United
States
 Securities
and Exchange Commission
 Washington,
D.C. 20549
 
 Form
10-K
 
 x       
Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of
1934:
 For the
fiscal year ended: December 31, 2008
 
 o       
Transition report pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934:
 For the transition period from:
 000-50081
 (Commission
File Number)
  Invisa,
Inc.
 (Exact
name of small business issuer as specified in its charter)
 
 Nevada
 (State or
other jurisdiction of incorporation or organization)
 
 65-1005398
 (I.R.S.
employer identification number)
 
 1880
Desoto Road, Suite B29
 Sarasota,
Florida 34234
 (Address
of principal executive offices)
 
 (941)
870-3950
 (Issuer’s
telephone number)
 
 Securities
registered under Section 12(b) of the Act: None.
 
 Securities
registered under Section 12(g) of the Act: Common Stock, $0.001 par value per
share.
 
 Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of the 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
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
 Yes o No x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” I Rule 12b-2 of the Exchange
Act.
 
 Large
      accelerated filer  o
              Accelerated
      filer  oNon-accelerated
      filer (Do not check if a smaller reporting company)  o
              Smaller
      reporting company  x
   The
Issuer’s revenues for its most recent fiscal year were $102,297.
 
 On
December 31, 2008, 34,781,081 shares of Invisa Common Stock, $0.001 par value,
were outstanding.
 
 
 
  TABLE OF
CONTENTS
  PagePart
      IItem
      1
                    Description
      of Business
                    3Item
      2
                    Description
      of Property
                    6Item
      3
                    Legal
      Proceedings
                    6Item
      4
                    Submission
      of Matters to Vote of Security Holders
                    6Part
      IIItem
      5
                    Market
      for Common Equity and Related Stockholder Matters
                    7Item
      6
                    Selected
      Financial Data
                    7Item
      7
                    Managements
      Discussion and Analysis or Plan of Operations
                    7Item
      8
                    Financial
      Statements
                    12Item
      9
                    Changes
      in and Disagreements with Accountants on Accounting
                    12Item
      9a
                    Controls
      and Procedures
                    13Item
      9b
                    Other
      Information
                    13Part
      III
                    14Item
      10
                    Directors
      and Executive Officers of the Registrant
                    14Item
      11
                    Executive
      Compensation
                    16Item
      12
                    Security
      Ownership of Certain Beneficial Owners and Management
                    18Item
      13
                    Certain
      Relationships and Related Transactions
                    19Item
      14
                    Principal
      Accountant Fees and Services
                    19Item
      15
                    Exhibits
      and Financial Statements Schedule
                    20Financial
      StatementsReport
      of Stark Winter Schenkein & Co., LLP.
                    F-1Balance
      Sheet at December 31, 2008
                    F-2Statements
      of Operations for the years ended December 31, 2007 and
    2008.
                    F-3Statements
      of Stockholders’ Equity for the years ended  December 31, 2007 and
      2008
                    F-4Statements
      of Cash Flows for the years ended December 31, 2007 and
    2008.
                    F-5Notes
      to Financial Statements.
                    F-7Signature
      Page
                    24Index
      to Exhibits
                    20
  2
  PART
I
 
 Note
regarding forward-looking statements. Except for statements of historical fact,
certain information contained herein constitutes forward-looking statements
including, without limitation, statements containing the words believes,
anticipates, intends, expects, and words of similar import, as well as all
projections of future results. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results or achievements of Invisa, Inc. to be materially different from any
future results or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, the following: risks
involved in our implementing our business strategy; our ability to obtain
financing on acceptable terms; competition; our ability to manage growth; risks
of technological change; our dependence on key personnel; and our ability to
protect our intellectual property rights; risks of new technology and new
products; and government regulation.
 
 Item
1 - Description of Business
 
 History
 
 Invisa,
Inc. is a development stage company that is commercializing patented
presence-sensing technology under the InvisaShieldTM trade name. The Company was
incorporated in Nevada in 1998. In 2000, we acquired SmartGate, L.C.
(“SmartGate”), before it had achieved any significant revenues. SmartGate had
developed presence-sensing technology for safety applications in the powered
closure market, such as powered overhead doors and parking barrier gates.
Subsequently, at the end of 2004, it was merged into Invisa. From an accounting
perspective, SmartGate was the acquirer in this transaction and the accompanying
Financial Statements reflect the operations of SmartGate from
inception.
  In
February of 2002, the Company purchased 100% of the outstanding capital stock of
Radio Metrix Inc. (“RMI”), a company owned by the principal shareholders of
Invisa. RMI had virtually no operations since its inception and, therefore, the
Company determined that by acquiring RMI, the Company acquired an asset (a
patent) and not a business. RMI, formed to commercialize InvisaShield security
sensors for applications such as zone and perimeter protection, was merged into
Invisa at the end of 2004. With that merger, Invisa now owns the patent and
patent applications, as well as the sole rights to the InvisaShield technology
in all markets worldwide
  In April
2003, the RMI Purchase Agreement was amended whereby the Company agreed to issue
3,250,000 shares of its Common Stock for full satisfaction of the future
contingent consideration. In November 2003, the RMI Purchase Agreement was
further amended whereby the $1,300,000 notes payable were forgiven. In August
2004, we negotiated the cancellation of the 7% royalty agreement in exchange for
400,000 warrants to purchase Common Stock. As a part of this latter amendment,
certain compensation owed to affiliated parties was forgiven.
 
 Our
offices are located at 1880 Desoto Road, Suite B29, Sarasota, FL 34234,
telephone (941) 870-3950.
 
 Overview
  Invisa
manufactures and sells sensors that use the Company’s patented InvisaShield
presence-sensing design and technology.   In the past the Company
engaged in development activities as well as efforts to license the
technology.  Presence-sensing is the reliable, repeatable detection of
people and conductive objects. InvisaShield technology detects objects at a
distance of typically less than one meter.
  Today,
the InvisaShield technology is used in the safety market.In the past, the
Company engaged in preliminary development, market testing and market analysis
regarding the use of the InvisaShield technology in thesecurity market.While the
Company believes the InvisaShield technology has market opportunity in the
Security Market, the Company’s efforts in the Security Market have been, at
least temporarily, terminated due to the Company’s cash
constraints.
  In the
safety market, the Company sells a line of SmartGate ® brand
safety sensors. These sensors are life and property safety devices used in or
with powered closures - mechanisms such as parking gates, slide gates, and
overhead doors.  To date, our revenues have been derived mostly from
the sale of SmartGate safety sensors which are incorporated into powered parking
gates.  Parking gates are motorized barriers used to control the flow
of vehicular traffic, such as parking facilities, vehicle storage facilities,
toll booths, and metered entry points for highways.
  3
  In the
security market, the Company has been testing first generation security sensor
units at a major New England museum. These devices created invisible
presence-sensing fields around displays and exhibits. The InvisaShield sensors
were used to detect any person who tries to enter the monitored zone, thereby
preventing vandalism or inadvertent damage. These units have been in operation
at the museum since the summer of 2003.  We believe that the security
market may offer significant promise and, depending on the availability of
financing for such use, we anticipate additional efforts to further develop
sensors for museum exhibit/display and other security-related
applications.
 
 Applications
 
 Safety Market - Many safety
devices and safety functions depend upon presence-sensing technology. While we
have historically been developing a range of presence-sensing devices for the
safety market under our brand name, SmartGateTM, we are currently primarily
focused on safety products used in the parking gate market.   We
believe that our safety sensors offer potential operational and maintenance
benefits for the powered closure industry.  Today, we sell SmartGate
safety sensors for use with powered parking gates.
 
 We also
have developed pre-production versions of presence-sensing devices for use in
powered slide-gates, commercial overhead doors, powered industrial doors (which
are used in commercial, manufacturing and industrial facilities) and residential
garage doors; however we do not currently sell these products.  We
believe that there may be other applications for our presence-sensing technology
in the safety market. Ultimately, based on availability of financing, we plan to
offer safety sensors based upon our InvisaShield technology to be used with a
broad range of powered closure products manufactured by other
companies.
  In 2007
and 2008, all revenue has been derived from the sale of SmartGate safety sensors
used with powered parking barrier gates. These gates are commonly used for
traffic control and typically have a power-operated barrier arm made of metal,
wood or PVC. This arm moves vertically between an open and a closed position.
Our device places an invisible presence-sensing field that proceeds and moves
with the potentially dangerous barrier arm to detect people and vehicles in its
path. Our device signals the powered gate to trigger a predetermined response,
such as stopping and reversing the barrier arm.
 
 Another
potential application of InvisaShield technology is with vertical powered doors.
These doors are frequently used in manufacturing and industrial environments
where air-conditioned, cooler, and freezer areas are separated within warehouses
and other buildings. In July 2002, we granted Rytec Corporation a license to use
our safety devices as original equipment on high-speed industrial doors in North
America. In 2005, the license agreement was converted into a joint development
agreement. Due to cash constraints, we are not currently able to conduct any
development of this product and no sales of this product were made in 2007 or
2008.  We anticipate that in the future we may explore this or other
opportunities in the high-speed industrial door market.
  Our
selling price for InvisaShield safety sensors allows us an acceptable gross
profit margin and we expect that our cost of goods will continue to decline as
we realize economies of scale.
 
 Security Market - Security
systems and security equipment generally rely, to varying degrees, on
presence-sensing technologies to detect the presence of potential intruders and
trespassers, or to provide surveillance of valuable objects. In addition to
museum applications, in preliminary pre-marketing situations we have
demonstrated prototypes of InvisaShield security sensors for retail, industrial,
commercial, defense and government applications. As with our museum security
sensors, these devices place a monitoring field around objects needing
protection. Examples of applications that we have demonstrated include safes,
locking cabinets, display cases, objects of art and jewelry and or exposed
perimeters (doors, windows, fences etc.). When the detection field is entered,
the InvisaShield sensor signals the security system. The security system then
responds with a warning or alarm.
 
 We have
tested a limited number of security sensors under field evaluation and based on
availability of financing we anticipate that we may engage further development
for the security market. Due to cash constraints, we are not currently able to
conduct any development of this product and no sales of this product were made
in 2007 or 2008.
 
 Marketing
 
 We sell
our safety products to manufacturers, distributors, dealers and, in some
instances, to selected end-users.  Due to cash constraints, we are
currently unable to conduct any significant marketing efforts. Our current sales
effort is primarily limited to filling unsolicited orders for our safety product
for powered parking gates and in some cases contacting existing
customers.
 
 4
  Sales
 
 During
2007 and 2008, Magnetic Automation Corp. was our largest customer, comprising
approximately 29% and 21%, respectively, of our product revenues in both
years.
 
 
 Technology
 
 The
InvisaShield technology uses electronic circuitry that emits, controls, and
monitors changes in an invisible energy field. The field is based, in part, upon
low energy radio waves oscillating within a controlled frequency range. The
field that is monitored can be varied in sensitivity from a distance of
approximately one meter to a centimeter or less, depending upon the selected
application. Circuitry constantly checks the field to test for the presence of
people, vehicles or other conductive objects (objects that conduct electricity)
that would disturb the monitored field.
 
 We
believe that the InvisaShield technology is a novel and proprietary way to
provide presence-sensing. At the core of the technology is the ability to
project a field or zone capable of detecting most conductive objects that enter
the field. The field is projected from a metallic substance, referred to as an
antenna, which may consist of wire, self-adhesive metallic tape or other
metallic items. The technology allows flexibility in designing and locating the
antenna. This may offer unique opportunities to place presence-sensing fields
where they can be used more efficiently or effectively. This adaptability may
mean that the InvisaShield technology can perform non-contact presence-sensing
tasks not currently possible with competing technologies and/or it may perform
presence-sensing tasks similar to those performed by competing technologies, but
in a more efficient, effective, and reliable manner.
 
 We
believe that the InvisaShield technology has a number of operational advantages.
The technology does not depend upon lenses, beams or reflectors which may
require replacement, cleaning and aligning. The non-intrusive, non-contact
presence-sensing capability of our technology is generally not disrupted by its
operating environment, including electronic noise, mechanical noise,
temperature, dust, frost, snow, ice or other operating conditions. We believe
that the InvisaShield technology may have greater capability, flexibility and
benefits than other non-contact sensing technologies.
 
 Competing Technologies - The
presence-sensing business is highly competitive, consisting of numerous
manufacturers of presence-sensing products based on various technologies,
including infrared, ultrasonic, laser, microwave, and similar technologies. For
the most part, these technologies have been in use for a number of years and, in
many cases, may not be proprietary.
 
 Our
competitors provide a variety of presence-sensing and other safety and security
alternatives such as motion detectors, CCTV-based movement detection systems,
infrared and visible light beam detectors, light curtains, on/off switching mats
and pads, tape switches, contact edges, as well as others.
 
 In the
safety and/or security sectors we compete with many companies, including
MillerEdge, Stanley, Optex, Napco, Pelco, and DMP, along with other large and
well-established firms such as Honeywell, Tyco, General Electric, Bosch, and
Siemens.
 
 Many of
our competitors have substantially greater development, technical, marketing,
sales and financial capabilities than we have. As a result of these factors,
competitors and potential competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements and/or to devote
greater resources to the development, promotion and sale of their products and
services than we can. We believe that our ability to successfully compete
depends, to a large degree, upon the performance of our technology, our current
and planned presence-sensing products and our ability to finance our
development, marketing and distribution efforts.
  Patents and Trademarks - We
own five Patents issued by the U.S. Patent Office, three of which were issued in
the year 2006 or the first quarter of 2007: Patent No. 5,337,039 issued on
August 9, 1994, Patent No. 6,819,242 issued on November 16, 2004, Patent No.
7,023,222,B2 issued on April 4, 2006; Patent No. 7,167,093 B2 issued on January
23, 2007 and Patent No. 7,187,282 issued on March 6, 2007.  In
addition, we have filed for two patents (as PCT, or Patent Cooperation Treaty
filings), one provisional patent application and have one application pending,
all of which cover improvements to the InvisaShield technology.
 
 We have a
trademark on the trade name “SmartGate” which we use in our safety products
category. We have filed trademark applications for the following: “Invisa”,
“InvisaShield” and the tagline “Safe. Secure. No Question.” We believe that our
patent and trademark position will be useful in our efforts to protect our
perceived competitive advantages.
 
