularly review our inventories and, when required,
will record a provision for excess and obsolete  inventory based on factors that
may impact the realizable value of our inventory including,  but not limited to,
technological changes,  market demand,  regulatory  requirements and significant
changes in our cost  structure.  If ultimate  usage  varies  significantly  from
expected  usage,  or other factors arise that are  significantly  different than
those anticipated by management,  inventory write-downs or increases in reserves
may be required.

OTHER ACCOUNTING FACTORS

         The  effects  of  inflation  have  not  had a  material  impact  on our
operation,  nor are they  expected to in the immediate  future.  Although we are
unaware of any major  seasonal  aspect that would have a material  effect on the
financial  condition or results of  operation,  the first quarter of each fiscal
year is always a financial  concern due to slow collections  after the holidays.
The deposits that are shown in the  financials are for pending sales of existing
products and not any new patented product.  These are deposits received from our
customers  for sales of equipment  and services and are only removed as deposits
upon  completion  of the  sale.  If for  whatever  reason  a  customer  order is
cancelled, the deposit would be returned as stated in the terms of sale, minus a
restocking  fee. No depositor  is a related  party of any officer or employee of
MachineTalker,  Inc.  Our  terms of  deposits  typically  are 50% down  with the
balance of the sale due upon delivery.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

REVENUE

         Total revenue for the year ended December 31, 2009 decreased by $16,173
to $43,327 from $59,500 in the prior year. This decrease in revenue was a result
of lower sales, and the Company being in its' development stage.

COST OF SALES

         Cost of Sales ("COS") expenses  increased by $40,111 to $41,607 for the
year ended December 31, 2009 compared to $1,496 in the prior year. This increase
in COS expenses was primarily due to writing off obsolete inventory of $39,598.

SELLING AND MARKETING EXPENSES

         Selling and marketing ("S&M") expenses decreased by $(92,789) to $9,761
for the year ended  December  31,  2009  compared to $102,550 in the prior year.
This  decrease  in S&M  expenses  was the  result  of a  decrease  in  marketing
exposure, and employee salaries.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and  administrative  ("G&A") expenses  increased by $129,054 to
$451,188 for the year ended  December 31, 2009  compared to $322,134  during the
prior  year.  This  increase  in G&A  expenses  was the result of an increase in
professional fees.

                                      -15-
<PAGE>

RESEARCH AND DEVELOPMENT

         Research and  Development  ("R&D") costs  decreased by $(120,672) to $0
for the year ended December 31, 2009 compared to $120,672 during the prior year.
This  decrease  in R&D  costs  was the  result  of a  decrease  in  testing  and
engineering cost.

NET LOSS

         Net Loss  decreased by  $1,299,767 to  $(1,050,064)  for the year ended
December 31, 2009,  compared to $(2,349,831) in the prior year. This decrease in
Net Loss was that in the current year there were no  impairment  of goodwill and
licensing fees.  Currently  operating costs exceed revenue because sales are not
yet  sufficient to cover costs.  We cannot assure when or if revenue will exceed
operating costs.

LIQUIDITY AND CAPITAL RESOURCES

         MTI had net cash of $10,002 at December 31, 2009, as compared to $2,949
for the prior year.

         During the year ended  December 31, 2009, MTI used $144,779 of cash for
operating  activities,  as compared to $347,021 for the prior year. The decrease
of $202,242 in cash used in operating  activities  was a result of a decrease in
accounts payable due to lower operating expenses.

         Cash  provided in investing  activities  was due to a return of capital
for  investment in companies of $1,347 during the year ended  December 31, 2009,
compared to $0 for the prior year.

         Cash provided by financing  activities  during the year ended  December
31, 2009 was  $150,485 as compared to $346,712  for the prior year.  Our capital
needs have primarily been met from the proceeds of equity financing, shareholder
loans, and to a lesser extent, sales.

         We will have additional capital  requirements  during 2010 necessary to
capitalize   on  the   Company's   current  line  of  potential   products  with
modifications to meet new customer  requirements.  If we have sufficient working
capital,  we also intend to invest in building  our own sales force  directed at
the two areas of business:  wireless security and wireless industrial  controls.
Although  we cannot  quantify  these  anticipated  costs  with  specificity,  we
estimate that we will require approximately  $2,000,000 in funding over the next
12 months of operations,  split almost evenly between product  development and a
concerted  marketing  and sales  efforts.  We do not  anticipate,  however,  any
significant  capital  equipment   expenditures.   There  is  no  assurance  that
marketing,  research and development  costs in 2010 will not exceed or vary from
those costs  expected  by  management.  We intend to meet our cash  requirements
through  sales of our  products  and plan to continue  to  generate  sales leads
through  tradeshows  and  marketing.  If we  are  unable  to  satisfy  our  cash
requirements  through product sales, we will attempt to raise additional capital
through the sale of our common stock. There is no assurance that we will be able
to raise additional capital or obtain additional financing for our business.

         We cannot  assure that we will have  sufficient  capital to finance our
growth and business  operations  or that such capital will be available on terms
that  are  favorable  to us or at  all.  We are  currently  incurring  operating
deficits that are expected to continue for the foreseeable future.

GOING CONCERN QUALIFICATION

         The Company has incurred  significant losses from operations,  and such
losses are expected to continue.  The Company's  auditors have included a "Going
Concern  Qualification" in their report for the year ended December 31, 2009. In
addition,  the  Company  has  limited  working  capital.  The  foregoing  raises
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans include  seeking  additional  capital and/or debt financing.
There is no guarantee  that  additional  capital  and/or debt  financing will be
available when and to the extent required,  or that if available,  it will be on
terms  acceptable to the Company.  The  financial  statements do not include any
adjustments that might result from the outcome of this  uncertainty.  The "Going
Concern  Qualification"  may  make it  substantially  more  difficult  to  raise
capital.

                                      -16-

<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

         None.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF MACHINETALKER, INC.
--------------------------------------------------------------------------

                               MACHINETALKER, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


                                    CONTENTS


Report of Independent Registered Public Accounting Firm .................     18

Consolidated Balance Sheets as of December 31, 2009 and 2008.............     19

Consolidated Statements of Operations for the years
ended December 31, 2009 and 2008.........................................     20

Consolidated Statements of Changes in Stockholders' Deficit
for the years ended December 31, 2009 and 2008...........................     21

Consolidated Statements of Cash Flows for the years ended
December 31, 2009 and 2008 ..............................................     25

Notes to Consolidated Financial Statements ..............................  26-32





















                                      -17-

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
MachineTalker, Inc. and Subsidiaries
(A Development Stage Company)
Santa Barbara, California

We have audited the accompanying  consolidated  balance sheets of MachineTalker,
Inc.  and  subsidiaries  as of  December  31,  2009 and  2008,  and the  related
consolidated statements of operations, shareholders' deficit, and cash flows for
the two years in the period ended  December  31,  2009,  and for the period from
inception  of the  development  stage on January 30, 2002  through  December 31,
2009.  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 audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  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  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of MachineTalker,  Inc.
and  subsidiaries  as of December  31,  2009 and 2008,  and the results of their
operations  and their cash  flows for each of the two years in the period  ended
December 31, 2009, and for the period from inception of the development stage on
January 20, 2002 through  December 31, 2009, in conformity  with U.S.  generally
accepted accounting principles.

We were not engaged to examine  management's  assessment of the effectiveness of
MachineTalker,  Inc.'s internal control over financial  reporting as of December
31, 2009. Accordingly we do not express an opinion thereon.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company does not generate significant revenue, it has
negative cash flows from operations,  and its total liabilities exceed its total
assets. This raises substantial doubt about the Company's ability to continue as
a going  concern.  Management's  plans  in  regard  to  these  matters  are also
described in Note 1. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.


/s/ HJ Associates & Consultants, LLP
------------------------------------
HJ Associates & Consultants, LLP
Salt Lake City, Utah
April 15, 2010


                                      -18-
<PAGE>
<TABLE>
<CAPTION>
                                                  MACHINETALKER, INC.
                                             (A DEVELOPMENT STAGE COMPANY)
                                              CONSOLIDATED BALANCE SHEETS


                                                                                 December 31, 2009    December 31, 2008
                                                                                 ------------------  -------------------
<S>                                                                              <C>                 <C>
                                                         ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                                      $          10,002   $            2,949
  Inventory                                                                                      -               39,598
  Prepaid insurance                                                                              -                  904
                                                                                 ------------------  -------------------
        TOTAL CURRENT ASSETS                                                                10,002               43,451
                                                                                 ------------------  -------------------

PROPERTY & EQUIPMENT, at cost
  Machinery & equipment                                                                     13,080               13,080
  Computer equipment                                                                        50,351               50,351
  Furniture & fixture                                                                        4,670                4,670
                                                                                 ------------------  -------------------
                                                                                            68,101               68,101
  Less accumulated depreciation                                                            (67,423)             (58,575)
                                                                                 ------------------  -------------------
        NET PROPERTY AND EQUIPMENT                                                             678                9,526
                                                                                 ------------------  -------------------
OTHER ASSETS
  Patents                                                                                        -                  656
  Purchase option, Regents                                                                       -                5,000
  Security deposit                                                                           2,975                2,975
                                                                                 ------------------  -------------------
        TOTAL OTHER ASSETS                                                                   2,975                8,631
                                                                                 ------------------  -------------------

                TOTAL ASSETS                                                     $          13,655   $           61,608
                                                                                 ==================  ===================

                                          LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable                                                                        $ 45,582             $ 91,046
  Accrued expenses                                                                         401,029              294,585
  Accrued interest, other                                                                   17,225                9,445
  Accrued interest, related parties                                                        110,041              101,783
  Unearned revenues                                                                              -               38,817
  Convertible promissory note                                                               65,000               65,000
  Notes payable, related parties                                                            44,000              418,342
                                                                                 ------------------  -------------------
        TOTAL CURRENT LIABILITIES                                                          682,877            1,019,018
                                                                                 ------------------  -------------------

SHAREHOLDERS'  DEFICIT
  Common stock, $.001 par value;
  550,000,000 authorized shares;
  181,976,794 and 44,186,700 shares issued and outstanding, respectively                   181,977               44,187
  Additional paid in capital                                                             7,074,795            5,874,333
  Deficit accumulated  during the development stage                                     (7,925,994)          (6,875,930)
                                                                                 ------------------  -------------------
        TOTAL SHAREHOLDERS' DEFICIT                                                       (669,222)            (957,410)
                                                                                 ------------------  -------------------

                TOTAL LIABILITIES AND SHAREHOLDERS'  DEFICIT                     $          13,655   $           61,608
                                                                                 ==================  ===================


                 The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      -19-
<PAGE>
<TABLE>
<CAPTION>
                                                  MACHINETALKER, INC.
                                             (A DEVELOPMENT STAGE COMPANY)
                                         CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                         Year Ended                   From Inception
                                                              ------------------------------------   January 30,2002
                                                                                                          through
                                                              December 31, 2009  December 31, 2008   December 31, 2009
                                                              -----------------  -----------------   -----------------
<S>                                                           <C>                <C>                 <C>
REVENUE                                                       $        43,327    $       59,500      $     1,127,406

COST OF SERVICES                                                       41,607             1,496              496,177
                                                              -----------------  -----------------   -----------------

GROSS PROFIT                                                            1,720            58,004              631,229
                                                              -----------------  -----------------   -----------------
OPERATING EXPENSES
  Selling and marketing expenses                                        9,761           102,550            1,264,814
  General and administrative expenses                                 451,188           322,134            3,011,418
  Stock compensation expense                                                -            12,831               69,778
  Research and development                                                  -           120,672            1,439,865
  Impairment loss                                                           -         1,753,502            1,753,502
  Depreciation and amortization expense                                 8,848            37,513              119,747
                                                              -----------------  -----------------   -----------------

        TOTAL OPERATING EXPENSES                                      469,797         2,349,202            7,659,124
                                                              -----------------  -----------------   -----------------

LOSS FROM OPERATIONS                                                 (468,077)       (2,291,198)          (7,027,895)
                                                              -----------------  -----------------   -----------------

OTHER INCOME/(EXPENSES) BEFORE PROVISION FOR INCOME TAXES
  Interest income                                                           4                11               10,255
  Interest expense                                                    (16,038)          (56,926)            (261,215)
  Penalties                                                                 -              (118)                (155)
  Gain/(loss) on investment                                             1,347                 -              (73,121)
  Loss on settlement of debt                                         (567,300)                -             (567,300)
  Gain/(loss) on sale of asset                                              -                 -                 (963)
                                                              -----------------  -----------------   -----------------
        TOTAL OTHER INCOME/(EXPENSES)                                (581,987)          (57,033)            (892,499)
                                                              -----------------  -----------------   -----------------

LOSS BEFORE PROVISION FOR INCOME TAXES                             (1,050,064)       (2,348,231)          (7,920,394)

PROVISION FOR INCOME TAXES                                                  -            (1,600)              (5,600)
                                                              -----------------  -----------------   -----------------

NET (LOSS)                                                    $    (1,050,064)   $   (2,349,831)     $    (7,925,994)
                                                              =================  =================   =================


BASIC AND DILUTED LOSS PER SHARE                              $         (0.01)   $        (0.05)
                                                              =================  =================

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
      BASIC AND DILUTED                                           134,873,337        43,865,308
                                                              =================  =================

                 The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      -20-
<PAGE>
<TABLE>
<CAPTION>
                                                     MACHINETALKER, INC.
                                                (A DEVELOPMENT STAGE COMPANY)
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FROM INCEPTION (JANUARY 30, 2002) THROUGH DECEMBER 31, 2009
                                                                                                   Accumulated
                                                                                                 Deficit During
                                                               Common stock         Additional        the
                                                         -------------------------    Paid-in      Development
                                                           Shares        Amount       Capital        Stage        Total
                                                         ------------ ------------ -------------- ------------ ------------
<S>                                                       <C>         <C>          <C>            <C>          <C>
Balance from original Issuance at January 30, 2002
($0.00085 per share) ($7,650 in cash and a patent at
 a fair value of $5,100)                                  15,000,000  $    15,000  $      (2,250) $         -  $    12,750

Issuance of common stock in February and March 2002
($0.25 per share in cash)                                    500,000          500        124,500            -      125,000

Issuance of common stock in April 2002
(40,000 shares at $0.25 per share in cash)                    40,000           40          9,960            -       10,000

Issuance of common stock in April 2002
(40,000 shares as finders fees)                               40,000           40            (40)           -            -

Issuance of common stock in May 2002
(280,000 shares at $0.25 per share in cash)                  280,000          280         69,720            -       70,000

Issuance of common stock in May 2002
(40,000 shares as finders fees)                               40,000           40            (40)           -            -

Issuance of common stock in June 2002
($0.50 per share in cash)                                    100,000          100         49,900            -       50,000

Net Loss for the year ended December 31, 2002                      -            -              -     (852,600)    (852,600)
                                                         ------------ ------------ -------------- ------------ ------------
Balance at December 31, 2002                              16,000,000       16,000        251,750     (852,600)    (584,850)

Issuance of common stock in January 2003
 ($0.0609 per share in cash)                               2,104,580        2,105        125,895            -      128,000

Issuance of common stock in March 2003
 ($0.0609 per share in cash)                                 164,420          164          9,836            -       10,000

Net Loss for the year ended December 31, 2003                      -            -              -     (394,115)    (394,115)
                                                         ------------ ------------ -------------- ------------ ------------
Balance, December 31, 2003                                18,269,000       18,269        387,481   (1,246,715)    (840,965)

Issuance of common stock in January 2004
  (5,000 shares valued at $6,250 for services                  5,000            5          6,245            -        6,250

Issuance of common stock in June 2004
  (3,200,000 shares at $0.125 per share
   in conversion debt)                                     3,200,000        3,200        396,800            -      400,000

Issuance of common stock in June 2004
  (2,000,000 shares at $0.125 per share for services)      2,000,000        2,000        248,000            -      250,000

Issuance of common stock in July
  through December 31, 2004 for cash                       4,912,000        4,912        609,088            -      614,000

Net Loss for the year ended December 31, 2004                      -            -              -     (573,454)    (573,454)
                                                         ------------ ------------ -------------- ------------ ------------
Balance at December 31, 2004                              28,386,000       28,386      1,647,614   (1,820,169)    (144,169)

                   The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
                                      -21-

<PAGE>
<TABLE>
<CAPTION>
                                                     MACHINETALKER, INC.
                                                (A DEVELOPMENT STAGE COMPANY)
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FROM INCEPTION (JANUARY 30, 2002) THROUGH DECEMBER 31, 2009
                                                                                                   Accumulated
                                                                                                 Deficit During
                                                               Common stock         Additional        the
                                                         -------------------------    Paid-in      Development
                                                           Shares        Amount       Capital        Stage        Total
                                                         ------------ ------------ -------------- ------------ ------------
<S>                                                       <C>         <C>          <C>            <C>          <C>
Issuance of common stock in January 2005
  (2,744,000 shares at $0.125 per share for cash)          2,744,000        2,744        340,256            -      343,000

Issuance of common stock in March 2005
  (60,000 shares at $0.10 per share for cash)                 60,000           60         29,940            -       30,000

Issuance of 763,400 warrants for services                                                129,550            -      129,550

Issuance of common stock in April 2005
  (60,000 shares at $0.50 per share for cash)                 60,000           60         29,940            -       30,000

Issuance of common stock in May 2005
  (53,410 shares at fair value for services)                  53,410           53          8,015            -        8,068

Issuance of common stock in May 2005
  (290,000 shares at $0.50 per share for cash)               290,000          290        144,710            -      145,000

Issuance of common stock in June 2005
  (210,000 shares at $0.50 per share for cash)               210,000          210        104,790            -      105,000

Issuance of 52,000 warrants for services                           -            -         23,400            -       23,400

Net Loss for the year ended December 31, 2005                      -            -              -   (1,068,190)  (1,068,190)
                                                         ------------ ------------ -------------- ------------ ------------
Balance at December 31, 2005                              31,803,410       31,803      2,458,215   (2,888,359)    (398,341)

Common stock warrants exercised in March 2006
   (63,000 common stock warrants exercised at $0.125)         63,000           63          7,812            -        7,875

Private Placement in 2nd Qtr 2006
   (80,000 shares at $0.75 per share for cash)                80,000           80         59,920            -       60,000

Stock Compensation Cost                                            -            -         35,008            -       35,008

Common stock warrants exercised in August 2006
   (10,000 common stock warrants exercised at $0.125)         10,000           10          1,240            -        1,250

Issuance of common stock in December 2006
   (31,429 shares issued at $0.35 for cash)                   31,429           31         10,969            -       11,000

Investment in Sense Comm
   (120,000 common stock issued at $0.60 per share at FMV)   120,000          120         71,880            -       72,000

Stock Compensation Cost                                            -            -          4,847            -        4,847

Issuance of 124,000 warrants for services                          -            -         46,861            -       46,861


Net Loss for the year ended December 31, 2006                      -            -              -     (611,967)    (611,967)
                                                         ------------ ------------ -------------- ------------ ------------
Balance at December 31, 2006                              32,107,839       32,107      2,696,752   (3,500,326)    (771,467)


                   The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
                                      -22-
<PAGE>
<TABLE>
<CAPTION>