 5
 
 Materials
and Manufacturing
 
 We
believe that the materials required and the sources of such materials will be
similar for our various existing and planned product categories. All components
and parts are modified or manufactured by third parties to our specifications or
are otherwise generally available as off-the-shelf materials. Our products have
a number of components including proprietary electronic circuitry manufactured
to our specifications by third party manufacturers and a standard power supply
available in the marketplace. The antenna is standard wire, tape or other
metallic materials, which can generally be purchased in bulk. Whenever possible,
we use fixed price manufacturing for our electronic circuitry, placing the
responsibility for component supply on the manufacturer. We believe that there
are multiple manufacturers and suppliers for each component and that adequate
components and materials will be available to support our planned growth. We
perform some final assembly and predetermined quality control procedures in our
facility.
 
 Government
Regulation
 
 The use
of radio frequency or “RF”, such as that used by our safety products, is
regulated by the Federal Communications Commission. RMI submitted its patented
technology for required FCC testing and, in August of 1993, it received FCC
Certification. We will endeavor to continue satisfying all requirements of the
FCC.
 
 On March
1, 2001, a new safety standard was implemented by Underwriters Laboratory (UL)
for the powered gate, door and window industry. This rule, UL-325, while not a
governmental regulation, is considered an indication of reasonable safety for
powered gates, doors and windows, and is a requirement for UL certification for
certain powered gate, door and window operators. Gate and operator manufacturers
that rely upon UL certification or consider UL certification important for
components most likely will require that our products be UL certified before
incorporating our products as original equipment. We do not have a UL
certification and the absence of UL certification for our products may
represent a sales or marketing barrier in certain market categories and to
certain customers.
 
 Warranty
 
 Our
safety products are sold with a 90-day (upgradeable to one year) limited
warranty. We anticipate that our security products will carry a warranty that is
generally in line with industry suppliers’ practice. We have had no significant
claims expensed under the warranty in 2007 or 2008.
 
 Employees
 
 We have
continued to reduce our staff, and at December 31, 2008 we had no full time
employees.  Our CFO, who also serves as our Acting President, serves
in such a capacity, on a part-time basis.  We support operations by
using consultants as required.
 
 Research
and Development
 
 During
the years ended December 31, 2007 and 2008, research and development expenses
totaled $0.00.  We have temporarily put a hold on ongoing research and
development activities.
  Item
2 - Description of Property
 
 In the
fourth quarter of 2008 we leased approximately 550 square feet of space at 1880
Desoto Road in Sarasota, Florida, on a month-to-month basis.  Monthly
rent is approximately $391. We rent the facilities from a non-affiliated party.
No zoning or other governmental requirements are needed for the continued use of
our facilities.
  We have
adopted a policy, pursuant to which, we do not invest in real estate or maintain
an interest in real estate, real estate mortgages or securities issued that are
based upon real estate activities.
  Item
3 - Legal Proceedings
 
 None.
 
 Item
4 - Submission of Matters to a Vote of Security Holders
 
 No matter was submitted during the
fourth quarter of the fiscal year covered by this report to a vote of the
Company’s security holders.
  6
 
 PART
II
 
 Item
5 - Market for Common Equity and Related Stockholder Matters
 
 Market
Information
 
 From July
7, 2003 to date, our Common Stock has traded on the NASD OTC BB which is the
principal market for our Common Stock under the symbol INSA.OB. The following
table sets forth the range of high and low bids to purchase our Common Stock
during the last two fiscal years. Such prices represent quotations between
dealers, without dealer markup, markdown, or commissions, and may not represent
actual transactions.
 
 As of
December 31, 2008 there were 394 stockholders of record of Invisa Common
Stock.
  Quarter
                High
      Bid
                Low
      BidFirst
      Quarter 2007
                0.04
                0.04Second
      Quarter 2007
                0.03
                0.03Third
      Quarter 2007
                0.10
                0.10Fourth
      Quarter 2007
                0.02
                0.02First
      Quarter 2008
                0.01
                0.01Second
      Quarter 2008
                0.02
                0.01Third
      Quarter 2008
                0.02
                0.01Fourth
      Quarter 2008
                0.02
                0.00
  On March
31, 2009, the closing bid and closing ask prices for shares of our Common Stock
in the over-the-counter market, as reported by NASD OTC BB was $0.001 per
share.
 
 We
believe that there are presently approximately 10 market makers for our Common
Stock. When stock is traded in the public market, characteristics of depth,
liquidity and orderliness of the market may depend upon the existence of market
makers as well as the presence of willing buyers and sellers. We do not know if
these or other market makers will continue to make a market in our Common Stock.
Further, the trading volume in our Common Stock has historically been both
sporadic and light.
 
 Dividend
Policy
 
 The
payment by the Company of dividends, if any, in the future, rests within the
sole discretion of its Board of Directors. The payment of dividends will depend
upon our earnings, our capital requirements and our financial condition, as well
as other relevant factors. The Company has not declared any cash dividends since
its inception, and has no present intention of paying any cash dividends on its
Common Stock in the foreseeable future.
 
 Transfer
Agent
 
 The
Transfer Agent for the Common Stock of the Company is Continental Stock Transfer
and Trust Company 17 Battery Place, New York, NY 10004.
 
 Recent
Sales of Unregistered Securities
  We issued
20,000,000 shares of our Common Stock in September of 2007 and an
additional 33,333,333 in 2008 to collateralize several notes totaling
$494,030.00 evidencing loans made to the Company by a third party
lender. The shares were deposited in an escrow account and will only be
delivered to such lender in the event of a default under or non payment of the
notes. Upon full repayment of the notes, said shares will be returned to the
Company. The shares delivered to the escrow agent as security for the notes
are not being treated as outstanding and will only be considered as being issued
and outstanding if and when the shares are released by the escrow agent and
delivered to the lender as a result of a default under the promissory notes and
related security agreement.  (Additionally, see Note G to the
accompanying financial statements.)
 
 Item
6 – Selected Financial Data
 
 Item
7 - Management’s Discussion and Analysis or Plan of Operations
 
 The
following discussion and analysis of our financial condition and plan of
operations should be read in conjunction with our financial statements and
related notes appearing elsewhere in this filing. This discussion and analysis
contains forward-looking statements including information about possible or
assumed results of our financial conditions, operations, plans, objectives and
performance that involve risk, uncertainties and assumptions. The actual results
may differ materially from those anticipated in such forward-looking statements.
For example, when we indicate that we expect to increase our product sales and
potentially establish additional license relationships, these are
forward-looking statements. The words expect, anticipate, estimate or similar
expressions are also used to indicate forward-looking statements. The cautionary
statements made herein should be read as being applicable to all related
forward-looking statements in this Annual Report on Form 10-K.
  7
 
 Background
of our Company
 
 We are a
development-stage company, and we expect to continue the commercialization of
our InvisaShield technology. For the year ended December 31, 2008, we had
revenue from product sales of $102,297, principally representing sales of our
product for powered parking gates. In addition to limited revenue, these sales
have been a vehicle for receiving customer feedback on the reliability, ease of
installation, and determining the market’s acceptance of our safety
product.
 
 Financing
for our operations in 2008 were derived from limited sales and short-term debt
financing. We are working to increase our sales of product, further reduce
operating costs and obtain financing including through business combinations and
licensing relationships and transactions. In the future based on available
financing, we may develop additional safety and security products and bring them
to market.
  Limited
Operating History
 
 We have
had a limited history of operations and anticipate that our quarterly results of
operations will fluctuate significantly for the foreseeable future. We believe
that period-to-period comparisons of our operating results should not be relied
upon as predictive of future performance. The information in this Form 10-K must
be considered in light of the risks, expenses and difficulties encountered by
companies at an early stage of development, particularly companies
commercializing new and evolving technologies such as InvisaShield.
 
 Year
Ended December 31, 2007 Compared to the Year Ended December 31,
2008
 
 Net Sales- During the years
ended December 31, 2007 and 2008, product sales totaled $124,986 and $102,297,
respectively. The Company's sales to date have continued to be limited and
constrained by lack of capital and have been largely limited to filling orders
as the Company lacks any formal sales effort.  We had a gross profit
of $50,994 for the year ended December 31, 2007 and gross profit of
$41,739 for the year ended December 31, 2008. Gross margin was 41
percent during 2007 and 2008.
 
 Research and Development
Expenses - The Company has suspended ongoing research and development
activities due to cash constraints.  As a result, during the years
ended December 31, 2007 and 2008, there were no expenses allocated to Research
and Development.
 
 Selling, General and Administrative
Expenses - During the years 2007 and 2008, selling, general and
administrative expenses totaled $581,993 and $256,999,
respectively.  The decrease principally resulted from a reduction
in rent, staffing, compensation and related payroll
expenses.   Marketing activities have been severely limited due
to cash constraints with ongoing marketing activities largely limited to filling
unsolicited orders.
 
 Interest (expense) and other,
Net - The expense during 2007 relates primarily to interest
of  $45,685 and a charge of $60,000 related to the modification of a
warrant and the loss on abandonment of furniture, equipment and leasehold
improvements, net of a disposition gain totaling $23,717.  Interest expense
of $56,348 during 2008 relates primarily to financing costs and interest due to
certain stockholders under lines of credit to the Company.  During
2008, the Company settled certain debts for cash and stock resulting in the
extinguishment gain of $377,454.
 
 Net Income (Loss) applicable to
Common Stockholders and Net Income (Loss) Per Share applicable to Common
Stockholders - The Company’s net income (loss) applicable to Common
Stockholders and net income (loss) per share applicable to Common Stockholders
for these periods decreased from ($5,085,695) and ($0.20) in 2007 to a net
gain of $18,096 and $0.00 in 2008, respectively, as a result of the matters
described above.
  8
 
 Plan
of Development and Operations
 
 We
obtained funding of $231,300, in the form of short-term debt financing in 2007,
and an additional $262,730 in 2008, which together with our limited cash from
sales supported our operations at a low level.   Due to the limited
amount of financing available to us in 2007, we reduced our staff to one
part-time person who is supported by consultants, hired on an as needed
basis.  During 2008 we further reduced our leased space to less than 600
square feet of space.  Additional financing or increased cash from
sales will be necessary to continue our operations at their current level. We do
not plan to engage in additional technology or product development until we are
able to secure sufficient financing to conduct our operations and fund such
research and development.
  Recommencing the Company's plan of development and operations will require
additional funding.  Accordingly, the Company is pursuing additional
funding which may include debt or equity financing.  Additionally, the
Company is considering the potential for establishing business relationships or
transactions, such as a business combination or joint
venture/strategic partnerships, which may improve the Company's access to
additional capital and/or funding and also potentially support its current and
future operations.  In the event the Company is not able to access
sufficient funding to support its operations its business operations will be
effected adversely.
  Liquidity
and Capital Resources
 
 From
inception through December 31, 2008 we raised cash of approximately $16.3
million net of issuance costs, principally through private placements of common
and preferred stock financings. At December 31, 2008, we had a cash and cash
equivalents deficit totaling ($191).
  The Company has obtained financing
arrangements with its senior lender aggregating $500,000 at December 31, 2008
under which it had borrowed an approximate accumulated $500,000 at that
date.  The financing arrangements comprise Notes entered into (i) July
2008 for $100,000, (ii) March 2008 for $150,000 and (iii) prior to 2008 for
$250,000.  Each of these notes bears interest at 10 percent per annum
and are secured by all of the assets of the Company.  Additionally,
the Company has pledged an aggregate of 53,333,333 shares of its common stock
which were issued for the sole purpose of being deposited into an escrow
account.  These shares, held as collateral, will be delivered to the
lender only in the event of a default under or non payment of the
notes.  Upon full repayment of the notes, said shares will be returned
to the Company.  The shares delivered to the escrow agent as security
for the notes are not being treated as outstanding and will only be considered
as being issued and outstanding if and when the shares are released by the
escrow agent and delivered to the lender as a result of a default or non payment
under the promissory notes and related security agreement. The Notes were due in
2008, but under an oral understanding have been held in abeyance while
discussions are in progress for anticipated additional financing.
  From
inception (February 12, 1997) through December 31, 2008 we were largely focused
on technology and product development. The estimated dollar amount spent during
this period on company-sponsored research and development was
$3,471,292. Because of the Company’s net losses (which aggregate $35.3
million from inception through December 31, 2008) and limited capital, the
Company’s consolidated financial statements report that substantial doubt exists
regarding the Company’s ability to continue as a going
concern.
 The Company had negative working capital at December 31, 2008, totaling
$959,938.  At December 31, 2008 the Company had ($191) in cash and cash
equivalent deficit. To finance planned operations through at least the next 12
months, we will continue to depend upon our ability to access additional
financing.  To support operations, in March 2008 and July 2008, we
entered into additional credit facility agreements pursuant to which we could
borrow up to $150,000 and $100,000, respectively, subject to agreement of the
lender, under secured promissory notes.  Through December 31, 2008, we have
borrowed all of the $150,000 and $100,000 facilities.  Additional
financing arrangements are currently in progress.  We have previously
borrowed $250,000 from a series of notes from our senior lender.  Our plan
is to seek to obtain the funding required to meet ongoing operating expenses
through additional private equity and debt financing, license fees, grants, and
through potential strategic or business relationships, transactions or business
combinations.
  Additional funding may not be available when required or it may not be available
on acceptable terms. Without adequate funds, we may need to significantly reduce
or refocus our operations or obtain funds through arrangements that may require
us to relinquish rights to certain or potential markets, either of which could
have a material adverse effect on our business, financial condition and results
of operations. To the extent that additional funding is raised through the sale
of equity or convertible debt securities, the issuance of such securities would
result in ownership dilution to our existing stockholders.
 
 9
  Risk
Factors
  You
should carefully consider the risks and uncertainties described below and the
other information in this filing before deciding to purchase our common stock.
If any of these risks or uncertainties occurs, our business, financial condition
or operating results could be materially harmed. In that case the trading price
of our common stock could decline and you could lose all or part of your
investment. The risks and uncertainties described below are not the only ones we
may face. Risks related to our business we have historically incurred losses and
losses are expected to continue in the future, which means that we may not be
able to continue operations unless we obtain additional funding. Our auditors
have qualified their audit opinion with regard to our ability to continue as a
going concern.
 
 We
have historically incurred losses.
 
 From
inception through December 31, 2008, we have sustained aggregate net losses
of $35.3 million. In the twelve months ended December 31, 2008, we
sustained net income of $18,096 which consisted of a loss of $215,260 from
operations and a gain of $377,454 to reflect the favorable settlement of certain
debt.
 
 Future
losses are expected to continue. Accordingly, we will experience significant
liquidity and cash flow problems if we are not able to raise additional capital
as needed and on acceptable terms. No assurances can be given that we will be
successful in reaching or maintaining profitable operations. Our ability to
generate revenue and achieve profitability depends upon our ability to
manufacture and sell our products in sufficient volume to cover our fixed and
variable costs of operations. Because of our ongoing losses and our very limited
financial resources, our auditors have included an explanatory paragraph in
their audit report with regard to our ability to continue as a going
concern.
 