                                                     MACHINETALKER, INC.
                                                (A DEVELOPMENT STAGE COMPANY)
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FROM INCEPTION (JANUARY 30, 2002) THROUGH DECEMBER 31, 2009
                                                                                                 Accumulated
                                                                                                 Deficit During
                                                               Common stock         Additional        the
                                                         -------------------------    Paid-in      Development
                                                           Shares        Amount       Capital        Stage        Total
                                                         ------------ ------------ -------------- ------------ ------------
<S>                                                       <C>         <C>          <C>            <C>          <C>
Common stock warrants exercised in January 2007
   (6,364 common stock warrants exercised for cash
    at $0.60)                                                  6,364            6          3,812            -        3,818

Issuance of common stock in January 2007
   (165,714  shares at $0.35 per share for cash)             165,714          166         57,834            -       58,000

Issuance of common stock in February 2007
   (40,000 shares at $0.35 per share for cash)                40,000           40         13,960            -       14,000

Issuance of 120,000 warrants for services                          -            -         49,487            -       49,487

Issuance of common stock in April 2007
   (160,000 shares at $0.35 per share for cash)              160,000          160         55,840            -       56,000

Issuance of common stock in April 2007
   (7,652 shares at $0.50 per share for services)              7,652            8          3,818            -        3,826

Exercise of stock options in June 2007
  (50,000 shares at $0.125 per share for cash)                50,000           50          6,200            -        6,250

Conversion of note to common stock in June 2007
   (571,429 shares at $0.35 per share in conversion
    of debt)                                                 571,429          572        199,428            -      200,000

Issuance of common stock in June 2007
   (80,000 shares at $0.25 per share for cash)                80,000           80         19,920            -       20,000

Issuance of common stock in July 2007
   (308,000 shares at $0.25 per share for cash)              308,000          308         76,692            -       77,000

Issuance of common stock in July 2007
   (600,000 shares at $0.40 per share for purchase
    of investment)                                           600,000          600        239,400            -      240,000

Issuance of common stock in August 2007
   (20,000 shares at $0.25 per share for cash)                20,000           20          4,980            -        5,000

Issuance of common stock in September 2007
   (96,000 shares at $0.25 per share for cash)                96,000           96         23,904            -       24,000

Issuance of 41,667 warrants for services                           -            -         12,345            -       12,345

Stock compensation cost                                            -            -         17,092            -       17,092

Issuance of common stock in October 2007
   (200,000 shares at $0.25 per share for cash)              200,000          200         49,800            -       50,000

Issuance of common stock in November 2007
   (17,123 shares at $0.30 per share for services)            17,123           17          5,119            -        5,136

Issuance of common stock in December 2007
   (1,725,000 shares at $0.20 per share for license fees)  1,725,000        1,725        343,275            -      345,000

Issuance of common stock in December 2007
   (7,575,000 shares at $0.20 per share for purchase of
    subsidiary)                                            7,575,000        7,575      1,507,425            -    1,515,000

Net Loss for the year ended December 31, 2007                      -            -              -   (1,025,773)  (1,025,773)
                                                         ------------ ------------ -------------- ------------ ------------
Balance at December 31, 2007                              43,730,121       43,730      5,387,083   (4,526,099)     904,714

                   The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
                                      -23-
<PAGE>
<TABLE>
<CAPTION>
                                                     MACHINETALKER, INC.
                                                (A DEVELOPMENT STAGE COMPANY)
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                                   FROM INCEPTION (JANUARY 30, 2002) THROUGH DECEMBER 31, 2009
                                                                                                   Accumulated
                                                                                                 Deficit During
                                                               Common stock         Additional        the
                                                         -------------------------    Paid-in      Development
                                                           Shares        Amount       Capital        Stage        Total
                                                         ------------ ------------ -------------- ------------ ------------
<S>                                                       <C>         <C>          <C>            <C>          <C>
Issuance of common stock in March 2008
   (13,246 shares at $0.25 per share for services)            13,246           13          3,298            -        3,311

Issuance of common stock in July 2008
   (73,333 shares at $0.125 per share for services)           73,333           74          9,094            -        9,168

Issuance of common stock in September 2008
   (300,000 shares at $0.035 per share for services)         300,000          300         10,200            -       10,500

Stock compensation cost                                            -            -         12,831            -       12,831

Issuance of common stock in September 2008
   (70,000 shares at $0.0455 per share for services)          70,000           70          3,115            -        3,185

Contributed capital by shareholder                                 -            -        448,712            -      448,712

Net Loss for the year ended December 31, 2008                      -            -              -   (2,349,831)  (2,349,831)
                                                         ------------ ------------ -------------- ------------ ------------

Balance at December 31, 2008                              44,186,700       44,187      5,874,333    (6,875,930)   (957,410)


Issuance of common stock in April 2009
(6,200,000 shares at $0.0325 per share
 issued for services)                                      6,200,000        6,200        195,300             -     201,500

Issuance of common stock in May 2009
(93,240,094 shares at $0.0010725 per share
 issued for cash)                                         93,240,094       93,240          6,760             -     100,000

Issuance of common stock in May 2009
(1,750,000 shares at $0.0255 per share
 issued for services)                                      1,750,000        1,750         42,875             -      44,625

Issuance of common stock in May 2009
(1,900,000 shares at $0.0255 per share issued
 for conversion of promissory note)                        1,900,000        1,900         46,550             -      48,450

Issuance of common stock in May 2009
(34,700,000 shares at $0.0255 per share issued
 for conversion of promissory note)                       34,700,000       34,700        850,150             -      884,850

Contributed capital by shareholder                                 -            -         58,827             -       58,827

Net Loss for the year ended December 31, 2009                      -            -              -    (1,050,064)  (1,050,064)
                                                         ------------ ------------ -------------- ------------ ------------

Balance at December 31, 2009                             181,976,794  $   181,977  $   7,074,795  $ (7,925,994)$   (669,222)
                                                         ============ ============ ============== ============ ============














                   The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                      -24-

<PAGE>
<TABLE>
<CAPTION>
                                                MACHINETALKER, INC.
                                           (A DEVELOPMENT STAGE COMPANY)
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                       Year Ended
                                                           ------------------------------------   From Inception
                                                                                                 January 30, 2002
                                                                                                      through
                                                           December 31, 2009  December 31, 2008  December 31, 2009
                                                           -----------------  -----------------  -----------------
<S>                                                        <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                               $     (1,050,064)  $    (2,349,831)   $  (7,925,994)
    Adjustments to reconcile net loss to net cash
      used in operating activities
    Depreciation and amortization                                     8,848            37,513          119,747
    Issuance of common shares and warrants for  services            166,625            26,164          727,713
    Issuance of common shares in conversion of debt                       -                 -          400,000
    Gain/loss on investment                                          (1,347)                -           73,121
    Stock Compensation Cost                                               -            12,831           69,778
    Gain on sale of asset                                                 -                 -              963
    Impairment loss                                                       -         1,753,502        1,753,502
    Loss on settlement of debt                                      567,300                 -          567,300
   Changes in Assets and Liabilities
    (Increase) Decrease in:
    Inventory                                                        39,598              (495)               -
    Prepaid Expenses                                                    904             4,260                -
    Patents                                                             656              (656)               -
    Deposits and other assets                                         5,000                 -            2,025
    Increase (Decrease) in:
    Accounts payable                                                 34,036            48,540          125,082
    Accrued expenses                                                122,482           161,151          528,295
    Unearned revenue                                                (38,817)          (40,000)               -
                                                           -----------------  -----------------  -----------------
        NET CASH USED IN OPERATING ACTIVITIES                      (144,779)         (347,021)      (3,558,468)
                                                           -----------------  -----------------  -----------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES:
    Purchase of property and equipment                                    -                 -          (73,754)
    Sale of asset                                                         -                 -            3,963
    Investment in companies                                           1,347                 -           (6,121)
                                                           -----------------  -----------------  -----------------
        NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES              1,347                 -          (75,912)
                                                           -----------------  -----------------  -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from notes payable related parties                      47,000            60,000        1,127,342
    Proceeds from convertible promissory note                             -            19,000          129,000
    Repayment of notes payable related party                         (3,000)          (45,000)         (93,000)
    Contributed capital by shareholder                                6,485            12,712           19,197
    Proceeds from subsidiary                                              -           300,000          300,000
    Proceeds from issuance of common stock                          100,000                 -        2,154,193
                                                           -----------------  -----------------  -----------------
        NET CASH PROVIDED BY FINANCING ACTIVITIES                   150,485           346,712        3,636,732
                                                           -----------------  -----------------  -----------------
                NET INCREASE IN CASH                                  7,053              (309)           2,352

CASH, BEGINNING OF PERIOD                                             2,949             3,258            7,650
                                                           -----------------  -----------------  -----------------

CASH, END OF PERIOD                                        $         10,002   $         2,949    $      10,002
                                                           =================  =================  =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Interest paid                                           $              -   $             -    $     133,948
                                                           =================  =================  =================
   Income taxes                                            $              -   $         1,600    $       5,600
                                                           =================  =================  =================

SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
   During the year ended  December  31,  2009,  the Company  issued  7,950,000  shares of common  stock for services and
   accounts  payable at a fair value of $246,125;  36,600,000  shares of common stock with a fair value of $933,300 were
   issued in  conversion of $366,000 in debt  resulting in a $567,300  loss on  settlement of debt.  Also, a shareholder
   forgave a loan in the amount of $52,342,  and was  recorded  as  additional  paid in  capital.  During the year ended
   December  31,  2008,  the Company  expensed  compensation  cost of $12,831  related to the vesting of employee  stock
   options; issued 456,579 shares of common stock for services at a fair value of $30,819. The Company also recognized a
   loss on impairment of goodwill in the amount of  $1,753,502;  Also, a shareholder  loan in the amount of $436,000 was
   forgiven and recorded as additional paid in capital.