 We
will need to raise additional financing to continue our operations or we may be
unable to fund our operations, promote our products or develop our
technology.
 
 Our
operations have relied almost entirely on external financing to fund our
operations. In the past, such financing has primarily come from the sale of
stock to third parties and to a lesser degree from borrowings and revenue from
product sales and license fees.   During 2008 we funded our
operations with a funds borrowed under short term notes which, for the most
part, were secured with the Company’s assets.  We anticipate, based on
our current proposed plans and assumptions relating to our operations, that we
will need additional debt or equity funding to continue to operate our business.
We may seek to access required capital through potential strategic or business
relationships or business combinations which may be dilutive to our current
stockholders. We will need to raise additional capital to fund our anticipated
operating expenses and future expansion. Among other things, external financing
will be required to cover our operating costs. We cannot assure you that
financing whether from external sources or related parties will be available if
needed or on favorable terms. If additional financing is not available when
required or is not available on acceptable terms, we may be unable to support
our secured debt, fund our operations and planned growth, develop or enhance our
technology, take advantage of business opportunities or respond to competitive
market pressures, any of which could raise doubt as to the Company’s ability to
continue as a going concern. Any reduction in our operations may result in a
lower stock price.
 
 Our
financing requirements could result in dilution to existing
stockholders.
 
 The
additional financings we will require may be obtained through one or more
transactions which effectively dilute the ownership interests of our
stockholders. Further, we may not be able to secure such additional financing on
terms acceptable to us, if at all. We have the authority to issue additional
shares of common stock, as well as additional classes or series of ownership
interests or debt obligations which may be convertible into any one or more
classes or series of ownership interests. We are authorized to issue 95,000,000
shares of common stock and 5,000,000 shares of preferred stock. Such securities
may be issued without the approval or other consent of our
stockholders.
 
 We
are a development stage company and have had limited revenue.
 
 Our
operating history has resulted only limited revenue. We are a development stage
company, and accordingly, we anticipate that we will encounter many difficulties
and risks associated with our early stage of development which includes, but is
not limited to, the introduction of new products, the search for and hiring of
new personnel, access to required capital, management issues, ramping up
manufacturing capacity, and other important business aspects.
  10
  We
will be required to compete with larger and well-established companies which are
better financed.
 
 There are
a number of well-established companies which are well known in the manufacture
and/or distribution of products for the security and life-safety markets. Such
companies include Honeywell, Tyco, General Electric, Bosch, Siemens and others.
Accordingly, we are subject to the difficult challenge of introducing and
commercializing our new technology and products in a market place in a strong
competitive environment. Additionally, our technology and products based thereon
will have to compete with other technologies such as passive infrared and
various types of motion detection which are well known and well
accepted.
 
 We
are commercializing a new technology which will involve uncertainty and risks
related to market acceptance.
 
 We are
commercializing a new technology with which we seek to gain market acceptance
and to demonstrate competitive advantages. Our success is dependent, to a large
degree, upon our ability to fully develop and commercialize our technology and
gain industry acceptance of our products, based upon this new technology and its
perceived competitive advantages. Accordingly, our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in
connection with the establishment of a new business in a highly competitive
industry, characterized by frequent new product introductions. We anticipate
that we will incur substantial operating expenses in connection with the
development and testing of our proposed products and expect these expenses to
result in continuing and significant operating losses until such time, if ever,
that we are able to achieve adequate levels of sales or license revenues. We may
not be able to raise additional financing, increase revenues significantly, or
achieve profitable operations.
  Management
and founders of the Company control a significant amount of our common stock and
such concentration of ownership may have the effect of delaying or preventing a
change of control of our Company.
 
 As a
result, these stockholders will have significant influence in matters requiring
stockholder approval, including the election and removal of directors, the
approval of significant corporate transactions, such as any merger,
consolidation or sale of all or substantially all of the our assets, and the
control of our management and affairs. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
our control, impeding a merger, consolidation, takeover or other business
combination involving us or discouraging a potential acquirer from attempting to
obtain control of our Company.
 
 The
limits of our of product liability insurance coverage may affect our
Business.
 
 We may be
exposed to potential product liability claims by consumers. Although we maintain
product liability insurance, there can be no assurance that such insurance will
be sufficient to cover all possible liabilities to which we may be exposed. Any
product liability claim, even one that was not in excess of our insurance
coverage or one that is meritless and/or unsuccessful, could adversely affect
our cash available for other purposes, such as research and development. In
addition, the existence of a product liability claim could affect the market
price of our common stock. In addition, certain vendors may require minimum
product liability insurance coverage as a condition precedent to purchasing or
accepting products for retail distribution. Product liability insurance coverage
includes various deductibles, limitations and exclusions from coverage, and in
any event might not fully cover any potential claims. Failure to satisfy such
insurance requirements could impede the ability of us or our distributors or
licensees to achieve broad retail distribution of our proposed products, which
could have a material adverse effect on us.
 
 We
may not be able to effectively protect our intellectual property rights, the
foundation of our business, which could harm our business by making it easier
for our competitors to duplicate our services.
 
 We regard
certain aspects of our products, processes, services and technology as
proprietary. We have taken steps to protect them with patents, copyrights,
trademarks, restrictions on disclosure and other methods. Despite these
precautions, we cannot be certain that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar products, services and technology. Any
infringement, misappropriation or independent development could cause us to
cease operations.
 
 We have
issued patents and have filed patent applications with respect to various
aspects of our technology. The pending patent applications may not be issued to
us, and if issued, may not protect our intellectual property from competition
which could seek to design around or invalidate these patents. Our failure to
adequately protect our proprietary rights in our products, services and
technology could harm our business by making it easier for our competitors to
duplicate our services. We may have to resort to litigation to enforce our
intellectual property rights, protect our trade secrets, determine the validity
and scope of the proprietary rights of others, or defend ourselves from claims
of infringement, invalidity or unenforceability. Litigation may be expensive and
divert resources even if we win. This could adversely affect our business,
financial condition and operating results such that it could cause us to reduce
or cease operations.
  11
  Other
parties may assert that our technology infringes on their Intellectual property
rights, which could divert management time and resources and possibly force our
Company to redesign our technology.
 
 Technology-based
companies, such as ours, have the potential to be involved in litigation related
to allegations of patent infringement. Although we have no knowledge of any such
claims, from time to time, third parties may assert patent, copyright and other
intellectual property rights to technologies that are important to us. While
there currently are no outstanding infringement claims pending by or against us,
we cannot assure you that third parties will not assert infringement claims
against us in the future, that assertion by such parties will not result in
costly litigation, or that they will not prevail in any such litigation. In
addition, we cannot assure you that we will be able to license any valid and
infringed patents from third parties on commercially reasonable terms or,
alternatively, be able to redesign products on a cost-effective basis to avoid
infringement. Any infringement claim or other litigation against or by us could
have a material adverse effect on us and could cause us to reduce or cease
operations.
 
 We
may not be able to keep up with rapid technological changes, which could render
our products less competitive or obsolete.
 
 Changes
in technology, changes in customer requirements and preferences, introduction of
products and services embodying new or different technologies and the emergence
of new industry standards and practices could render our existing technology and
products less competitive or obsolete. Our future success will depend on our
ability to enhance and improve the responsiveness, functionality, accessibility
and features of our technology and products. We expect that our marketplace will
require extensive technological upgrades and enhancements to accommodate many of
the new products and services that we anticipate will be added to our
marketplace. We cannot assure you that we will be able to expand and upgrade our
technology and systems, or successfully integrate new technologies or systems we
develop in the future, to accommodate such increases in a timely
manner.
 
 We
may not be able to increase sales or if we succeed in increasing sales and
revenue to effectively manage the growth necessary to execute our business plan,
which could adversely affect the quality of our operations and our
costs.
 
 In order
to successfully execute our business plan, we must significantly increase our
sales and revenue. Additionally, we will need to increase the number of
strategic partners, manufactures, dealers, distributors and customers that use
our products. Lack of growth in sales and revenue will require that we continue
to access financing which will subject us to the risks attendant thereto. On the
other hand, if we succeed in increasing sales and revenue, the resulting growth
will place significant strain on our personnel, systems and
resources.  In the event of growth, we may not be able to maintain the
quality of our operations, control our costs, continue complying with all
applicable regulations and expand our internal management, technical information
and accounting systems in order to support our desired growth. We cannot be sure
that we will manage our growth effectively, and our failure to do so could cause
us to reduce or cease operations.
 
 We
are thinly staffed.
 
 We have
no full time employees.  Our CFO, who serves Part time, also serves as
Acting President and Acting COO. Unless additional employees are hired, the
limited size of our staff restricts the level or nature of our business
operations.
 
 We have promissory notes payable that
are secured by all of our assets and default under these notes could result in
the loss of our assets.
 
 In order to fund our operations, we
have entered into promissory notes payable that are secured by all of our assets
and in some instances by shares of our common stock that were issued to secure
the promissory notes. The promissory notes are short term obligations and we
currently do not have the available cash or other financing resources to pay the
interest or principal there under. Default under these promissory notes could
result in the loss of all of our assets and business opportunity.
 
 
 Item
8 - Financial Statements
 
 The
Financial Statements of the Company and the accompanying notes thereto, and the
Report of Independent Registered Public Accounting Firm is included as part of
this Form 10-K beginning on Page F-1.
 
 Item
9 - Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
 
 Effective
May 1, 2008, Aidman, Piser & Company, P.A. ("Aidman Piser") practice was
acquired by Cherry, Bekaert & Holland, L.L.P. (Cherry Bekaert") in a
transaction pursuant to which Aidman Piser merged its operations into Cherry
Bekaert and certain of the professional staff and shareholders of Aidman Piser
joined Cherry Bekaert either as employees or partners of Cherry Bekaert and will
continue to practice as members of Cherry Bekaert.  Accordingly, on July
14,2008, Aidman Piser resigned as our independent registered public
accounting firm.  The Audit Committee of our Board of Directors is
currently evaluating whether to engage Cherry Bekaert as our independent
registered public accounting firm for fiscal year ending December 31, 2008, and
we expect to make an announcement with regard to this matter in the near
future.
  12
  The report of Aidman Piser regarding
our financial statements for the past two fiscal years ended December 31, 2007
and 2006 did not contain any adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles, except that substantial doubt was raised as to our ability to
continue as a going concern.  During the two most recent fiscal years and
during the period from the end of the most recently completed fiscal year
through July 14, 2008, the date of resignation, there were no disagreements with
Aidman Piser on procedures, which disagreements, if not resolved to the
satisfaction of Aidman Piser would have caused it to make reference to such
disagreements in its reports.
 We provided Aidman Piser with a a copy
of this Current form 8-K prior to its filing with the Securities and
Exchange Commission and requested that Aidman Piser furnish the Company with a
letter addressed to the Securities and Exchange Commission stating whether it
agrees with the statements set forth above in this Item 4.01 and, if it does not
agree, the respects in which it does not agree.
  Effective November 14,
2008 the Company engaged Stark, Winter Schenkein and Co. LLP, Certified Public
Accountants, to serve as its independent auditors.
  Item
9a - Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 The
Company maintains “disclosure controls and procedures” as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to ensure that information
required to be disclosed by us in reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our President,  Chief
Financial Officer, and Board of Directors, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognizes that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable assurance of achieving the desired objectives, and we
necessarily are required to apply our judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures.
  Our
management, including our Acting President and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2008 and concluded that our
disclosure controls and procedures were effective as of December 31,
2008.
  Management’s
Annual Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. The Company’s internal control system is designed
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. Because of inherent limitations,
a system of internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate due to
change in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 Our management, including our Acting
President and Chief Financial Officer, conducted an evaluation of the
effectiveness of our internal control over financial reporting and concluded
that our controls and procedures were effective as of December 31,
2008.
 
 This Form 10-K 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 SEC that permit the Company to provide only management’s
report in this annual report.
 
 Changes
in Internal Controls over Financial Reporting
 
 During
the quarter ended December 31, 2008, there were no changes in the Company’s
internal control over financial reporting (as defined in Rule 13a-15(f) and
15d–15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
  Item
9b - Other Information
  None.
  13
 
 PART
III
 
 Item
10 - Directors and Executive Officers of the Registrant
 
 The
Company’s Directors are elected at the Annual Meeting of Stockholders and hold
office until their successors are elected and qualified. The Company’s officers
are appointed annually by the Board of Directors and serve at the pleasure of
the Board. There are no family relationships between any of the officers,
directors or significant employees of the Company.
 
 The
directors, executive officers, and significant employees of the Company at
December 31, 2008 are as follows:
 
 Positions
      and Offices PresentlyName
              
              Age
              
              Held
      with the CompanyEdmund
      C. King
              
              74
              
              Director,
      Acting President, COO, Chief Financial Officer,
  TreasurerGregory
      J. Newell
              
              59
              
              DirectorJohn
      E. Scates
              
              60
              
              Director
  EDMUND C.
KING has served as our Chief Financial Officer and Director since February 9,
2000. In 2007, Mr. King began serving as our Acting President and Acting
COO.  Until October 1, 1991, Mr. King was a partner in Ernst &
Young, an international accounting and consulting firm. While at Ernst &
Young, Mr. King was that firm’s Southern California senior healthcare partner
and prior to that directed the Southern California healthcare practice for
Arthur Young & Company, one of the predecessor firms of Ernst & Young.
During his 30 years with Ernst & Young, Mr. King counseled clients in
structuring acquisitions and divestitures; advised on the development of
strategic plans; directed the preparation of feasibility studies; assisted with
operational and financial restructuring; directed and supervised audits of
client financial statements; and provided expert witness testimony and technical
SEC consultation. Commencing in 1999, Mr. King became a financial consultant to
SmartGate, L.C. that we acquired in February 2000. Mr. King has served as Chief
Financial Officer and Director of SmartPlug, Inc. since November 2000 and Chief
Financial Officer and Director of FlashPoint International, Inc. since October
2001. From January 1992, Mr. King has been a general partner of Trouver, an
investment banking and financial consulting partnership. Mr. King is also a
member of the Board of Directors of LTC Properties, Inc., an NYSE listed real
estate investment trust. Mr. King is a graduate of Brigham Young University,
having served on the National Advisory Council of that school’s Marriott School
of Management, and has completed a Harvard University management course
sponsored by Ernst & Young. Mr. King also has served as Chairman of the
HFMA’s Long-Term Care Committee (Los Angeles Chapter) and is a past member of
the National Association of Corporate Directors. He holds CPA certificate in the
state of California.
 
 Ambassador
GREGORY J. NEWELL has served as a Director of the Company since June 13, 2002.
Ambassador Newell is an international business development strategist and
former: U.S. Ambassador; U. S. Assistant Secretary of State; and White House
Commissioned Officer, having served under four U.S. Presidents. From 1992 to the
present, Ambassador Newell has served as President of International Commerce
Development Corporation in Provo, Utah, an international business-consulting
firm. From 1989 to 1991, Ambassador Newell served as President and International
Development Strategist of Dow, Lohnes & Albertson International, a
subsidiary of one of Washington, D.C.’s oldest and largest law firms. Ambassador
Newell was U.S. Ambassador to Sweden from 1985 to 1989. Prior to that he was
U.S. Assistant Secretary of State for International Organizational Affairs
serving as the senior U.S. government official responsible for the formulation
and execution of U.S. multilateral foreign policy in 96 international
organizations including the United Nations, where he served as senior advisor to
the 37th, 38th, 39th and 40th United Nations General Assemblies. He served as
Director of Presidential Appointments and Scheduling and Special Assistant to
President Ronald Reagan and Staff Assistant to President Gerald R. Ford.
Ambassador Newell has also served on the boards of the Landmark Legal
Foundation, Sutherland Institute and the Swedish-American Chamber of
Commerce.
 
 JOHN E.
SCATES, a garage door industry engineer and consultant, was appointed to the
Company’s Board of Directors on June 27, 2002. From June 1997 to the present,
Mr. Scates has been President and Owner of Scates, Inc., a product design and
failure analysis consultancy in Carrollton, Texas. From May 1993 to May 1997,
Mr. Scates served as Manager of Research and Development for Windsor Door,
Little Rock, Arkansas. From February 1985 to May 1993, Mr. Scates served as
Manager of Structures at Overhead Door R & D/engineering, Dallas, Texas. Mr.
Scates earned a BS Degree in Mechanical Engineering, Summa Cum Laude from Texas
A & M University in 1979. Mr. Scates is licensed as a Professional Engineer
in Texas, Florida and North Carolina.
 
 Significant
Employees
 
 At
December 31, 2008 we had no full time employees.  Our CFO, who also serves
as our Acting President and COO, is employed on a part-time basis.  We
support operations by using consultants as we can afford or as
required.
 
 14
  Compensation
Committee and Compensation of Directors
 
 Messrs.,
Newell and Scates serve on the Compensation Committee, which determines the
compensation amounts to be paid to our directors, officers and
employees.
 
 Report
of the Audit Committee
  The Audit
Committee is composed of two independent directors and operates under a written
charter adopted by the Board of Directors. A copy of the Audit Committee Charter
(as amended) is filed herewith as exhibit 10.58.  As described above,
the Audit Committee is responsible for appointing and replacing our independent
accountants; reviewing the results and scope of the independent accountants’
audit and the services provided by the independent accountants; reviewing
compliance with legal and regulatory requirements; evaluating our audit and
internal control functions; and ensuring the integrity of our financial
statements. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements in the Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
  The Audit
Committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of our accounting principles, and such
other matters as are required to be discussed with the Committee in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). In addition, the Audit Committee has discussed with the independent
auditors the auditors’ independence from management and the Company, including
the matters in the written disclosures required by the Independence Standards
Board and considered compatibility of non-audit services with the auditors’
independence.
  The Audit
Committee discussed with our independent auditors the overall scope and plans
for their audit. The Committee meets with the independent auditors, with and
without management present, to discuss the results of their examination, and the
overall quality of our financial reporting. The Audit Committee held
4 meetings during 2008.
  In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to our Board of Directors, and the Board approved, that the audited
financial statements be included in our Annual Report on Form 10-K for the 2008
fiscal year for filing with the Securities and Exchange Commission. The Audit
Committee and the Board of Directors have also recommended the selection of our
independent auditors.
  THE
      AUDIT COMMITTEEGregory
      Newell, ChairmanJohn
      Scates
  Board
Meetings and Independence
  During
the year ended December 31, 2008, the Board of Directors of the Company
held 4 telephonic meetings.   Each director attended at
least 75% of the aggregate of (1) the total number of meetings of the Board
(held during the period for which he has been a director) and (2) the total
number of meetings held by all committees of the Board on which he served
(during the periods that he served).
  Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers to send reports of their ownership of the
equity securities of the Company and of changes in such ownership to the SEC.
SEC regulations also require the Company to identify in this Annual Report on
Form 10-K any person subject to this requirement who failed to file any such
report on a timely basis.
 
 Code
of Ethics
 
 Our board
of directors has adopted a Code of Business Conduct and Ethics and Compliance
Program which is applicable to Invisa, Inc. and to all our directors, officers
and employees, including Invisa, Inc.’s principal executive officer and
principal financial officer, principal accounting officer or comptroller, or
other persons performing similar functions.
  15
 
 A copy of
the Company’s Code of Ethics may be obtained free of charge by making the
request to the Company in writing.
 
 Director
Compensation
 
 We do not
have a formal plan for compensating our directors and during the 2008 fiscal
year our Directors were paid no compensation.
  Our
bylaws provide for us to indemnify our directors and officers to the extent
permitted by Nevada law, with respect to actions taken by them on our behalf. We
maintain a policy of directors’ and officers’ liability insurance for this
purpose.
  Compensation
Committee Interlocks and Insider Participation
  We have
no interlocking director relationships. None of our executive officers is a
member of the Compensation Committee of any company in which any director or
executive officer is a member of our board of directors.
  Item 11.
              EXECUTIVE
      COMPENSATION
  Compensation
Discussion & Analysis
  Overview.
  This
Compensation Discussion and Analysis is intended to describe the material
factors underlying the compensation policies and decisions of the Company with
regard to compensation paid to our executive officers in FY 2008. The
Compensation Committee oversees the Company’s executive compensation in
accordance with its Charter and recommends to the Board of Directors
compensation for the named executive officers. The Compensation Committee
receives input and recommendations when requested from our executive
officers.
  While we
have historically used executive compensation as a tool to retain and motivate
our executive officers, however, during, our financial condition prevented the
Company from paying usual and customary compensation. Our only named executive
officer at the end of fiscal 2008, Mr. Edmund King, does not have a written
employment agreement and works on a part-time basis for the Company. Mr. King
received no salary or other cash compensation during fiscal 2008
  Our
compensation philosophy for our executive officers has been shaped by our lack
of long-term financing and our sever shortage of operating capital. Accordingly,
our compensation decisions and particularly our approach to allocating
compensation between cash and non-cash elements of the compensation package
reflect our goal to preserve cash whenever possible. In fiscal 2007 our
compensation decisions for our executive officers emphasized option grants which
we believe supports our goals with regard to both retention and motivation of
our executive officers. In making our compensation decisions, we strive to be
aware of the level of compensation which is paid to executive officers of
various companies that we consider to be comparable to us in size. Our goal is
for the compensation paid to our named executive officers to be at or below the
fiftieth percentile of the companies that we have identified as being comparable
companies.
  Base Salaries.
  Mr. King
did not receive any base salary in fiscal 2008, however $35,500 has been charged
to operations and credited to additional paid in capital.
 
 Option
Grants.
  No Options were granted
in fiscal year 2008.
  16
  Perquisites.
  Consistent
with our philosophy to preserve cash, we have sought to limit perquisites.
Perquisites paid to our named executive officers are discussed as footnotes to
the following Summary Compensation Table. Our current policy for paying medical
and dental insurance is not to pay insurance premiums. Our policy is not to pay
for life insurance, long-term and short-term disability insurances and
accidental death and dismemberment insurance. Our policy with regard to unused
vacation for our executive group is to pay at the base salary rate for vacation
not used during the calendar year of termination.
  Change
in Control Severance Policy.
  None.
  REPORT
OF COMPENSATION COMMITTEE
  The
Compensation Committee of the Board of Directors has reviewed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K and
discussed it with the Company’s management. Based on the Compensation
Committee’s review and discussions with management, the Compensation Committee
recommends to the Board of Directors that the Compensation Discussion and
Analysis be included in the Company’s Annual Report on Form 10-K for fiscal
2008.
  John
      E Scates, Chairman
                Gregory
      J Newell
  
 DIRECTOR
COMPENSATION
 FOR
YEAR ENDED DECEMBER 31, 2008
 Name
                Fees
      Earned or Paid in
                  Cash
      ($)
                Stock
      Awards
                  ($)
                Option
      Awards
                  ($)
                Non-Equity
      Incentive
                  Plan
      Compensation
                  ($)
                Change
      in Pension
                  Value and
      Non Qualified
                  Deferred
      Compensation
                  Earnings
      ($)
                All
      Other
                  Compensation
                  ($)
                Total
                  ($)Edmund
      C. King
                ----
                ----
                ----
                ----
                ----
                ----
                ----Greg
      Newell
                ----
                ----
                ----
                ----
                ----
                ----
                ----John
      Scates
                ----
                ----
                ----
                ----
                ----
                ----
                ----
 
 Employment
Agreements with Executives
  We have
no written employment agreements.
 
 Equity
Incentive Plans
  We have
five stock plans as listed below:
  Plan
                  
                  Shares
                    Authorized
                    for
      Issuance2000
      Plan
                  
                  
                  1,200,0002002
      Plan
                  
                  
                  1,500,0002003
      Plan
                  
                  
                  1,500,0002003A
      Plan
                  
                  
                  3,500,0002006
      Plan
                  
                  
                  2,500,00010,200,000
  All of
the Plans have been approved by the Board of Directors and all, except for the
2006 Plan have been approved by the Shareholders.  All of the plans
authorize awards of incentive stock options or non-qualified stock options to
employees, directors, and consultants of our company and affiliates. The
purposes of the Plan are to encourage and enable employees, directors, and
consultants to acquire a proprietary interest in the growth and performance of
our company, to generate an increased incentive for key employees and directors
to contribute to our future success and prosperity, thus enhancing the value of
our company for the benefit of our stockholders, and to enhance the ability of
our company to attract and retain key employees and directors who are essential
to progress, growth, and profitability.
  17
  The Plans
are administered by the Compensation Committee of our Board (the
“Administrator”). All members of our Compensation Committee are non-employee
directors and outside directors, as defined in the Plans. Subject to the
limitations set forth in the Plans, the administrator has the authority to grant
options and to determine the purchase price of the shares of our common stock
covered by each option, the term of each option, the number of shares of our
common stock to be covered by each option, to establish vesting schedules, to
designate options as incentive stock options or non-qualified stock options, and
to determine the persons to whom grants are to be made.
  The
Administrator establishes the option exercise price, which in the case of
incentive stock options, must be at least the market price (as such term is
defined in the Plans) of our common stock on the date of the grant or, with
respect to optionees who own at least 10% of the total combined voting power of
all classes of our stock (a “10% Stockholder”), 110% of the market price on the
date of the grant.
  Options
granted under the Plans are generally not transferable by the optionee except by
will or the laws of descent and distribution, or pursuant to written agreement
approved by the administrator relating to any non-qualified stock options in any
manner authorized under applicable law. Except as provided in the applicable
stock option agreement, options must be exercised within 90 days of termination
for any reason other than disability, retirement, or death, within one year of
termination by disability or retirement, or by a designated beneficiary within
two years of death.
  Except as
provided to the contrary, in the option agreement options granted under the
Plans vest in one-third annual increments, beginning on the grant date of the
option. In no event may an incentive stock option be granted more than 10 years
from the effective date of the plan, be exercised after the expiration of 10
years from the grant date, or five years from the grant date in the case of a
10% Stockholder.
  Incentive
stock options may not vest for the first time with the respect to any optionee
in a calendar year with a market price exceeding $100,000. Any option grants
that exceed that amount shall be automatically treated as non-statutory stock
options.
  The Plans
may be suspended, terminated, modified, or amended by our board, but no such
suspension, termination, modification, or amendment may adversely affect the
terms of any option previously granted without the consent of the affected
optionee, and any amendment will be subject to stockholder approval to the
extent required by applicable law, rules, or regulations.
  We, from
time to time, grant to our directors, executive officers and employees options
to purchase our common stock under the Plans. As of December 31, 2008, Invisa
had no options to purchase shares of common stock outstanding or
exercisable.
  401(k)
Savings Plan
  We do not
have a 401(k) savings plan.
  Limitation
of Liability and Indemnification of Officers and Directors;
Insurance
  Our
Officers and Directors are indemnified to the fullest extent provided by Nevada
law.
  We
maintain a policy of directors’ and officers’ liability insurance to indemnify
our directors and officers with respect to actions taken by them on our
behalf.
  Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers, or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in such Act and is therefore unenforceable.
 
 Item
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.
  The
following table sets forth the beneficial ownership of shares of our common
stock as of December 31, 2008 for:
  •
              each
      person (or group of affiliated persons) known by us to beneficially own
      more than 5% of our common stock;
  •
              each
      of our directors;
  18
  •
              each
      named executive officer; and
  •
              all
      of our directors and executive officers as a
  group.
  Information
with respect to beneficial ownership has been furnished by each director,
officer or beneficial owner of more than 5% of our common stock. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
requires that such person have voting or investment power with respect to
securities. In computing the number of shares beneficially owned by a person
listed below and the percentage ownership of such person, shares of common stock
underlying options, warrants or convertible securities held by each such person
that are exercisable or convertible within 60 days of December 31, 2008 are
deemed outstanding, but are not deemed outstanding for computing the percentage
ownership of any other person.
  Except as
otherwise noted below, and subject to applicable community property laws, the
persons named have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them.
  Name and Address of Beneficial
      Owner(1)
                Reporting Status
                Aggregate
                  Number of Shares
                  Beneficially
                  Owned
      (2)
                Percentage
                  of
      Shares
                  Beneficially
                  OwnedStephen
      A. Michael
                5%
      Stockholder
                3,939,261
                10.14
      %Michael
      R. Ries (Trustee)
                5%
      Stockholder
                1,864,584
                5.07Frank
      A Ficarra (Trustee)
                5%
      Stockholder
                1,864,584
                5.07Samuel
      S Duffey
                5%
      Stockholder
                5,082,740  (3)
                12.71Edmund
      C. King
                Acting
      President, CFO, Director
                1,076,772  (4)
                2.99Gregory
      J. Newell
                Director
                203,565
                0.61John
      E. Scates
                Director
                203,565
                0.61All
      officers and directors as a group
                
                1,483,902
                4.08
      %
  (1)
              Unless
      otherwise provided herein all addresses are c/o Invisa, Inc., 1880 Desoto
      Road, B28, Sarasota, FL 34234. The address for Mr. Ries is 4837 Swift
      Road, Suite 210, Sarasota, Florida 34231; for Mr. Ficarra is 4837 Swift
      Road, Suite 210, Sarasota, Florida
34231;
 
 (2)
              The
      percentage calculations are based on 34,709,191 shares that were
      outstanding as of December 31, 2008 plus the respective
      beneficial shares owned by each selling stockholder. Beneficial
      ownership is determined in accordance with rules of the Securities and
      Exchange Commission and includes voting power and/or investment power with
      respect to securities. Shares of common stock subject to options or
      warrants currently exercisable or exercisable within 60 days of December
      31, 2008 are deemed outstanding for computing the number, and the
      percentages of outstanding shares beneficially owned by the person holding
      such options, but are not deemed outstanding for computing the percentage
      beneficially owned by any other
person.
 