                   The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
                                      -25-
<PAGE>
                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008


1.   ORGANIZATION AND LINE OF BUSINESS

     ORGANIZATION
     MachineTalker,  Inc.  (the  "Company")  was  incorporated  in the  state of
     Delaware  on  January  30,  2002.  The  Company,  based in  Santa  Barbara,
     California,  began  operations  on January 30, 2002 to develop and market a
     wireless control technology.  The Company's founders are also the principal
     owners  of  SecureCoin,  Inc.  ("SecureCoin").  As part of  MachineTalker's
     initial  capitalization,  the Company's  founders have contributed  certain
     intellectual  property that was developed at and acquired from  SecureCoin.
     SecureCoin  assigned  all  rights  to  that  intellectual  property  to the
     co-founders in January 2002, and those  co-founders  then  contributed  the
     intellectual  property  rights  to  the  Company  in  connection  with  its
     formation.  This  intellectual  property,  including a provisional  patent,
     forms  the  core of  MachineTalker's  proprietary  smart  security  network
     technology.

     LINE OF BUSINESS
     The Company is currently  in the stage of  developing  wireless  networking
     products that combine  microcomputers  and wireless  radio  components in a
     single  package  that can be used to  service  a  variety  of  attachments,
     including Sensors for measuring temperature,  pressure,  motion, vibration,
     location  and many other  parameters.  These  "MachineTalkers"  can then be
     programmed to form local  wireless  networks with other  MachineTalkers  to
     process the Sensor  data  collectively  in real time and on a local  basis.
     This allows  governments,  businesses  and  individuals  to rapidly  deploy
     wireless security systems to protect and monitor things, places and people.
     During the year, the Company acquired two subsidiaries,  Wideband Detection
     Technologies, Inc. and Mirco Wireless Technologies, Inc.

     GOING CONCERN
     The accompanying financial statements have been prepared on a going concern
     basis  of  accounting,   which   contemplates   continuity  of  operations,
     realization of assets and  liabilities and commitments in the normal course
     of  business.  The  accompanying  financial  statements  do not reflect any
     adjustments  that might  result if the  Company is unable to  continue as a
     going concern.  The Company does not generate  significant revenue, and has
     negative cash flows from operations,  which raise  substantial  doubt about
     the Company's  ability to continue as a going  concern.  The ability of the
     Company to continue as a going  concern  and  appropriateness  of using the
     going concern basis is dependent  upon,  among other things,  an additional
     cash infusion.  As discussed in note 5, the Company has obtained funds from
     its shareholders since its inception through 2009. Management believes this
     funding  will  continue,  and  is  also  actively  seeking  new  investors.
     Management  believes  the existing  shareholders  and the  prospective  new
     investors  will provide the  additional  cash needed to meet the  Company's
     obligations as they become due, and will allow the  development of its core
     of business.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     This summary of significant  accounting policies of MachineTalker,  Inc. is
     presented to assist in understanding  the Company's  financial  statements.
     The financial  statements  and notes are  representations  of the Company's
     management, which is responsible for their integrity and objectivity. These
     accounting policies conform to accounting  principles generally accepted in
     the United  States of  America  and have been  consistently  applied in the
     preparation of the financial statements.

     PRINCIPLES OF CONSOLIDATION
     The consolidated  financial  statements include the accounts of the Company
     and its  subsidiaries  Wideband  Detection  Technologies,  Inc.  and  Mirco
     Wireless  Technologies,  Inc. All  significant  inter-company  balances and
     transactions have been eliminated.

     DEVELOPMENT STAGE ACTIVITIES AND OPERATIONS
     The Company has been in its initial  stages of  formation  and for the year
     ended December 31, 2009, had  insignificant  revenues.  A development stage
     activity  is  one  in  which  all  efforts  are  devoted  substantially  to
     establishing a new business and even if planned  principal  operations have
     commenced, revenues are insignificant.


                                      -26-
<PAGE>
                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     REVENUE RECOGNITION
     We  recognize   revenue  upon  delivery,   provided  that  evidence  of  an
     arrangement  exists,  title,  and risk of loss have passed to the customer,
     fees are fixed or determinable, and collection of the related receivable is
     reasonably  assured.  We record revenue net of estimated  product  returns,
     which is  based  upon  our  return  policy,  sales  agreements,  management
     estimates of potential  future  product  returns  related to current period
     revenue,  current  economic  trends,  changes in customer  composition  and
     historical  experience.  We accrue for warranty costs,  sales returns,  and
     other allowances based on our experience,  which tells us we have less than
     $25,000 per year in warranty returns and allowances.  Generally,  we extend
     credit to our customers and do not require  collateral.  We perform ongoing
     credit  evaluations  of our customers and historic  credit losses have been
     within our  expectations.  We do not ship a product  until we have either a
     purchase  agreement  or  rental  agreement  signed by the  customer  with a
     payment  arrangement.  This is a  critical  policy,  because  we  want  our
     accounting to show only sales which are "final" with a payment arrangement.
     We do not make  consignment  sales,  nor inventory  sales subject to a "buy
     back" or return arrangement from customers. Accordingly, original equipment
     manufacturers  do not presently  have a right to return unsold  products to
     us.

     We also grant exclusive licenses for the use of the technology  required to
     operate our  products.  Software  license  revenue is  recognized  over the
     contract  period,  for those contracts that either do not contain a service
     component  or  that  have   services   which  are  not   essential  to  the
     functionality of any other element of the contract.

     CASH AND CASH EQUIVALENT
     The  Company  considers  all highly  liquid  investments  with an  original
     maturity of three months or less to be cash equivalents.

     USE OF ESTIMATES
     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions that affect the amounts reported in the accompanying  financial
     statements.   Significant  estimates  made  in  preparing  these  financial
     statements  include the estimate of useful lives of property and equipment,
     the deferred tax valuation allowance,  and the fair value of stock options.
     Actual results could differ from those estimates.

     PROPERTY AND EQUIPMENT
     Property and equipment are stated at cost,  and are  depreciated  using the
     straight line method over its estimated useful lives:

         Machinery & equipment                                5 Years
         Furniture & fixtures                               5-7 Years
         Computer equipment                                   5 Years

     Depreciation expense as of December 31, 2009 and 2008 was $8,848 and $9,389
     respectively.

     FAIR VALUE OF FINANCIAL INSTRUMENTS
     Fair Value of Financial  Instruments  requires disclosure of the fair value
     information,  whether or not recognized in the balance  sheet,  where it is
     practicable  to estimate that value.  As of December 31, 2009 and 2008, the
     amounts reported for cash, accounts receivable,  accounts payable,  accrued
     interest and other expenses,  and notes payable  approximate the fair value
     because of their short maturities.

     INVENTORY
     Inventories are stated at the lower of cost (first-in,  first-out basis) or
     market,  and consists of raw  materials.  As of December 31, 2009 and 2008,
     the value of the inventory was $0 and $39,598, respectively.

                                      -27-
<PAGE>
                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     STOCK-BASED COMPENSATION
     Share based payments  applies to transactions in which an entity  exchanges
     its  equity  instruments  for  goods  or  services,  and  also  applies  to
     liabilities  an entity may incur for goods or services that are to follow a
     fair value of those  equity  instruments.  We will be  required to follow a
     fair  value  approach   using  an   option-pricing   model,   such  as  the
     Black-Scholes  option valuation model, at the date of a stock option grant.
     The deferred compensation calculated under the fair value method would then
     be amortized  over the respective  vesting period of the stock option.  The
     adoption of share based  compensation has no material impact on our results
     of operations.

     ADVERTISING
     The Company expenses  advertising costs as incurred.  Advertising costs for
     the  years  ended   December   31,  2009  and  2008  were  $0  and  $8,613,
     respectively.

     RESEARCH AND DEVELOPMENT COSTS
     Research  and  development  costs are  expensed  as  incurred.  These costs
     consist  primarily of salaries and direct payroll related costs.  The costs
     for the  years  ended  December  31,  2009  and 2008  were $0 and  $120,672
     respectively.

     LOSS PER SHARE CALCULATIONS
     Loss per Share  dictates the  calculation  of basic  earnings per share and
     diluted  earnings  per share.  Basic  earnings  per share are  computed  by
     dividing income  available to common  shareholders by the  weighted-average
     number of common shares  available.  Diluted earnings per share is computed
     similar  to  basic  earnings  per  share  except  that the  denominator  is
     increased to include the number of additional common shares that would have
     been  outstanding if the potential common shares had been issued and if the
     additional  common shares were dilutive.  No shares for employee options or
     warrants  were used in the  calculation  of the loss per share as they were
     all anti-dilutive.  The Company's diluted loss per share is the same as the
     basic loss per share for the years ended December 31, 2009 and 2008, as the
     inclusion of any potential  shares would have had an  anti-dilutive  effect
     due to the Company generating a loss.

     INCOME TAXES
     The Company  uses the  liability  method of  accounting  for income  taxes.
     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable  to  financial  statements  carrying  amounts of
     existing  assets  and  liabilities  and  their  respective  tax  bases  and
     operating loss and tax credit  carry-forwards.  The measurement of deferred
     tax assets and  liabilities  is based on provisions of applicable  tax law.
     The  measurement  of deferred  tax assets is reduced,  if  necessary,  by a
     valuation  allowance  based on the amount of tax  benefits  that,  based on
     available evidence, is not expected to be realized.