 (3)
              Includes
      4,528,666 shares held in the name of Friday Harbour and 554,074 in Mr.
      Duffey’s name.
  (4)
              Includes
      1,071,792 shares held in Mr. King’s name, and 5,000 shares held in the
      name of the King Family Trust.
 
 ITEM 13
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
  Other
than the compensation discussed herein, we had no items to disclose hereunder
for 2008 except Mr. King had loaned an $20,124 to the Company during 2007 and an
additional $136 in 2008 aggregating $20,260. The loans were not secured and are
interest free; they remain outstanding and unpaid at December 31, 2008 and on
the date hereof.
  ITEM 14
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
  During
2008 and 2007, annual fees approved for the year-end audit and interim reviews
aggregated approximately $40,000 and $73,000
respectively.  In addition, during 2008 and 2007 tax-related fees
approved for compliance aggregated, approximately, $4,000 and $7,500
respectively.
  The Audit
Committee has established its pre-approval policies and procedures, pursuant to
which the Audit Committee approved the foregoing audit services, provided by
Stark, Winters Schenkein & Co., LLP in 2008, and Aidman, Piser &
Company, P.A. in 2007. Consistent with the Audit Committee’s responsibility for
engaging the Company’s independent auditors, all audit and permitted non-audit
services require pre-approval by the Audit Committee. The full Audit Committee
approves proposed services and fee estimates for these services. The Audit
Committee chairperson or their designee has been designated by the Audit
Committee to approve any services arising during the year that were not
pre-approved by the Audit Committee. Services approved by the Audit Committee
chairperson are communicated to the full Audit Committee at its next regular
meeting and the Audit Committee reviews services and fees for the year at each
such meeting.
  During
2008 Aidman, Piser & Company, PA was replaced by Stark, Winter Schenkein
& Co., LLP as the Company’s independent auditors.
  19
 
 PART
IV
  ITEM 15
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
  (a) The
following documents are filed as part of this Report:
  Exhibits
  The
following exhibits are filed as part of, or incorporated by reference into, this
amendment to annual report on Form 10-K/A:
  INDEX
TO EXHIBITS
 
 ITEM
      NO.
              DESCRIPTION2.1
      1
              Agreement
      of Merger and Plan of Reorganization dated 2/25/02 by and among SmartGate
      Inc., SmartGate/RadioMetrix Acquisition Corp. and Radio Metrix Inc.,
      Letter of Clarification, and Amendment dated as of April 24,
      200310.1
      1
              Quarterly
      Revenue Based Payment Agreement by and among the Company and Stephen A.
      Michael, Spencer Charles Duffey Irrevocable Trust u/a/ d July 29, 1998,
      Elizabeth Rosemary Duffey Irrevocable Trust u/a/d July 29, 1998, Robert T.
      Roth, William W. Dolan dated as of February 25, 2002; and Amendment dated
      as of April 24, 200310.2
      1
              Promissory
      Note, Security Agreement, and Escrow Agreement - Re: Daimler Capital
      Partners, Ltd. - loan and stock options; Stock Option Agreement with
      Daimler Capital Partners, Ltd. - October 28, 2002; Stock Option Agreement
      with Daimler Capital Partners, Ltd. - February 28, 200310.3
      1
              Form
      of Plan 2003 Option Agreement with Joseph F. Movizzo - May 13, 2003
      (including form of Letter of Investment Intent)10.4
      1
              Consulting
      Agreement - March 2003 between Crescent Fund, Inc. and the
      Company10.5
      1
              Agreement
      dated as of April 24, 2003 between Alan A. Feldman and the
      Company10.6
      1
              Financing
      Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the
      Company10.7
      1
              Series
      2003A 7% Convertible Note Due June 9, 2004, dated May 9, 2003 from the
      Company to BarBell Group, Inc.10.8
      1
              Investment
      Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the
      Company10.9
      1
              Warrant
      to Purchase Shares of Common Stock dated as of May 9, 2003, issued by the
      Company to BarBell Group, Inc.10.10
      1
              Registration
      Rights Agreement dated as of May 9, 2003 between the Company and BarBell
      Group, Inc.10.11
      1
              Broker-Dealer
      Placement Agent Selling Agreement - May 2003 between Capstone Partners LC
      and the Company10.12
      2
              Amended
      and Restated Regulation S Subscription Agreement - July 22, 2003 between
      Capstone Partners LC and the Company10.13
      2
              Amended
      and Restated Regulation S Subscription Agreement - July 22, 2003 executed
      by Nautilus Technologies, Ltd. - subscribing for 125,000
    Units10.14
      2
              Amended
      and Restated Regulation S Subscription Agreement - July 22, 2003 executed
      by GM Capital Partners, Ltd. - subscribing for 50,500
  Units10.15
      2
              Amended
      and Restated Regulation S Subscription Agreement - July 22, 2003 executed
      by Kallur Enterprises, Ltd. - subscribing for 50,000
  Units10.16
      2
              Publicity
      Agreement - July 2003 between Capital Financial Media, Inc. and the
      Company
  20
 10.17
      2
                                                                                                                          Consulting
      Agreement - July 2003 between National Financial Communications Corp. and
      the Company10.18
      2
                                                                                                                          Agreement
      - July 2003 between Brooks Houghton & Company, Inc. and the
      Company10.19
      2
                                                                                                                          Non-Exclusive
      Financial Advisor Agreement - July 2003 between Source Capital Group, Inc.
      and the Company10.20
      2
                                                                                                                          Consulting
      Agreement - July 2003 between Patrick W.H. Garrard d/b/a The Garrard Group
      of West Redding, CT and the Company10.21
      2
                                                                                                                          Investment
      Agreement Modification I dated as of July 21, 2003 by and among Invisa,
      Inc. and BarBell Group, Inc.10.22
      2
                                                                                                                          Joint
      Development Agreement - July 2003 between Dominator International Ltd. And
      SmartGate, L.C.10.23
      3
                                                                                                                          Engagement
      Agreement dated September 9, 2003 between G.M. Capital Partners, Ltd and
      Invisa, Inc.10.24
      4
                                                                                                                          Employment
      Agreement dated November 6, 2003 between Herb Lustig and Invisa,
      Inc.10.25
      4
                                                                                                                          Severance
      Agreement dated November 13, 2003 between Samuel S. Duffey and Invisa,
      Inc.10.26
      4
                                                                                                                          Agreement
      dated November 13, 2003 between Invisa, Inc. and the Duffey related
      shareholders10.27
      5
                                                                                                                          SDR
      Metro Inc. letter extension agreement10.28
      5
                                                                                                                          SDR
      Metro Inc. confirmation letter agreement10.29
      5
                                                                                                                          Severance
      Agreement dated January 26, 2004 between Stephen A. Michael and Invisa,
      Inc.10.30
      5
                                                                                                                          Consulting
      Agreement dated January 26, 2004 between Stephen A. Michael and Invisa,
      Inc.10.31
      5
                                                                                                                          Severance
      Agreement dated December 31, 2003 between William W. Dolan and Invisa,
      Inc.10.32
      5
                                                                                                                          Agreement
      dated February 11, 2004 between The Video Agency, Inc. and Invisa,
      Inc.10.33
      5
                                                                                                                          Employment
      Agreement dated March 2004 between Charles Yanak and Invisa,
      Inc.10.34
      5
                                                                                                                          2003-A
      Employee, Director, Consultant and Advisor Stock Compensation
      Plan.10.35
      5
                                                                                                                          First
      Amendment to Invisa, Inc., 2003 Incentive Plan Date As of November 6,
      200310.36
      5
                                                                                                                          Stock
      Option Agreement for Herb M. Lustig dated November 6,
  200310.37
      6
                                                                                                                          Subscription
      Agreement for issuance of 22,000 shares of Series A Convertible Preferred
      Stock and Common Stock Warrants10.38
      6
                                                                                                                          Registration
      Rights Agreement10.39
      6
                                                                                                                          Warrants
      to Purchase Common Stock (Mercator Momentum Fund, LP, Mercator Advisory
      Group, LLC, and Monarch Pointe Fund, Ltd.)10.40
      6
                                                                                                                          Certificate
      of Designations of Preferences and Rights of Series A Convertible
      Preferred Stock.10.41
      7
                                                                                                                          Marketing
      Agreement between Aurelius Consulting Group and Invisa,
    Inc.10.42
      7
                                                                                                                          Lease
      Agreement among HAR-WAL ASSOCIATES, INC. and WR-I ASSOCIATES, LTD. and
      Invisa, Inc. dated September dated September 23, 200410.43
      11
                                                                                                                          Business
      consulting
agreement
  21
  10.44
      11
              Opinion
      of counsel regarding legality of Common Stock10.45
              Consent
      of Aidman, Piser and Company, PA10.46
      11
              Consent
      of Legal Counsel10.47
      11
              Power
      of Attorney relating to subsequent amendments10.48
      9
              Promissory
      note agreements dated October 10, 2006 by and between Invisa, Inc. and
      M.A.G. Capital, LLC; Mercator Momentum Fund III, LP and Monarch Pointe
      Fund, Ltd. Borrowing Certificates and Forms of
  Assignments10.499
              Warrant
      Agreement dated October 10, 2006 by and between Invisa, Inc. and Ocean
      Park Advisors, LLP10.50
      9
              UCC
      Financing Statements10.51
      9
              Schedule
      of Advances: Permitted Payments10.52
      10
              Business
      Consulting Agreement dated August 14, 2006 between Invisa, Inc. and John
      Anderson10.53
      17
              Carl
      A. Parks Employment agreement10.54
      16
              Forbearance
      and Modification agreement dated July 27, 200710.55
      16
              Promissory
      Note dated July 25, 200710.56
      15
              Promissory
      Note dated March 6, 200710.57
      16
              Forbearance
      and Modification Agreement10.58
      18
              Audit
      Committee Charter10.59
      18
              Senior
      Secured Promissory Note date March 28, 200810.60
      18
              Forbearance
      and Modification Agreement dated March 28, 200810.61
      18
              Extension
      of Promissory Note dated April 11, 200810.62
      19
              Senior
      Secured Promissory Note dated July 1, 200810.63
      19
              Forbearance
      and Modification Agreement dated June 1, 200831.2
      8
              Chief
      Financial Officer Certification Pursuant to Securities Exchange Act Rules
      13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
      8
              Certification
      Pursuant to 18 U.S.C. Section 1350.32.2
      8
              Certification
      Pursuant to 18 U.S.C. Section 1350.1
              Previously
      filed on June 23, 2003 with Invisa’s Form 10-KSB for the year ended
      December 31, 2002 and are incorporated by reference.2
              Previously
      filed on August 1, 2003 with Invisa’s Form 10-QSB for the quarter period
      ended June 30, 2003 and are incorporated by
  reference. 
 3
                Previously
      filed on September 17, 2003 with Invisa’s Form 8-KA (Amendment No. 1)
      dated September 9, 2003 and is incorporated by
  reference.
 
 4
                Previously
      filed on November 14, 2003 with Invisa’s Form 8-K dated November 6, 2003
      and are incorporated by reference.
 
 22
 5
                Previously
      filed on April 14, 2004 with Invisa Form 10-KSB for the year ended
      December 31, 2003 and incorporated herein by
  reference.
 
 6
                Previously
      filed on August 18, 2004 with Invisa Form 10-QSB and incorporated herein
      by reference.
 
 7
                Previously
      filed on February 7, 2005 with Invisa Form 10-KSB for the year ended
      December 31, 2004 and incorporated herein by
  reference.
 
 8
                  Filed
      herewith.9
                  Previously
      filed on October 10, 2006 with Invisa Form 8-K/A dated October 10, 2006
      and are incorporated by reference.10
                  Previously
      filed on August 17, 2006 with Invisa Form 8-K dated August 14, 2006 and
      are incorporated by reference.11
                  Previously
      filed on August 14, 2006 with Invisa Form S-8 dated August 14, 2006 and
      are incorporated by reference12
                  Previously
      filed on April 14, 2007 with Invisa For 10-KSB and incorporated herein by
      reference.13
                  Previously
      filed on August 1, 2007 with Invisa’s Form 8-K and incorporated
      herein.14
                  Previously
      filed on July 26, 2007 with Invisa’s Form 8-K and incorporated
      herein.14 1
                  Code
      of Business Conduct and Ethics and Compliance Program15
                  Previously
      filed on March 6, 2007 with Invisa’s Form 8-K and incorporated
      herein.16
                  Previously
      filed on November 14, 2007 with Invisa Form 10-QSB and incorporated herein
      by reference.17
                  Previously
      filed on April 18, 2007 with Invisa Form 10-KSB and incorporated herein by
      reference.18
                  Previously
      filed on April 14, 2008 with Invisa Form 10-KSB and incorporated herein by
      reference.19
                  Previously
      filed on July 30, 2008 with Invisa Form 8-K and incorporated herein by
      reference.
 
 23
  SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  INVISA,
      INC.Dated:  April
      14, 2009
              By:
              /s/ Edmund
      C. KingEdmund
      C. KingActing
      PresidentDated:  April
      14, 2009
              By:
              /s/ Edmund
      C KingEdmund
      C KingChief
      Financial Officer
 
 
 
 24
  NOW ALL PERSONS BY THESE
PRESENTS , that each of the undersigned hereby constitutes and appoints
Edmund C. King as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and on his behalf to sign,
execute and file this annual report on Form 10-K and any or all amendments
without limitation to this annual report, and to file the same, with all
exhibits thereto and any and all documents required to be filed with respect
therewith, with the Securities and Exchange Commission or any regulatory
authority, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith and about the premises in order to effectuate
the same as fully to all intents and purposes as he might or could do if
personally present, hereby ratifying and confirming all that such
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done.
 
 In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
 
 Dated:  April
      15, 2009
              /s/
      Edmund C. KingEdmund
      C. King, Acting PresidentDated:  April
      15, 2009
              /s/
      Edmund C. KingEdmund
      C. King, Chief Financial Officer, DirectorDated:  April
      15, 2009
              /s/
      Gregory J. NewellGregory
      J. Newell, DirectorDated:  April
      15, 2009
              /s/
      John E. ScatesJohn
      E. Scates, Director
    
 25
  Report of Independent
Registered Certified Public Accounting Firm
 
 
 Board of
Directors and Stockholders
 Invisa,
Inc.
 
 We have
audited the accompanying balance sheet of Invisa, Inc. (the “Company”) (a
development stage company) as of December 31, 2008, and the related statements
of operations, stockholders’ equity (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company as
of December 31, 2007, and for the year then ended and the period from inception
(February 12, 1997) to December 31, 2007 were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion with a going
concern qualification on those financial statements in their report dated April
14, 2008.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Invisa, Inc. as of December 31,
2008, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note B to the financial
statements, the Company has incurred significant losses from inception and has
working capital and stockholders deficits at December 31, 2008. These factors,
among others, as discussed in Note B, raise 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 B. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 /s/ Stark Winter Schenkein &
      Co., LLP..
 Denver,
Colorado
 April 15,
2009
  F-1
 
 Invisa,
Inc.
 (A
Development Stage Enterprise)
 BALANCE
SHEETS
 
 December
      31,2007
                                          
                                          
                                          
                                          2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                                          $
                                          2,281
                                          
                                          
                                          
                                          $
                                          ----Accounts
      receivable
                                          
                                          19,324
                                          
                                          
                                          
                                          
                                          6,498Inventories
                                          
                                          20,678
                                          
                                          
                                          
                                          
                                          35,115Prepaids
      and other assets
                                          
                                          4,298
                                          
                                          
                                          
                                          
                                          5,366Total
      current assets
                                          
                                          46,581
                                          
                                          
                                          
                                          
                                          46,979Furniture,
      fixtures and equipment, net of $39,286 and $39,718, respectively of
      accumulated depreciation
                                          
                                          3,212
                                          
                                          
                                          
                                          
                                          2,800Total
      assets
                                          
                                          49,793
                                          
                                          
                                          
                                          $
                                          49,779LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Bank
      overdraft
                                          $
                                          ----
                                          
                                          
                                          
                                          $
                                          191Accounts
      payable, trade
                                          
                                          291,085
                                          
                                          
                                          
                                          
                                          118,410Accrued
      expenses
                                          
                                          205,926
                                          
                                          
                                          
                                          
                                          30,377Due
      to stockholders and officers
                                          
                                          364,551
                                          
                                          
                                          
                                          
                                          105,334Notes
      Payable
                                          
                                          231,300
                                          
                                          
                                          
                                          
                                          494,030Preferred
      dividends payable
                                          
                                          198,750
                                          
                                          
                                          
                                          
                                          261,375Total
      current liabilities
                                          
                                          1,291,612
                                          
                                          
                                          
                                          
                                          1,009,717Stockholders’
      DeficitConvertible
      Preferred Stock, 5 million shares authorized ($0.001 par
      value):Series
      A, 14,500 and 9,715, respectively, shares issued and
      outstanding
                                          
                                          1,277,000
                                          
                                          
                                          
                                          
                                          798,500Series
      B, 10,000 and 9,000, respectively, shares issued and
      outstanding
                                          
                                          1,000,000
                                          
                                          
                                          
                                          
                                          900,000Series
      C, 0 and 6,628, respectively, shares issued and
outstanding
                                          
                                          ----
                                          
                                          
                                          
                                          
                                          654,907Common
      Stock; 95,000,000 shares authorized ($.001 par value), 25,066,126
                                            and
      34,781,081, respectively, shares issued and outstanding
                                          
                                          25,066
                                          
                                          
                                          
                                          
                                          34,781Additional
      paid-in capital
                                          
                                          31,797,807
                                          
                                          
                                          
                                          
                                          31,975,470Deficit
      accumulated during the development stage
                                          
                                          (35,341,692
                                          )
                                          
                                          
                                          
                                          (35,323,596
                                          )Total
      stockholders’ deficit
                                          
                                          (1,241,819
                                          )
                                          
                                          
                                          
                                          (959,938
                                          )Total
      liabilities and stockholders’ equity
                                          
                                          49,793
                                          
                                          
                                          
                                          
                                          49,779
  See notes
to financial statements.
  F-2
  Invisa,
Inc.
 (A
Development Stage Enterprise)
 STATEMENTS
OF OPERATIONS
  
  February
      12, 1997(Date
      of inception)Years
      Ended December 31,
                                                                            
                                                                            
                                                                            Through2007
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            December
      31, 2007Net
      sales
                                                                            
                                                                            $
                                                                            124,986
                                                                            
                                                                            
                                                                            $
                                                                            102,297
                                                                            
                                                                            
                                                                            $
                                                                            1,516,614Other
      operating revenues
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            300,000124,986
                                                                            
                                                                            
                                                                            
                                                                            102,297
                                                                            
                                                                            
                                                                            
                                                                            1,816,614Costs
      and expenses:Cost
      of goods sold (exclusive of patent amortization shown separately
      below)
                                                                            
                                                                            
                                                                            73,992
                                                                            
                                                                            
                                                                            
                                                                            60,558
                                                                            
                                                                            
                                                                            
                                                                            1,082,874Research
      and development costs
                                                                            
                                                                            
                                                                            ---
                                                                            
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            3,471,292Selling,
      general and administrative expenses
                                                                            
                                                                            
                                                                            581,993
                                                                            
                                                                            
                                                                            
                                                                            256,999
                                                                            
                                                                            
                                                                            
                                                                            15,997,470Patent
      amortization
                                                                            
                                                                            
                                                                            788,235
                                                                            
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            4,646,599Impairment
      of patent
                                                                            
                                                                            
                                                                            3,547,059
                                                                            
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            9,064,867Loss
      from operations
                                                                            
                                                                            
                                                                            (4,866,293
                                                                            )
                                                                            
                                                                            
                                                                            (215,260
                                                                            )
                                                                            
                                                                            
                                                                            (32,446,488
                                                                            )Other
      income (expense):Interest
      (expense)and other, net
                                                                            
                                                                            
                                                                            (129,402
                                                                            )
                                                                            
                                                                            
                                                                            (56,348
                                                                            )
                                                                            
                                                                            
                                                                            (1,031,422
                                                                            )Debt
      extinguishment gain
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            377,454
                                                                            
                                                                            
                                                                            
                                                                            737,454(129,402
                                                                            )
                                                                            
                                                                            
                                                                            321,106
                                                                            
                                                                            
                                                                            
                                                                            (293,968
                                                                            )Income
      (Loss) before income
      tax
                                                                            
                                                                            
                                                                            (4,995,695
                                                                            )
                                                                            
                                                                            
                                                                            105,846
                                                                            
                                                                            
                                                                            
                                                                            (32,740,456
                                                                            )Income
      tax
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            ----Net
      Income (Loss)
                                                                            
                                                                            
                                                                            (4,995,695
                                                                            )
                                                                            
                                                                            
                                                                            105,846
                                                                            
                                                                            
                                                                            
                                                                            (32,740,456
                                                                            )Non-cash
      constructive dividend related to Convertible Preferred
                                                                              Stock
      accretions
                                                                            
                                                                            
                                                                            ----
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            (2,296,640
                                                                            )Preferred
      Stock dividends
                                                                            
                                                                            
                                                                            (90,000
                                                                            )
                                                                            
                                                                            
                                                                            (87,750
                                                                            )
                                                                            
                                                                            
                                                                            (286,500
                                                                            )Net
      Income (Loss) applicable to Common Stockholders
                                                                            
                                                                            $
                                                                            (5,085,695
                                                                            )
                                                                            
                                                                            $
                                                                            18,096
                                                                            
                                                                            
                                                                            $
                                                                            (35,323,596
                                                                            )Net
      Income (Loss) per share applicable to Common Stockholders:Basic
      and diluted
                                                                            
                                                                            $
                                                                            (0.20
                                                                            )
                                                                            
                                                                            $
                                                                            0.00Weighted
      average Common Stock shares outstanding:
                                                                              Basic
      and diluted
                                                                            
                                                                            
                                                                            25,355,659
                                                                            
                                                                            
                                                                            
                                                                            33,230,793
 
 
 See notes
to financial statements.
 
 F-3
  Invisa,
Inc.
 (A
Development Stage Enterprise)
 STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 Convertible
      Preferred
                                                Stock
                                              
                                              
                                              Common
      Stock
                                              
                                              
                                              Additional
      paid – in capital
                                              
                                              
                                              Stock
      Subscriptions Receivable
                                              
                                              
                                              Deficit
      Accumulated During the Development Stage
                                              
                                              
                                              TotalShares
                                              
                                              
                                              Amount
                                              
                                              
                                              Shares
                                              
                                              
                                              AmountFEBRUARY
      12, 1997 (INCEPTION)
                                              
                                              
                                              ----
                                              
                                              
                                              $
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              $
                                              ----
                                              
                                              
                                              $
                                              ----
                                              
                                              
                                              $
                                              ----
                                              
                                              
                                              $
                                              ----
                                              
                                              
                                              $
                                              ----Summary
      of transactions from February 12, 1997Through
      December 31, 2004:Issuance
      of Common Stock to founders
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              6,105,128
                                              
                                              
                                              
                                              5,980
                                              
                                              
                                              
                                              (5,980
                                              )
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Issuance
      of Common Stock for cash
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              4,257,350
                                              
                                              
                                              
                                              4,257
                                              
                                              
                                              
                                              9,031,704
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              9,035,961Exercise
      of stock options
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,027,964
                                              
                                              
                                              
                                              1,027
                                              
                                              
                                              
                                              1,316,160
                                              
                                              
                                              
                                              (985,000
                                              )
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              332,187Offering
      Costs
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              500,000
                                              
                                              
                                              
                                              500
                                              
                                              
                                              
                                              637,436
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              637,936Conversion
      of notes payable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              635,022
                                              
                                              
                                              
                                              635
                                              
                                              
                                              
                                              449,365
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              450,000Original
      issue discount on notes payable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              201,519
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              201,519Common
      Stock issuable for rent
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              164,799
                                              
                                              
                                              
                                              290
                                              
                                              
                                              
                                              88,084
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              88,374Issuance
      of Common Stock for services
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              606,144
                                              
                                              
                                              
                                              607
                                              
                                              
                                              
                                              1,254,355
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,254,962Issuance
      of Common Stock options for services
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              550,987
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              550,987Original
      issue discount
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              144,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              144,000Issuance
      of Common Stock related to reorganization
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              2,009,000
                                              
                                              
                                              
                                              2,009
                                              
                                              
                                              
                                              227,991
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              230,000Issuance
      accrued on notes related to Radio Metric merger
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              3,685,000
                                              
                                              
                                              
                                              3,685
                                              
                                              
                                              
                                              11,268,815
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              11,272,500Interest
      accrued on notes related to stock subscriptions receivable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              248,836
                                              
                                              
                                              
                                              (248,836
                                              )
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              -----Settlement
      of accounts in connection with severance agreements
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              544,090
                                              
                                              
                                              
                                              923,432
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,467,522Exercise
      of Stock Warrants
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              602,000
                                              
                                              
                                              
                                              602
                                              
                                              
                                              
                                              1,138,143
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,138,745Issuance
      of Convertible Preferred Stock and detachable Warrants for cash, net of
      costs paid in the form of common stock
                                              
                                              
                                              22,000
                                              
                                              
                                              
                                              640,360
                                              
                                              
                                              
                                              162,500
                                              
                                              
                                              
                                              163
                                              
                                              
                                              
                                              1,296,477
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,937,000Non-cash
      constructive dividend related to beneficial conversion features of
      Convertible Preferred Stock
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,296,640
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (1,296,640
                                              )
                                              
                                              
                                              ----Conversion
      of Convertible Preferred Stock into Common Stock
                                              
                                              
                                              (7,500
                                              )
                                              
                                              
                                              (660,000
                                              )
                                              
                                              
                                              1,500,000
                                              
                                              
                                              
                                              1,500
                                              
                                              
                                              
                                              658,500
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Issuance
      of Common Stock for settlement of cash advances
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              80,925
                                              
                                              
                                              
                                              81
                                              
                                              
                                              
                                              80,844
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              80,925Issuable
      Common Stock for settlement of related party accrued
      compensation
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              300,000
                                              
                                              
                                              
                                              300
                                              
                                              
                                              
                                              194,700
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              195,000Gain
      on related party accrued compensation extinguishment
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              581,132
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              581,132Issuance
      of Common Stock Warrants for settlement of royalty
contract
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              91,400
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              91,400Collections
      of stock subscriptions receivable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              36,500
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              36,500Adjustment
      of stock subscrptions
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (20,000
                                              )
                                              
                                              
                                              20,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Net
      Loss
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (23,868,740
                                              )
                                              
                                              
                                              (23,768,740
                                              )BALANCE
      AT DECEMBER 31, 2004
                                              
                                              
                                              14,500
                                              
                                              
                                              
                                              1,277,000
                                              
                                              
                                              
                                              21,635,832
                                              
                                              
                                              
                                              21,636
                                              
                                              
                                              
                                              29,978,558
                                              
                                              
                                              
                                              (253,904
                                              )
                                              
                                              
                                              (25,065,380
                                              )
                                              
                                              
                                              5,957,910Issuance
      of Convertible Preferred Stock and detachable Warrants for cash, net of
      costs paid
                                              
                                              
                                              10,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              878,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              878,000Non-cash
      constructive dividend related to Convertible Preferred Stock
      accretions
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,000,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (1,000,000
                                              )
                                              
                                              
                                              ----Issuance
      of Common Stock for cash
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,066,662
                                              
                                              
                                              
                                              1,066
                                              
                                              
                                              
                                              78,934
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              80,000Issuance
      of Common Stock for services
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              1,096,774
                                              
                                              
                                              
                                              1,097
                                              
                                              
                                              
                                              103,903
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              105,000Issuance
      of Common Stock options for services
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              33,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              33,000Interest
      accrued on notes related to stock subscriptions receivable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              15,000
                                              
                                              
                                              
                                              (15,000
                                              )
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Preferred
      Stock Series B dividend
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (18,750
                                              )
                                              
                                              
                                              (18,750
                                              )Net
      loss
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (1,770,918
                                              )
                                              