     GOODWILL
     Goodwill  represents  the excess of the purchase  price over the fair value
     assigned  to  identifiable  net assets  acquired of  subsidiary  companies.
     Goodwill is tested for impairment  annually or more frequently if events or
     circumstances  indicate that the asset might be impaired.  The Company does
     not  have  the  funds  to  pursue  the  technologies,   which  resulted  in
     impairment.  Goodwill  impairment is measured as the excess of the carrying
     amount over the implied  fair value.  The  impairment  of Goodwill  for the
     years ended December 31, 2009 and 2008 are $0 and $1,715,000 respectively.

     OTHER INTANGIBLE ASSETS
     License fees were amortized  over their useful lives of 1-7 years,  and are
     reviewed  for  impairment  when  warranted  by  economic   condition.   The
     amortization recorded for the year ended December 31, 2009 and 2008 were $0
     and  $28,125,  respectively.  Due to the  Company  not  having the funds to
     pursue the  technologies,  the remaining balance of $38,502 was recorded as
     impairment as of December 31, 2008.

                                      -28-
<PAGE>

                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
     Management  reviewed  accounting  pronouncements  issued  during  the three
     months ended December 31, 2009, and no  pronouncements  were adopted during
     the period.

     RECLASSIFICATIONS
     Certain balances for the year ended December 31, 2008 were  reclassified to
     conform to the presentation for the year ended December 31, 2009.

3.   INCOME TAXES

     The Company files income tax returns in the U.S. Federal jurisdiction,  and
     the state of  California.  With few  exceptions,  the  Company is no longer
     subject  to  U.S.  federal,  state  and  local,  or  non-U.S.   income  tax
     examinations by tax authorities for years before 2007.

     Deferred income taxes have been provided by temporary  differences  between
     the carrying  amounts of assets and  liabilities  for  financial  reporting
     purposes and the amounts used for tax  purposes.  To the extent  allowed by
     GAAP, we provide valuation  allowances  against the deferred tax assets for
     amounts  when the  realization  is  uncertain.  Included in the balances at
     December  31, 2009 and 2008,  are no tax  positions  for which the ultimate
     deductibility is highly certain,  but for which there is uncertainty  about
     the timing of such  deductibility.  Because of the impact of  deferred  tax
     accounting,  other than interest and  penalties,  the  disallowance  of the
     shorter deductibility period would not affect the annual effective tax rate
     but would  accelerate  the  payment of cash to the taxing  authority  to an
     earlier period.

     The  Company's   policy  is  to  recognize   interest  accrued  related  to
     unrecognized  tax benefits in interest  expense and  penalties in operating
     expenses.  During the periods ended December 31, 2009 and 2008, the Company
     did not recognize interest and penalties.

4.   DEFERRED TAX BENEFIT

     The income tax provision  differs from the amount of income tax  determined
     by  applying  the U.S.  federal  income  tax  rate to  pretax  income  from
     continuing  operations for the year ended December 31, 2009 and 2008 due to
     the following:



                                                   2009             2008
                                             ----------------- ----------------
        Book Income                          $       (420,026) $      (939,782)
        Depreciation                                    1,373          (61,723)
        R&D                                                 -            4,363
        Contributions                                       -              400
        State Tax Expense Deduction                         -            1,600
        Meals & Entertainment                              12              325
        Related Party Accrual                          45,162           64,460
        Non deductible Impairment Expenses             15,839          717,046
        Stock for Services                             66,650                -
        Loss on Settlement of Debt                    226,920                -

        Valuation Allowance                            64,070          214,911
                                             ----------------- ----------------

        Income tax expense                   $              -  $         1,600
                                             ================= ================


                                      -29-
<PAGE>
                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008

4.   DEFERRED TAX BENEFIT (Continued)

     Deferred  taxes are  provided on a liability  method  whereby  deferred tax
     assets are recognized for deductible differences and operating loss and tax
     credit  carry-forwards  and deferred tax  liabilities  are  recognized  for
     taxable  temporary  differences.  Temporary  differences are the difference
     between the reported amounts of assets and liabilities and their tax bases.
     Deferred  tax assets are  reduced by a  valuation  allowance  when,  in the
     opinion of management,  it is more likely than not that some portion or all
     of the deferred  tax assets will not be  realized.  Deferred tax assets and
     liabilities  are  adjusted for the effects of changes in tax laws and rates
     on the date of enactment.

     Net deferred tax  liabilities  consist of the  following  components  as of
     December 31, 2009 and 2008:

                                           2009             2008
                                       -------------    -------------
        Deferred tax assets:
          NOL carryover                $  1,687,962     $  1,623,742
          R & D                             125,695          125,695
          Contributions                         692              692
          Related party accruals            203,709          162,326
          Depreciation                        1,813              440

        Deferred tax liabilities:
          Depreciation                            -                -

        Less valuation allowance         (2,019,871)      (1,912,895)
                                       -------------    -------------
        Net deferred tax asset         $           -    $           -
                                       =============    =============


     Due to the change in  ownership  provisions  of the Tax Reform Act of 1986,
     net operating loss carry-forwards for Federal income tax reporting purposes
     are subject to annual limitations.  Should a change in ownership occur, net
     operating loss carry-forwards may be limited as to use in future years.

5.   CAPITAL STOCK

     During the year ended December 31, 2009, the Company effected a five to one
     reverse  split of its common stock.  Also,  the Company  issued  93,240,094
     shares  of  common  stock  for cash at a price  of  $0.0010725  per  share;
     7,950,000  shares of common  stock were issued for  services  and  accounts
     payable at a fair value of $246,125; 36,600,000 shares of common stock with
     a fair value of  $933,300  were  issued in  conversion  of $366,000 in debt
     resulting in the  recognition of a $567,300 loss on settlement of debt; the
     Company's  President forgave a note payable of $52,342 and cash contributed
     during  the  period  of  $6,485  to  contributed   capital.  The  financial
     statements  have been  retroactively  adjusted for the effects of the stock
     split.  During the year ended December 31, 2008, the Company issued 456,579
     shares of common stock for  services at a fair value of $26,164,  at prices
     between $0.035 and $0.25 per share.

6.   STOCK OPTIONS AND WARRANTS

     The Company  adopted a Stock Option Plan for the purposes of granting stock
     options to its  employees  and others  providing  services to the  Company,
     which  reserves  and sets  aside for the  granting  of  Options  for Twenty
     Million (4,000,000) shares of Common Stock.  Options granted under the Plan
     may be  either  Incentive  Options  or  Nonqualified  Options  and shall be
     administered  by the Company's  Board of Directors  ("Board").  Each option
     shall be exercisable in full or in installments and at such

                                      -30-
<PAGE>

                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008

6.   STOCK OPTIONS AND WARRANTS (Continued)

     times as designated by the Board.  Notwithstanding  any other  provision of
     the Plan or of any Option  agreement,  each Option shall expire on the date
     specified in the Option  agreement,  which date shall not be later than the
     tenth anniversary from the effective date of this option.  During the years
     ended December 31, 2009 and 2008, the Company granted 0 stock options.  The
     stock  options vest as follows:  25% from the date of  employment  and 1/36
     every 30 days thereafter until the remaining stock options have vested. The
     stock  options are  exercisable  for a period of ten years from the date of
     grant at an  exercise  price of  $0.125,  $0.25,  or $0.50  per  share,  as
     adjusted for the five for one reverse split of the Company's common stock.

                                                     2009              2008
                                              ----------------  ----------------
      Risk free interest rate                  4.08% to 4.47%    4.08% to 4.47%
      Stock volatility factor                  1%                1%
      Weighted average expected option life    10 years          10 years
      Expected dividend yield                  None              None



     A summary of the Company's  stock option  activity and related  information
     follows:

<TABLE>
<CAPTION>
                                                 2009                               2008
                                      ---------------------------       ----------------------------
                                                      Weighted                          Weighted
                                         Number       average              Number        average
                                           of         exercise               of         exercise
                                         Options        price              Options        price
                                      ---------------------------       ----------------------------
<S>                                       <C>            <C>                <C>             <C>
Outstanding, beginning of year                    -      $     -            1,690,000       $ 0.255
Granted                                           -            -                    -             -
Exercised                                         -            -                    -             -
Expired                                           -            -           (1,690,000)            -
                                      ---------------------------       ----------------------------
Outstanding, end of year                          -      $     -                    -       $     -
                                      ===========================       ============================
Exercisable at the end of year                    -      $     -                    -       $     -
                                      ===========================       ============================
Weighted average fair value of
  options granted during the year                        $ 0.000                            $ 0.000
                                                      ===========                      =============
</TABLE>

     The  stock-based  compensation  expense  recognized  in  the  statement  of
     operations  during the years  ended  December  31,  2009 and 2008 is $0 and
     $12,831 respectively.

     WARRANTS
     During the year ended  December  31, 2009 and 2008,  the Company  issued no
     warrants.  At December 31, 2009 and 2008 the Company had a total of 866,400
     warrants to purchase 866,400 shares of common stock outstanding.

7.   CONVERTIBLE PROMISSORY NOTES

     During the year ended December 31, 2007, the Company entered into a two (2)
     year  convertible  promissory  note that  matures  October  16,  2009.  The
     principal  amount of the note is $65,000,  which bears  interest at 12% per
     annum.  The principal is  convertible  into shares of common stock at $0.25
     per share. The Company is in default and the promissory note is due.

     During the year ended  December 31, 2009 and 2008,  the Company  received a
     loan of $37,000 and $19,000,  respectively from an investor. The loans bear
     interest  at 6% per annum.  The  principal  of $19,000 was  converted  into
     1,900,000 shares of common stock to pay off the debt.

                                      -31-
<PAGE>

                               MACHINETALKER, INC.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                           December 31, 2009 and 2008

8.   RELATED PARTY

     The  Company  leases  its  premises  from a company  in which our  majority
     shareholders   are   minority   shareholders.   The  Company   rents  on  a
     month-to-month  basis.  The rent  expense for the years ended  December 31,
     2009 and 2008 amounted to $12,873 and $15,594 respectively for each year.