                                              
                                              (1,770,918
                                              )BALANCE
      AT DECEMBER 31, 2005
                                              
                                              
                                              24,500
                                              
                                              
                                              
                                              2,277,000
                                              
                                              
                                              
                                              23,799,268
                                              
                                              
                                              
                                              23,799
                                              
                                              
                                              
                                              31,087,395
                                              
                                              
                                              
                                              (268,904
                                              )
                                              
                                              
                                              (27,855,048
                                              )
                                              
                                              
                                              5,264,242Issuance
      of Common Stock for cash
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              400,000
                                              
                                              
                                              
                                              400
                                              
                                              
                                              
                                              43,600
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              44,000Stock
      options exercised
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              316,670
                                              
                                              
                                              
                                              317
                                              
                                              
                                              
                                              23,933
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              24,250Issuance
      of Common Stock for services
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              981,800
                                              
                                              
                                              
                                              982
                                              
                                              
                                              
                                              132,652
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              133,634Employee
      share-based comp
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              198,089
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              198,089Issuance
      of Common Stock options for services
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              133,390
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              133,390Interest
      accrued on notes related to stock subscriptions
      receivable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              15,000
                                              
                                              
                                              
                                              (15,000
                                              )
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Preferred
      Stock Series B dividend
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (90,000
                                              )
                                              
                                              
                                              (90,000
                                              )Net
      loss
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (2,310,949
                                              )
                                              
                                              
                                              (2,310,949
                                              )BALANCE
      AT DECEMBER 31, 2006
                                              
                                              
                                              24,500
                                              
                                              
                                              
                                              2,277,000
                                              
                                              
                                              
                                              25,497,738
                                              
                                              
                                              
                                              25,498
                                              
                                              
                                              
                                              31,634,059
                                              
                                              
                                              
                                              (283,904
                                              )
                                              
                                              
                                              (30,255,997
                                              )
                                              
                                              
                                              3,396,656Employee
      share-based compensation
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              165,410
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              165,410Warrant
      Modification
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              60,000
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              60,000Interest
      accrued on notes related to stock subscriptions receivable
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              15,000
                                              
                                              
                                              
                                              (15,000
                                              )
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Preferred
      Stock Series B dividend
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (90,000
                                              )
                                              
                                              
                                              (90,000)Stock
      Redeemed
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (431,612)
                                              
                                              
                                              
                                              (432)
                                              
                                              
                                              
                                              (298,472)
                                              
                                              
                                              
                                              298,904
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----Related
      party forgiveness of debt
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              221,810
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              221,810Net
      loss
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (4,995,695)
                                              
                                              
                                              
                                              (4,995,695
                                              )BALANCE
      AT DECEMBER 31, 2007
                                              
                                              
                                              24,500
                                              
                                              
                                              
                                              2,277,000
                                              
                                              
                                              
                                              25,066,126
                                              
                                              
                                              
                                              25,066
                                              
                                              
                                              
                                              31,797,807
                                              
                                              
                                              
                                              ----
                                              
                                              
                                              
                                              (35,341,692)
                                              
                                              
                                              
                                              (1,241,819
                                              )
 Employee
      share-based compensation
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        2,667,361
                        
                        
                        
                        2,667
                        
                        
                        
                        24,006
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        26,674Pro
      Forma officer compensation
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        35,500
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        35,500Shares
      issued for settlement of
      debt
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        7,047,594
                        
                        
                        
                        7,048
                        
                        
                        
                        62,709
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        69,757Contribution
      to capital
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        55,448
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        55,448Preferred
      Stock Series B dividend
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        (87,750
                        )
                        
                        
                        (87,750
                        )Preferred
      Series C Stock (6,185 shares) issued for settlement of debt, dividends and
      Preferred Series A and B Stock (4,785 shares and 1,000 shares,
      respectively)
                        
                        
                        400
                        
                        
                        
                        35,541
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        35,541Preferred
      Series C Stock issued for settlement of debt
                        
                        
                        483
                        
                        
                        
                        40,866
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        40,866Net
      Income
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        ----
                        
                        
                        
                        105,846
                        
                        
                        
                        105,846BALANCE
      AT DECEMBER 31, 2008
                        
                        
                        25,383
                        
                        
                        $
                        2,353,407
                        
                        
                        
                        34,781,081
                        
                        
                        $
                        34,781
                        
                        
                        $
                        31,975,470
                        
                        
                        
                        ----
                        
                        
                        $
                        (35,323,596)
                        
                        
                        $
                        (959,938
                        )
  See notes
to financial statements.
 
 F-4
 
 Invisa, Inc.
 (A
Development Stage Enterprise)
 STATEMENTS
OF CASH FLOWS
  Years
      Ended December 31,
                                        
                                        
                                        February
      12, 1997
                                          (date
      of inception)
                                          Through2007
                                        
                                        
                                        2008
                                        
                                        
                                        December
      31, 2007Cash
      flows from operating activities:Net
      income (loss)
                                        
                                        $
                                        (4,995,695
                                        )
                                        
                                        $
                                        105,846
                                        
                                        
                                        
                                        (32,740,336
                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Patent
      impairment
                                        
                                        
                                        3,547,059
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        9,064,867Depreciation
      and amortization
                                        
                                        
                                        791,168
                                        
                                        
                                        
                                        515
                                        
                                        
                                        
                                        5,203,957Modification
      of Warrants
                                        
                                        
                                        60,000
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        60,000Common
      Stock and options exchanged for services/settlements
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        3,028,164Share
      Based Compensation and Proforma officer compensation
                                        
                                        
                                        165,410
                                        
                                        
                                        
                                        62,174
                                        
                                        
                                        
                                        425,673Abandonment
      loss on furniture equipment and leaseholds, net of disposition
      gain
                                        
                                        
                                        23,817
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        23,817Debt
      extinguishment gain
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        (377,454
                                        )
                                        
                                        
                                        (737,454
                                        )Changes
      in operating assets and liabilities:Accounts
      receivable
                                        
                                        
                                        (7,674
                                        )
                                        
                                        
                                        12,827
                                        
                                        
                                        
                                        (153,211
                                        )Inventories
                                        
                                        
                                        51,161
                                        
                                        
                                        
                                        (14,663
                                        )
                                        
                                        
                                        (35,341
                                        )Prepaids
      and other assets
                                        
                                        
                                        15,935
                                        
                                        
                                        
                                        (1,068
                                        )
                                        
                                        
                                        (5,367
                                        )Accounts
      payable, trade
                                        
                                        
                                        22,962
                                        
                                        
                                        
                                        (53,276
                                        )
                                        
                                        
                                        237,809Accrued
      expenses
                                        
                                        
                                        60,414
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        155,918Net
      cash used in operating activities
                                        
                                        
                                        (265,443
                                        )
                                        
                                        
                                        (265,099
                                        )
                                        
                                        
                                        (15,471,504
                                        )Cash
      flows from investing activities:Patent
      acquisition
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        (550,000
                                        )Transaction
      costs in connection with RMI business combination
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        (121,475
                                        )Purchases
      of furniture, fixtures and equipment
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        (103
                                        )
                                        
                                        
                                        (238,949
                                        )Net
      cash used in investing activities
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        (103
                                        )
                                        
                                        
                                        (910,424
                                        )Cash
      flows from financing activities:Proceeds
      from notes payable
                                        
                                        
                                        231,300
                                        
                                        
                                        
                                        262,730
                                        
                                        
                                        
                                        672,367Proceeds
      from notes payable and redeemable Common Stock
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        908,000Payment
      of notes payable
                                        
                                        
                                        -----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        (520,800
                                        )Collection
      of stock subscriptions
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        36,500Stockholder
      Advances
                                        
                                        
                                        33,524
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        1,585,007Proceeds
      from sale of convertible Preferred Stock
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        2,815,000Proceeds
      from sale of Common Stock
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        10,631,413Proceeds
      from the exercise of stock options`
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        24,250Cash
      received with combination transaction
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        230,000Bank
      overdraft
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        191
                                        
                                        
                                        
                                        191Net
      cash provided by financing activities
                                        
                                        
                                        264,824
                                        
                                        
                                        
                                        262,921
                                        
                                        
                                        
                                        16,381,928Net
      (decrease) increase in cash
                                        
                                        
                                        (619
                                        )
                                        
                                        
                                        (2,281
                                        )
                                        
                                        
                                        (2,281
                                        )Cash
      at beginning of period
                                        
                                        
                                        2,900
                                        
                                        
                                        
                                        2,281
                                        
                                        
                                        
                                        2,281Cash
      (overdraft) at end of period
                                        
                                        $
                                        2,281
                                        
                                        
                                        $
                                        ----
                                        
                                        
                                        $
                                        ----
  See notes
to financial statements.
  F-5
  Invisa, Inc.
 (A
Development Stage Enterprise)
 STATEMENTS
OF CASH FLOWS - CONTINUED
  February
      12, 1997(Date
      of Inception)ThroughYear
      Ended December 31,
                                            
                                            
                                            December
      31,2007
                                            
                                            
                                            2008
                                            
                                            
                                            2008SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the period for interest
                                            
                                            $
                                            42,534
                                            
                                            
                                            $
                                            37,132
                                            
                                            
                                            
                                            308,828Non-cash
      financing and investing activities:Notes payable incurred in connection with
      merger transactions
                                            
                                            $
                                            -----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            (1,300,000
                                            )Notes
      payable canceled in connection with merger transaction
                                            
                                            $
                                            -----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            (337,489
                                            )Common
      Stock issued in connection with merger transaction (3,685,000
      shares)
                                            
                                            $
                                            -----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            (11,272,500
                                            )Due
      to employees in connection with merger transaction
                                            
                                            $
                                            ----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            (175,000
                                            )Accrued
      expenses assumed in connection with merger transaction
                                            
                                            $
                                            ----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            (50,000
                                            )Exchange
      of liabilities for Common Stock
                                            
                                            $
                                            ----
                                            
                                            
                                            $
                                            69,757
                                            
                                            
                                            
                                            (857,057
                                            )Common
      Stock issued representing stock offering commitment (200,000
      shares)
                                            
                                            $
                                            -----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            (554,000
                                            )Preferred
      dividends accrued as liabilities
                                            
                                            $
                                            90,000
                                            
                                            
                                            $
                                            87,750
                                            
                                            
                                            
                                            286,500Non-cash
      preferred stock accretions
                                            
                                            $
                                            ----
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            2,296,640Subscription
      receivable redeemed for stock originally issued
                                            
                                            $
                                            298,904
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            298,904Stockholder
      forgiveness of debt
                                            
                                            $
                                            221,810
                                            
                                            
                                            $
                                            -----
                                            
                                            
                                            
                                            221,810Exchange
      of liabilities for Preferred Stock and dividends paid in Preferred
      Stock
                                            
                                            $
                                            ----
                                            
                                            
                                            $
                                            76,407
                                            
                                            
                                            $
                                            76,407
  See notes
to financial statements.
  F-6
 
 Invisa,
Inc.
 (A
Development Stage Enterprise)
 NOTES TO
FINANCIAL STATEMENTS
 
 NOTE A -
DESCRIPTION OF ORGANIZATION AND BUSINESS
 
 Invisa,
Inc., (the “Company” or “Invisa”) is a development stage enterprise that
incorporates safety system technology and products into automated closure
devices, such as parking gates, sliding gates, overhead garage doors and
commercial overhead doors. Invisa has also demonstrated production-ready
prototypes of security products for the museum and other markets. The Company
has not fully implemented its sales and marketing plan and has, therefore, not
emerged from the development stage. The Company, however, is currently
manufacturing and selling powered closure safety devices for certain gates. The
Company acquired a license to use the core technology used in the powered
closure safety devices in 1992.
 
 NOTE B -
LIQUIDITY AND MANAGEMENT’S PLANS
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. For the year ended December 31, 2008 and since
the date of inception, the Company has had net income and net losses applicable
to Common Shareholders of $18,096 and $35.3 million,
respectively.  As of December 31, 2008, the Company has not emerged
from the development stage and has negative working capital of $.96
million.  Since inception, the Company has financed its operations
principally from the sale of equity securities and, to a lesser extent, debt, as
the Company has not generated significant revenues from the sales of its
products. Continuation of the Company as a going concern is dependent upon
additional external funding and, ultimately, a substantial increase in sales
volume and achievement of profitable operations. The Company has substantially
reduced its operations because of a current lack of available external
funding.  The Company intends to finance its future development
activities and its working capital needs largely from additional debt and the
issuance of equity securities with some additional funding from other
traditional financing sources, including term notes and proceeds from licensing
agreements until such time that funds provided by operations are sufficient to
fund working capital requirements. There can be no assurance in that such
financing will be available at acceptable terms, if at all. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.   Continuation of the company as a going
concern is dependent upon additional external funding and, ultimately, a
substantial increase in sales volume and achievement of profitable
operations.
  NOTE C -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Use
of Estimates
 
 In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. The Company maintains its cash
and cash equivalents at a major commercial bank. Such amounts are occasionally
in excess of the maximum federally insured amounts.
  Accounts
Receivable, Major Customer Information and Export Sales
 
 Accounts
receivable are due primarily from companies in the gate manufacturing industry
located throughout the United States and the United Kingdom. Credit is extended
based on an evaluation of the customers’ financial condition and, generally,
collateral is not required. Account balances are evaluated for collectability
based on the condition of the customers’ credit including repayment history and
trends and relative economic and business conditions. Bad debts have not been
significant.  During 2007, Magnetic Automation Corp. was our largest
customer, comprising approximately 29% of our product revenues. During 2008,
Magnetic Automation Corp. was again our largest customer, comprising
approximately 21% of our product revenues.
  F-7
  Inventories
 
 Inventories
are stated at the lower of cost or market.  Cost is determined using
an averaging method, which approximates the first-in, first-out
method.  Inventory consists principally of finished goods and raw
materials.
 
 
 Furniture,
Fixtures and Equipment
 
 Furniture,
fixtures, and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives, principally five years.
Leasehold improvements are amortized over the term of the lease or the estimated
useful lives, whichever is shorter.   Depreciation expense was
$2,933 and $515 for 2007 and 2008 respectively.
 
  Patent
 
 The
patent for the Company’s underlying technology was amortized on a straight-line
method over 10 years, which represented the remaining useful life of the patent.
At December 31, 2003, the Company recorded an impairment charge of $5,517,808
that was included in the statement of operations to reflect the fair value as
determined by the Company’s management. The 2003 patent impairment resulted
principally from perceived shifts in markets and our approach to such markets
requiring more reliance on our patents applied for and less on the original
patent.
 