     During the year ended December 31, 2009, the Company's  President forgave a
     note payable of $52,342 and cash of $6,485 to contributed  capital.  During
     the year  ended  December  31,  2008,  the  Company's  President  and Chief
     Executive  Officer  forgave  the  convertible  note of  $436,000,  which is
     principal only. The note bears interest at 6% per annum. The note was to be
     converted  into  3,488,000  shares of common stock at a price of $0.125 per
     share. The principal on the note was restated as contributed  capital.  The
     interest due as of December 31, 2008 was $56,842.

     During the year ended  December 31, 2009,  the Company's  President  loaned
     $7,000  to the  Company  for  operating  expenses.  During  the year  ended
     December 31, 2008,  the  Company's  President and Chief  Executive  officer
     loaned the Company  $349,342.  The note bears interest at 6% per annum. The
     interest  due as of December  31, 2009 and 2008 was  $108,962  and $40,064,
     respectively.

     During the year ended  December  31, 2009,  an investor  loaned the Company
     $37,000 for operating  expenses.  The note bears  interest at 6% per annum,
     and is due and payable  upon  demand.  The  interest due as of December 31,
     2009 was $1,079.

9.  STOCK TRANSFER ERROR

     During the year ended  December 31, 2008, the Company  discovered  that the
     Transfer Agent had double issued 100,000 (20,000 effected  split) shares of
     common stock,  which  misstated  the number of common  shares  outstanding.
     Computershare  has stated that it will either retrieve those shares or will
     purchase  shares on the open  market  to  replace  them into the  Company's
     treasury. There was no material effect to the financial statements.

10.  SUBSEQUENT EVENTS

     On February 12, 2010, the Company issued  80,000,000 shares of common stock
     through a private placement for $200,000 cash.










                                      -32-
<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.
--------------------------------------------------------------------------------

         None.


ITEM 9A(T). CONTROLS AND PROCEDURES
-----------------------------------

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         Disclosure  controls and procedures  are controls and other  procedures
that are  designed  to ensure  that  information  required  to be  disclosed  by
MachineTalker is recorded,  processed,  summarized and reported, within the time
periods  specified  in the  rules  and  forms  of the  Securities  and  Exchange
Commission. The Company's Chief Executive Officer and Chief Financial Officer is
responsible for  establishing  and  maintaining  controls and procedures for the
Company.

         Management has evaluated the effectiveness of the Company's  disclosure
controls and procedures as of December 31, 2009 (under the  supervision and with
the  participation of the Company's Chief Executive  Officer and Chief Financial
Officer)  pursuant to Rule 13a-15(e) under the Securities  Exchange Act of 1934,
as  amended.  As part of such  evaluation,  management  considered  the  matters
discussed below relating to internal control over financial reporting.  Based on
this  evaluation,  the Company's  Chief  Executive  Officer and Chief  Financial
Officer has concluded that the disclosure controls and procedures are effective.

         The term "internal  control over  financial  reporting" is defined as a
process  designed by, or under the  supervision of, the  registrant's  principal
executive  and  principal  financial  officers,  or persons  performing  similar
functions,  and effected by the registrant's board of directors,  management and
other personnel,  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  and
includes those policies and procedures that:

         o        pertain  to the  maintenance  of  records  that in  reasonable
                  detail  accurately  and fairly  reflect the  transactions  and
                  dispositions of the assets of the registrant;

         o        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  registrant  are being
                  made only in accordance with  authorizations of management and
                  directors of the registrant; and

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


MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         The  Company's   management  is  responsible   for   establishing   and
maintaining adequate internal control over financial  reporting,  (as defined in
Rule  13a-15(f)  under  the  Securities  Exchange  Act of 1934).  The  Company's
internal  control  over  financial  reporting  is a process  designed to provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of  financial   statements  for  external  purposes  of  accounting
principles  generally  accepted in the United  States.  Because of its  inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.  Therefore,  even those  systems  determined  to be effective can
provide  only  reasonable  assurance  of  achieving  their  control  objectives.
Furthermore,  projections of any evaluation of  effectiveness  to future periods
are subject to the risk that  controls  may become  inadequate  due to change in
conditions,  or the degree of  compliance  with the policies or  procedures  may
deteriorate.


                                      -33-
<PAGE>

         Under the supervision and with the participation of the Company's Chief
Executive  Officer  and  Chief  Financial  Officer,  the  Company  conducted  an
evaluation of the  effectiveness  of its control over financial  reporting as of
December 31, 2009. In making this  assessment,  management used the criteria set
forth by the Committee of Sponsoring  Organizations  of the Treadway  Commission
("COSO") in internal control-integrated framework. Based on this evaluation, the
Company's  Chairman,  Chief Executive  Officer,  and Chief Financial Officer has
concluded that the internal control over financial reporting is effective.

AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

         There have been no  changes  in the  Company's  internal  control  over
financial  reporting  that occurred  during the Company's  fiscal year that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's  internal  control  over  financial  reporting.  Prior  to the  fourth
quarter,  MachineTalker  completed  procedures  to  achieve  Sarbanes-Oxley  404
compliance, which were tested during and since the fourth quarter.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

         The Company's  management does not expect that its disclosure  controls
or its internal  control  over  financial  reporting  will prevent or detect all
error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable,  not absolute,  assurance that the control system's
objectives  will be met.  The design of a control  system must  reflect the fact
that there are  resource  constraints,  and the  benefits  of  controls  must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that  misstatements  due to error or fraud  will not  occur or that all  control
issues and instances of fraud,  if any,  within the Company have been  detected.
These  inherent  limitations  include the realities  that  judgments in decision
making can be faulty and that  breakdowns  can occur  because of simple error or
mistake.  Controls  can  also be  circumvented  by the  individual  acts of some
persons,  by  collusion  of two or more people,  or  management  override of the
controls.  The  design of any  system of  controls  is based in part on  certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future  conditions.  Projections of any evaluation of controls  effectiveness to
future periods are subject to risks.  Over time,  controls may become inadequate
because of changes in  conditions or  deterioration  in the degree of compliance
with policies or procedures.


ITEM 9B. OTHER INFORMATION
--------------------------

         None.



                                      -34-
<PAGE>
                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
----------------------------------------------------------------

         The following  table lists the executive  officers and directors of the
Company as of December 31, 2009:

         NAME                   AGE                      POSITION
---------------------           ---          -----------------------------------
  Roland F. Bryan (1)           75           President, Chief Executive Officer,
                                             Chief Financial Officer, Secretary,
                                             and   Chairman   of  the  Board  of
                                             Directors

  Mark J. Richardson            56           Director

----------------------
(1)  Member of Audit Committee.  Mr. Bryan is not an independent director and he
     may not qualify as a financial  expert for the purposes of  satisfying  the
     requirements   of  the  Securities  and  Exchange   Commission  that  audit
     committees be comprised of independent directors, at least one of whom is a
     financial  expert.  Management  believes that the Company's  small size and
     limited  resources has so far hindered it from  attracting a third director
     who can serve on the Audit  Committee as an independent  financial  expert.
     Nevertheless, the Company will continue to seek such a candidate.

         ROLAND F. BRYAN has been the President,  Chief Executive  Officer,  and
Chairman of the Board of Directors of MTI since our  inception in January  2002,
the Chief Financial Officer of MTI since November 2003, and the Secretary of MTI
since May 2006.  For the six years prior to  founding  MTI,  Mr.  Bryan was self
employed as an independent  advisor to several high-tech  companies on corporate
organization,   management,  marketing  and  product  development.  Mr.  Bryan's
professional  background is in the areas computer  science  research and process
control through  computer  automation.  During the last 25 years he has built up
and  sold  several  high-tech  companies  in the  fields  of  telecommunications
networking,  military  computer  systems and  commercial  equipment  for network
access. In 1974, he founded  Associated  Computer  Consultants,  Inc. ("ACC"), a
company that implemented  interconnections  to the first packet network for many
United States government  agencies.  In 1983 the name of the company was changed
to Advanced Computer  Communications,  Inc. and continued to produce  networking
products for both military and  commercial  applications.  ACC made the Inc. 500
List of Fastest  Growing  Companies in 1984.  In 1991 the company was split into
two separate businesses,  one to concentrate on military products,  the other to
concentrate  on  commercial  products.  ACC was acquired by Ericsson in 1998 for
$265 million. In September 1994, WIRED MAGAZINE honored Mr. Bryan and 18 others,
as the "Creators of the Internet."

         MARK J.  RICHARDSON  has been a director of MTI since October 2008. Mr.
Richardson  has been a securities  lawyer since he graduated from the University
of Michigan Law School in 1978.  He  practiced  as an  associate  and partner in
large law firms until 1993,  when he established his own practice under the name
Richardson  &  Associates.  He has been the  principal  securities  counsel on a
variety of equity and debt placements for corporations,  partnerships,  and real
estate companies.  His practice includes public and private  offerings,  venture
capital  placements,  debt  restructuring,  compliance  with  federal  and state
securities laws,  representation of publicly traded  companies,  NASDAQ filings,
corporate law, partnerships,  joint ventures,  mergers, asset acquisitions,  and
stock purchase agreements. As a partner in a major international law firm in the
1980's, Mr. Richardson participated in the leveraged buyout and recapitalization
of a well known  producer  of animated  programming  for  children,  financed by
Prudential  Insurance  and  Bear  Stearns,  Inc.  He was  also  instrumental  in
restructuring  the public  debentures of a real estate company without resorting
to a bankruptcy proceeding.  From 1986 to 1993 Mr. Richardson was a contributing
author to State Limited Partnerships Laws - California Practice Guide,  Prentice
Hall Law and Business. Prior to receiving his juris doctor degree cum laude from
the  University  of  Michigan  Law  School in 1978,  Mr.  Richardson  received a
bachelor  of  science  degree  summa cum laude in  Resource  Economics  from the
University of Michigan School of Natural  Resources in 1975, where he earned the
Bankstrom Prize for academic  excellence and achieved Phi Beta Kappa honors. Mr.
Richardson is an active member of the Los Angeles  County and  California  State
Bar  Associations,  including the Section on Corporations,  Business and Finance
and the Section on Real Estate.  Richardson &  Associates  is outside  corporate
legal counsel for the Company and certain of its affiliates.

                                      -35-
<PAGE>

LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

         Under   Delaware   General   Corporation   Law  and  our   Articles  of
Incorporation,  our  directors  will  have no  personal  liability  to us or our
stockholders  for  monetary  damages  incurred  as the  result of the  breach or
alleged  breach by a director  of his "duty of care."  This  provision  does not
apply  to  the  directors'  (i)  acts  or  omissions  that  involve  intentional
misconduct  or a knowing and culpable  violation of law,  (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its shareholders or that involve the absence of good faith on the part of the
director,  (iii) approval of any  transaction  from which a director  derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its  shareholders in circumstances
in which the  director  was aware,  or should have been aware,  in the  ordinary
course of  performing a director's  duties,  of a risk of serious  injury to the
corporation  or its  shareholders,  (v) acts or omissions  that  constituted  an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the  corporation  or its  shareholders,  or (vi) approval of an unlawful
dividend,  distribution,  stock  repurchase or redemption.  This provision would
generally  absolve  directors  of  personal  liability  for  negligence  in  the
performance of duties, including gross negligence.

         The effect of this  provision  in our Articles of  Incorporation  is to
eliminate  the  rights  of  MTI  and  our  stockholders  (through  stockholder's
derivative  suits on  behalf  of MTI) to  recover  monetary  damages  against  a
director  for  breach of his  fiduciary  duty of care as a  director  (including
breaches  resulting from negligent or grossly negligent  behavior) except in the
situations  described in clauses (i) through (vi) above. This provision does not
limit nor eliminate the rights of MTI or any  stockholder  to seek  non-monetary
relief  such as an  injunction  or  rescission  in the  event of a  breach  of a
director's duty of care. In addition, our Articles of Incorporation provide that
if Delaware law is amended to authorize the future  elimination or limitation of
the  liability  of a  director,  then the  liability  of the  directors  will be
eliminated  or limited to the fullest  extent  permitted by the law, as amended.
Delaware  General  Corporation  Law grants  corporations  the right to indemnify
their  directors,  officers,  employees and agents in accordance with applicable
law. Our Bylaws provide for  indemnification  of such persons to the full extent
allowable under applicable law. These provisions will not alter the liability of
the directors under federal securities laws.

         We intend to enter into  agreements  to  indemnify  our  directors  and
officers,  in addition to the indemnification  provided for in our Bylaws. These
agreements, among other things, indemnify our directors and officers for certain
expenses (including attorneys' fees),  judgments,  fines, and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of MTI,  arising out of such person's  services as a director or
officer of MTI, any  subsidiary  of MTI or any other  company or  enterprise  to
which the person provides  services at the request of MTI. We believe that these
provisions  and  agreements  are  necessary  to  attract  and  retain  qualified
directors and officers.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors,  officers or persons controlling MTI pursuant
to the  foregoing  provisions,  MTI has been informed that in the opinion of the
Securities  and Exchange  Commission,  such  indemnification  is against  public
policy as expressed in the Act and is therefore unenforceable.

BOARD COMMITTEES

         The Board of Directors has appointed an Audit Committee. As of December
31, 2009, the sole member of the Audit Committee is Roland F. Bryan, who may not
be  considered  to be  independent  as  defined  in Rule  4200  of the  National
Association of Securities Dealers' listing standards. The Board of Directors has
adopted a  written  charter  of the Audit  Committee.  The  Audit  Committee  is
authorized  by  the  Board  of  Directors  to  review,   with  our   independent
accountants, the annual financial statements of MTI prior to publication, and to
review  the  work  of,  and  approve  non-audit   services  preformed  by,  such
independent accountants. The Audit Committee will make annual recommendations to
the Board for the appointment of independent  public accountants for the ensuing
year. The Audit  Committee will also review the  effectiveness  of the financial
and accounting functions and the organization, operations and management of MTI.
The Audit Committee was formed on February 8, 2005. The Audit Committee held one
meeting  during fiscal year ended December 31, 2009. As of December 31, 2009, we
have not yet appointed a Compensation Committee.

                                      -36-
<PAGE>

REPORT OF THE AUDIT COMMITTEE

         Our Audit  Committee has reviewed and  discussed our audited  financial
statements for the fiscal year ended  December 31, 2009 with senior  management.
The Audit  Committee has also discussed  with HJ Associates & Consultants,  LLP,
Certified  Public  Accountants  ("HJ"),  our independent  auditors,  the matters
required  to be  discussed  by  the  statement  on  Auditing  Standards  No.  61
(Communication  with Audit Committees) and received the written  disclosures and
the letter from HJ required  by  Independence  Standards  Board  Standard  No. 1
(Independence  Discussion  with  Audit  Committees).  The  Audit  Committee  has
discussed  with  HJ  the  independence  of  HJ  as  our  auditors.  Finally,  in
considering whether the independent  auditors provision of non-audit services to
us is compatible with the auditors' independence for HJ, our Audit Committee has
recommended to the Board of Directors that our audited  financial  statements be
included in our Annual  Report on Form 10-K for the fiscal  year ended  December
31, 2009 for filing with the United States  Securities and Exchange  Commission.
Our Audit Committee did not submit a formal report regarding its findings.

                                 AUDIT COMMITTEE

                                 ROLAND F. BRYAN

         Notwithstanding  anything  to  the  contrary  set  forth  in any of our
previous or future  filings under the United States  Securities  Act of 1933, as
amended,  or the  Securities  Exchange  Act of  1934,  as  amended,  that  might
incorporate  this report in future  filings  with the  Securities  and  Exchange
Commission,  in whole or in part, the foregoing report shall not be deemed to be
incorporated by reference into any such filing.

CODE OF CONDUCT

         We have adopted a Code of Conduct that applies to all of our directors,
officers and employees. The text of the Code of Conduct has been posted on MTI's
Internet website and can be viewed at  www.machinetalker.com.  Any waiver of the
provisions  of the Code of Conduct for  executive  officers and directors may be
made only by the Audit Committee and, in the case of a waiver for members of the
Audit  Committee,  by the Board of Directors.  Any such waivers will be promptly
disclosed to our shareholders.

COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT

         Section 16(a) of the Exchange Act requires our officers and  directors,
and certain  persons who own more than 10% of a  registered  class of our equity
securities (collectively, "Reporting Persons"), to file reports of ownership and
changes in ownership  ("Section 16 Reports")  with the  Securities  and Exchange
Commission (the "SEC").  Reporting Persons are required by the SEC to furnish us
with copies of all Section 16 Reports they file.

         Based  solely on its  review of the  copies of such  Section 16 Reports
received  by it, or written  representations  received  from  certain  Reporting
Persons,  all Section  16(a) filing  requirements  applicable  to our  Reporting
Persons  during and with respect to the fiscal year ended December 31, 2009 have
been complied with on a timely basis.

ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

EXECUTIVE OFFICER COMPENSATION

         The following table sets forth the total compensation paid in all forms
to the  executive  officers  and  directors  of the  Company  during the periods
indicated:

                                      -37-
<PAGE>
<TABLE>
<CAPTION>

                                            SUMMARY COMPENSATION TABLE

---------------------- ------- ----------- -------- --------- ------------- -------------- --------------- -----------
                                                               NON-EQUITY   NON-QUALIFIED
NAME AND                                                       INCENTIVE      DEFERRED
PRINCIPAL POSITION                                  OPTION        PLAN      COMPENSATION     ALL OTHER
(1)                    YEAR      SALARY     BONUS    AWARDS   COMPENSATION    EARNINGS      COMPENSATION     TOTAL
----------------------------------------------------------------------------------------------------------------------
<S>                    <C>    <C>           <C>      <C>      <C>           <C>             <C>           <C>
Roland F. Bryan,
Chief Executive        2009   $120,000 (1)   0         0          0              0               0        $120,000(1)
Officer                2008   $120,000       0         0          0              0               0        $120,000

Officers and Key       2009   $120,000       0         0          0              0               0        $120,000
Employees as a Group   2008   $180,000       0         0          0              0               0        $180,000
-------------------------
</TABLE>

(1)      Mr. Bryan deferred and accrued the entire amount of his salary in 2009.


EMPLOYMENT AGREEMENTS

         The Company has not entered  into any  employment  agreements  with its
executive  officers to date.  The Company may enter into  employment  agreements
with them in the future.

OUTSTANDING EQUITY AWARDS

         None of the  Company's  executive  officers  received any equity awards
during the year ended December 31, 2009.

DIRECTOR COMPENSATION

         No  compensation  was paid to  Directors of the Company and no stock or
option awards for Directors were outstanding on December 31, 2009.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

         The following table sets forth the names of our executive  officers and
directors  and all  persons  known by us to  beneficially  own 5% or more of the
issued  and  outstanding  common  stock  of  MachineTalker  at March  31,  2010.
Beneficial  ownership  is  determined  in  accordance  with  the  rules  of  the
Securities  and  Exchange   Commission.   In  computing  the  number  of  shares
beneficially  owned by a person and the  percentage of ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable  or become  exercisable  within 60 days of March 31, 2010 are deemed
outstanding  even if they  have  not  actually  been  exercised.  Those  shares,
however,  are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. The percentage ownership of each beneficial owner
is based on 261,976,794  outstanding shares of common stock. Except as otherwise
listed below, the address of each person is c/o  MachineTalker,  Inc., 513 De La
Vina Street, Santa Barbara,  California 93101. Except as indicated,  each person
listed below has sole voting and investment power with respect to the shares set
forth opposite such person's name as of March 31, 2010.


                                      -38-
<PAGE>
<TABLE>
<CAPTION>

                                         NUMBER OF SHARES BENEFICIALLY
   NAME AND ADDRESS OF STOCKHOLDER                 OWNED (1)                    PERCENTAGE OWNERSHIP
--------------------------------------- --------------------------------- ---------------------------------
<S>                                     <C>                               <C>
ROLAND F. BRYAN (2)                               42,533,429                           16.24

NADIR DAGLI                                       15,000,000                            5.73

CUMORAH CAPITAL                                   57,770,047                           22.05

PEARL INNOVATIONS, LLC                            53,120,047                           20.28

MARK J. RICHARDSON                                 6,270,000                            2.38
1453 Third Street Promenade, Suite 315
Santa Monica, California 90401

All Current Executive Officers as a               42,533,429                           16.24
   Group
--------------------------------
</TABLE>

(1)  Except as pursuant to applicable community property laws, the persons named
     in the table have sole  voting  and  investment  power with  respect to all
     shares of common stock  beneficially  owned. The total number of issued and
     outstanding shares and the total number of shares owned by each person does
     not include unexercised warrants and stock options, and is calculated as of
     March 31, 2010.

(2)  Roland F. Bryan is the President,  Chief Executive Officer, and Chairman of
     the Board of Directors of MTI. The Bryan Family Trust owns 940,000 of these
     shares.  Mr.  Bryan holds an option to purchase  1,080,000  shares from two
     existing  shareholders  at  $0.50  per  share,  after  accounting  for  the
     Company's one-for-five reverse stock split in April 2009.

ITEM  13.  CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
INDEPENDENCE
--------------------------------------------------------------------------------

         We currently lease  approximately  1,541 square feet of office space at
513 De La Vina Street,  Santa Barbara,  California 93101 from a company owned by
the  majority  shareholders  at a base rental rate of  approximately  $1,150 per
month pursuant to a month to month lease.

         As During the year ended  December 31, 2009,  the  Company's  President
forgave a note  payable of $52,342  and cash of $6,485 to  contributed  capital.
During the year ended  December  31, 2008,  the  Company's  President  and Chief
Executive  Officer forgave the convertible note of $436,000,  which is principal
only. The note bears interest at 6% per annum. The note was to be converted into
3,488,000  shares of common stock at a price of $0.125 per share.  The principal
on the note was restated as contributed capital. The interest due as of December
31, 2008 was $56,842.

         During the year ended December 31, 2009, the Company's President loaned
$7,000 to the Company for operating expenses. During the year ended December 31,
2008,  the Company's  President and Chief  Executive  officer loaned the Company
$349,342.  The note bears  interest  at 6% per  annum.  The  interest  due as of
December 31, 2009 and 2008 was $108,962 and $40,064, respectively.

         As of April 30, 2009, our sole member of the Audit  Committee is Roland
F. Bryan, who may not be considered to be independent as defined in Rule 4200 of
the National Association of Securities Dealers' listing standards.

                                      -39-
<PAGE>

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

         HJ Associates & Consultants,  LLP,  Certified Public Accountants ("HJ")
is our  principal  auditing  accountant  firm. HJ has provided  other  non-audit
services to the  Company.  The Audit  Committee  approved the  engagement  of HJ
before HJ rendered audit and non-audit services to us.

         Each year the  independent  auditor's  retention to audit our financial
statements,  including the  associated  fee, is approved by the Board before the
filing of the previous year's Annual Report on Form 10-K.

HJ FEES

                                           2009       2008
                                       ------------ -----------
        Audit Fees(1)                  $  27,500(1) $   28,800
        Audit Related Fees                   - 0 -          -0-
        Tax Fees(2)                        1,618(2)      1,490
        All Other Fees                       - 0 -          -0-
                                       ------------ -----------
                                       $  29,118    $   30,290
                                       ============ ===========
------------
(1)  Audit Fees consist of fees for the audit of our  financial  statements  and
     review of the financial statements included in our quarterly reports.

(2)  Tax fees consist of fees for the preparation of original  federal and state
     income tax returns and fees for miscellaneous tax consulting services.

PRE-APPROVAL  POLICIES  AND  PROCEDURES  OF  AUDIT  AND  NON-AUDIT  SERVICES  OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

         The  Audit  Committee's  policy  is to  pre-approve,  typically  at the
beginning of our fiscal year,  all audit and non-audit  services,  other than de
minimis non-audit services,  to be provided by an independent  registered public
accounting  firm.  These  services may include,  among others,  audit  services,
audit-related  services,  tax services and other  services and such services are
generally  subject to a  specific  budget.  The  independent  registered  public
accounting firm and management are required to  periodically  report to the full
Board regarding the extent of services  provided by the  independent  registered
public  accounting firm in accordance with this  pre-approval,  and the fees for
the services  performed to date. As part of the Board's  review,  the Board will
evaluate other known potential engagements of the independent auditor, including
the scope of work proposed to be performed and the proposed fees, and approve or
reject each service,  taking into account  whether the services are  permissible
under  applicable law and the possible  impact of each non-audit  service on the
independent auditor's independence from management.  At Audit Committee meetings
throughout the year, the auditor and management may present subsequent  services
for  approval.  Typically,  these would be services such as due diligence for an
acquisition, that would not have been known at the beginning of the year.

         The Audit Committee has considered the provision of non-audit  services
provided by our independent  registered  public accounting firm to be compatible
with  maintaining  their  independence.  The Audit  Committee  will  continue to
approve all audit and permissible non-audit services provided by our independent
registered public accounting firm.

                                      -40-

<PAGE>

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
------------------------------------------------
<TABLE>
<CAPTION>
(a)     Exhibits

        EXHIBIT                                  DESCRIPTION
        -------    --------------------------------------------------------------------------------------------
<S>     <C>        <C>
        3.1        Certificate of Incorporation (1)
        3.2        Amendments to Certificate of Incorporation (1)
        3.3        Amendment to Certificate of Incorporation (7)
        3.4        Bylaws (1)
        4.1        Specimen Certificate for Common Stock (1)
        4.2        2002 Stock Option Plan (1)
        4.3        Form of Incentive Stock Option Agreement (1)
        4.4        Form of Non Qualified Stock Option Agreement (1)
        4.5        Form of Lock-Up  Agreement to be entered into by the Company with Wings Fund, Inc.,  Roland
                   F. Bryan, Mark J. Richardson, and Chris Outwater, dated as of May 2, 2009 (6)
        10.1       Lease Agreement by and between MachineTalker, Inc. and SecureCoin, Inc., dated August 20,
                   2003 (1)
        10.2       Agreement No. CA-00062 by and between MachineTalker, Inc. and Kellogg, Brown & Root
                   Services, Inc., dated December 20, 2004 (2)
        10.3       Agreement by and between MachineTalker, Inc. and Science Applications International
                   Corporation, dated July 1, 2004 (1)
        10.4       Acquisition Agreement for Wideband Detection Technologies, Inc. dated July 20, 2007 (4)
        10.5       Acquisition Agreement for Micro Wireless Technologies, Inc. dated December 28, 2007 (5)
        10.6       Stock Purchase Agreement with Wings Fund, Inc., a Nevada corporation, and Pearl
                   Innovations, LLC, a Nevada limited liability company, dated as of May 5, 2009 (6)
        14.1       Code of Conduct (3)
        31.1       Section 302 Certification
        32.1       Section 906 Certification
------------------------

                  (1)      Incorporated  by reference to the Form SB-2  Registration  Statement  filed with the
                           Securities and Exchange Commission dated August 1, 2005.

                  (2)      Incorporated by reference to Amendment No. 4 to the Form SB-2 Registration Statement
                           filed with the Securities and Exchange Commission dated November 2, 2005.

                  (3)      Incorporated  by reference to the Form 10-KSB filed with the Securities and Exchange
                           Commission dated April 14, 2007.

                  (4)      Incorporated  by  reference  to the Form 8K filed with the  Securities  and Exchange
                           Commission dated July 20, 2007.

                  (5)      Incorporated  by  reference  to the Form 8K filed with the  Securities  and Exchange
                           Commission dated January 3, 2008.

                  (6)      Incorporated  by  reference  to the Form 8K filed with the  Securities  and Exchange
                           Commission dated May 13, 2009.

                  (7)      Incorporated  by  reference  to the Form 10K filed with the  Securities  and Exchange
                           Commission dated July 15, 2009.
</TABLE>



                                      -41-
<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 15, 2010               MACHINETALKER, INC.


                                    By:  /s/ Roland F. Bryan
                                    --------------------------------------------
                                    Roland  F.  Bryan,  Chairman  of the  Board,
                                    Chief    Executive    Officer,     President
                                    (Principal  Executive  Officer),  and  Chief
                                    Financial Officer (Chief Accounting Officer)

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


By:  /s/ Roland F. Bryan                                   Dated: April 15, 2010
    -------------------------------------------------------
    Roland F. Bryan, Chairman of the Board, Chief Executive
    Officer, President (Principal Executive Officer), and
    Chief Financial Officer (Chief Accounting Officer)


By:  /s/ Mark J. Richardson                                Dated: April 15, 2010
     ------------------------------------------------------
    Mark J. Richardson, Director





















                                      -42-