 At
December 31, 2007 the remaining balance of the deferred patent costs totaling
$3,547,059 was determined to be impaired and written off (See below –
Impairment of Long-Lived Assets.)
  Revenue
 
 In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured.
 
 Product
sales under fixed price arrangements are recognized as revenue upon shipment of
product (when title transfers to the purchaser) and collectability is assured.
Other operating revenues relate to services and are recorded as
earned.
 
 Licensing
agreement
 
 In July
2002 Invisa entered into an Original and Independent Distribution License
Agreement with Rytec Corporation (the Agreement) and received $300,000 cash
representing an advance on the first 3000 units purchased by Rytec. In February
2005, because of extended development efforts by Invisa, the Agreement was
revised to recharacterize the $300,000 deposit as compensation to the Company
for engineering expenditures and efforts expended by Invisa during 2005. Price
reductions reflected in the original Agreement were also
discontinued.
 
 Shipping
costs
 
 Shipping
and handling costs are included in cost of sales in the accompanying statements
of operations.
 
 Research
and Development Costs
 
 Research
and development costs consist of direct costs that are associated with the
development of the Company’s technology. These costs are expensed as
incurred.  During the years 2007 and 2008, the Company did not incur
research and development expense.
 
 Advertising
Costs
 
 The
Company’s policy is to expense advertising costs as incurred.
 
 Warranty
Costs
 
 The
Company warrants its products for ninety days. Estimated warranty costs are
recognized in the period product is shipped. However, there have been no
significant warranty costs incurred through December 31, 2008, nor are any
significant amounts expected to occur subsequently. Accordingly, no warranty
liability has been recognized for any period presented.
  F-8
  Income
Taxes
 
 Deferred
income tax assets and liabilities are computed annually for differences between
the financial statements and income tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future, based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
 
 Financial
Instruments
 
 The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, notes payable and due to
stockholders. The carrying amounts of these financial instruments approximate
their fair value, due to the short-term nature of these items and the use of
market rates of interest.
 
 Derivative
Financial Instruments
 
 The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow risks or market-risk that may affect the fair values of
its financial instruments. However, certain other financial instruments, such as
warrants and embedded conversion features that are indexed to the Company’s
common stock, are classified as liabilities when either (a) the holder possesses
rights to net cash settlement or (b) physical or net-share settlement is not
within the control of the Company. In such instances, net-cash settlement is
assumed for financial accounting and reporting, even when the terms of the
underlying contracts do not provide for net-cash settlement. Such financial
instruments are initially recorded at fair value and subsequently adjusted to
fair value at the close of each reporting period.
 
 Impairment
of Long-Lived Assets
 
 The
Company evaluates the recoverability of its long-lived assets or asset groups,
including patents, annually; or whenever adverse events or changes in business
climate indicate that the expected undiscounted future cash flows from the
related asset may be less than previously anticipated. If the net book value of
the related asset exceeds the undiscounted future cash flows of the asset, the
carrying amount would be reduced to the present value of its expected future
cash flows and an impairment loss would be recognized.
 
 The
Company’s management performed a valuation of the patent in connection with its
acquisition in February 2002. In doing this valuation we considered several
factors, including the size of the total applicable safely market, our estimates
of penetration into this market and a valuation. This market is large and
growing, principally as a result of increased emphasis on safety by governmental
agencies and others plus increased concerns for security, principally as a
result of the September 11, 2001 terrorist event and all that has followed
relative to terrorism.
 
 During
the fourth quarter of 2003 the Company expensed $5,517,808 to reflect an
impairment of its patent. Our original cost of the patent totaled $13,711,000
which we paid in February 2002 and April 2003. The 2003 patent impairment
resulted principally from the Company’s reduced forecast of expected discounted
future cash flows associated with the licensing business model being pursued by
the Company in 2003.
 
 The Company subsequently determined
that the licensing business model was no longer suitable and the Company adopted
a product sales model with potential customers including end-users, dealers,
distributors and manufacturers.  While product sales have remained low
and operating loses have continued, management continues to believe that the
potential market for its existing technology is viable.  Management
further believes that market viability was to some degree exhibited by the
continued sales of our safety product for parking gates in 2007 notwithstanding
the lack of formal sales effort, adequate financial resources or appropriate
staffing.  In the recent nation-wide cash liquidity environment, our
access to funding to finance a formal Invisa, Inc. sales and marketing effort,
finalize development of the contemplated additional products and launch their
commercialization which we consider to be critical to our ability to recover the
patent costs in the foreseeable future is uncertain.  This uncertainty
has caused us to continue to review the likelihood of the short term
recoverability of our deferred patent cost.  Because of our limited
financing resources, our inability to obtain long-term financing, our belief
that the capital markets may be further deteriorating for companies in positions
similar to ours, and our continued uncertainty regarding access to additional
long-term funding, coupled with our continuing low level of product sales,
continuing operating losses, current reduced level of staffing and technical
capability which cannot be increased without funding, we have concluded that
recovery of the deferred patent cost over the foreseeable future is
unlikely.  Additionally, the pledge of our patents as security for
certain of our short-term notes creates additional uncertainty as we believe
that such pledge might interfere with future efforts to sell a license, sell the
patents or otherwise use the patents as a basis to obtain required
financing.  As a result of our review, we have written off the
remaining patent cost as of December 31, 2007 in the amount of
$3,547,059.
  F-9
  Earnings
per Common Share
 
 The
Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share are calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted earnings
loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares and dilutive common stock equivalents
outstanding. During periods in which the Company incurs losses common stock
equivalents, if any, are not considered, as their effect would be anti
dilutive.
 
 Options
and warrants to purchase 12,989,167 shares of Common Stock as of December
31, 2007 were not considered in the calculation of diluted loss per share
because the effect would be anti-dilutive.  At December 31, 2008 the
preferred stock was convertible into 20,757,500 shares of common stock,
which has also not been considered in the calculation of diluted loss per share
since the effect would be anti-dilutive.
 
 Equity-Based
Compensation
 
 The
Company follows SFAS 123 (revised 2004) "Share-Based Payment". This Statement
requires that the cost resulting from all share-based transactions be recorded
in the financial statements. The Statement establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement in accounting for
share-based payment transactions with employees. The Statement also establishes
fair value as the measurement objective for transactions in which an entity
acquires goods or services from non-employees in share-based payment
transactions. The Statement replaces SFAS 123 "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25 "Accounting for Stock Issued to
Employees". The provisions of this Statement were effective beginning January 1,
2006.
 
 Recent
Accounting Pronouncements
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115” (“SFAS 159”).  SFAS 159 permits companies to choose
to measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities. The provisions of SFAS 159 will become effective as
of the beginning of the 2009 fiscal year. The adoption of these new Statements
is not expected to have a material effect on the Company’s financial position,
results of operations, or cash flows.
 
 In
December 2007, the FASB issued SFAS No. 141 (R) “Business Combinations”. SFAS
141R establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective as of the beginning of the Company’s fiscal year beginning after
December 15, 2008. Management believes the adoption of this pronouncement will
not have a material impact on the Company's financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of the Company’s fiscal year beginning
after December 15, 2008. Management believes the adoption of this pronouncement
will not have a material impact on the Company's financial
statements.
 
 In
February 2008, FASB Staff Position (FSP) No. 157-2, “Effective Date of
FASB Statement No. 157” was issued. FSP No. 157-2 defers the effective
date of SFAS No. 157 to fiscal years beginning after December 15,
2008, and interim periods within those fiscal years, or all non-financial assets
and liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). Examples of
items within the scope of FSP No. 157-2 are non-financial assets and
non-financial liabilities initially measured at fair value in a business
combination (but not measured at fair value in subsequent periods), and
long-lived assets, such as property, plant and equipment and intangible assets
measured at fair value for an impairment assessment under SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” The partial
adoption of SFAS 157 on February 1, 2008, with respect to financial assets and
financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis, is not expected to have a material effect on
the Company’s consolidated financial statements. The Company is currently
assessing the impact, if any, of SFAS No. 157 relating to its planned
February 1, 2009, adoption of the remainder of the standard.
  F-10
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities-an Amendment of FASB Statement
No. 133”, which became effective on November 15, 2008. This standard
changed the disclosure requirements for derivative instruments and hedging
activities.  Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and (c) how derivative instruments and
related hedging items affect an entity’s financial position, financial
performance, and cash flows. The adaptation of this standard had no material
impact on the Company’s financial statements.
  In
April 2008, the FASB issued FASB Staff Position (FSP) FSP 142-3,
“Determination of the Useful Life of Intangible Assets.” This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, “Goodwill and Other Intangible Assets.” The intent of
this FSP if to improve the consistency between the useful life of a recognized
intangible asset under Statement 142 and the period of expected cash flows to
measure the fair value of the asset under FASB Statement No. 141 (Revised
2007), “Business Combinations,” and other U.S. generally accepted accounting
principles (GAAP). This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. The Company does not expect
the adoption of FAS 142-3 to have a material effect on its results of operations
and financial condition.
  In
May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1
“Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)”. FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008, on a
retroactive basis and will be adopted by the Company in the first quarter of
fiscal 2009. The Company does not expect the adoption of FSP APB 14-1 to have a
material effect on its results of operations and financial
condition.
  In
May 2008, the FASB issued SFAB No. 162, “The Hierarchy of Generally
Accepted Accounting Principles,” which becomes effective upon approval by the
SEC. The standard sets forth the sources of accounting principles and provides
entities with a framework for selecting the principles used in the preparation
of financial statements that are presented in conformity with GAAP. It is not
expected to change any of the Company’s current accounting principles or
practices and therefore, is not expected to have a material impact on its
financial statements.
 
 NOTE
F - COMMON AND PREFERRED STOCK
  In
September 2004, the Company issued 22,000 shares of Series A Convertible
Preferred Stock in the face amount of $2,200,000 for $1,937,000 (net of $263,000
transaction expenses) which was paid in the respective amounts of $1,158,200 and
$778,800 at closing. Additionally, the transaction included:
 
 ·
                Issuance
      of Detachable Warrants to acquire up to 1,500,000 shares of the Company’s
      Common Stock at $1.00 per share. The Warrants expire on August 16,
      2007.  The terms of these Warrants were revised in August 2007
      to extend the expiration date to August
2010.
 
 ·
                In
      addition to the transaction costs referred to above, the Company granted
      162,500 shares of Common Stock and Detachable Warrants to acquire up to
      162,500 shares of the Company’s Common Stock at $1.00 per share to a
      broker. The term of the Warrants is three
years.
 
 ·
                The
      Preferred Stock is non-voting, entitled to dividends only when, or if,
      declared by the Board of Directors and has preference over the Common
      Stock in the event of the Company’s liquidation. The Preferred Stock is
      convertible into Common Stock at the option of the holder. The conversion
      price is equal to 80% of the market price at the time of conversion,
      subject to a floor of $0.50 per share and a ceiling of $1.17 per share.
      During 2005, the floor was modified to $0.12 per share as an inducement to
      execute the Series B Convertible Preferred Stock transaction discussed
      below.
 
 The Company accounted for the host
instrument as equity under the guidance of SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity, and under provisions of EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock, and accounted for both the beneficial conversion
feature and the warrants as equity as well.
 
 In August
2005, the Company issued 10,000 shares of Series B Convertible Preferred Stock
in the face amount of $1,000,000 for $878,000 (net of $122,000 transaction
expenses) which was paid in the respective amounts of $378,000 and $500,000 at
closing. Additionally, the transaction included:
  F-11
  ·
                Detachable
      warrants to acquire up to 2,500,000 shares of the Company’s Common Stock
      at $0.30 per share. The warrants expire on August 31, 2010 and are subject
      to call by the Company upon the Common Stock trading at a price of $0.60,
      a minimum trading volume of 60,000 shares for 20 consecutive days and the
      registration statement being effective.·
                In
      addition to the transaction costs referred to above, the Company granted
      warrants to acquire up to 666,667 shares of the Company’s Common Stock at
      $0.16 per share to a broker. The term of the warrants is three
      years.·
                The
      Preferred Stock is non-voting and is entitled to receive dividends at an
      annual rate equal to the lower of the Prime Rate plus 3.5% or 9%. The
      dividend may either be paid in cash or registered shares of the Company’s
      Common Stock, subject to certain limitations. The Preferred Stock is
      convertible into Common Stock at the option of the holder. The conversion
      price is equal to 80% of the market price at the time of conversion,
      subject to a floor of $0.12 per share and a ceiling of $0.275 per
      share.
  The
Series B Preferred Stock and Series A Preferred Stock as amended permit the
Company, in its discretion, to redeem part or all of the outstanding Preferred A
and B Stock at 125 percent of par value per share until August 2007 and
thereafter at 150 percent of par value, plus any accrued dividends.
 
 The Company accounted for the host
instrument as equity under the guidance of SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity, and under provisions of EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock, and accounted for both the beneficial
conversion feature and the warrants as equity as well.
 
 In 2006
Warrants were issued to financial advisors that included registration right
obligations that the Company has determined are not within its control. The
warrants were fair valued on the date of grant and secured as a liability. The
change in fair value at each reporting date is recorded as an expense in the
accompanying statement of operations. The derivative liability at December 31,
2007 is included in accrued expenses in the accompanying balance
sheet.
 
 In 2007,
the Company redeemed 431,612 shares of the Company’s issued and outstanding
common stock in cancellation of an aggregate of $298,904 in stock
subscription notes receivable.
 
 In
2007,  20,000,000 and in 2008 an additional 33,333,333 shares of the
Company’s authorized but unissued common stock were delivered by the Company to
an escrow agent to hold as security for certain short term note obligations of
the Company. The aggregate 53,333,333 shares are not being treated as
outstanding and will only be considered as being issued and outstanding if and
when the shares are released by the escrow agent and delivered to the lender as
a result of a default under the promissory notes and related security
agreement.
 
 In 2008 the Company issued 9,714,955
shares of Common stock in exchange for the redemption of 12,989,167 outstanding
warrants and options and settlement of certain debt totaling
$341,071.
 
 In 2008 the Company also issued 6,185
shares of its Series C Convertible Preferred stock in exchange for 4,785 and
1,000 shares, respectively of its Series A and Series B Convertible Preferred
stock.  In addition, the Company issued 483 shares of its Preferred C
stock for settlement of debt.
  F-12
  NOTE G-
STOCK OPTION AND WARRANT ACTIVITY
 
 The
Company has five stock-based compensation plans which provides for the granting
of options to purchase the Company’s Common Stock to employees, directors,
consultants and advisors. The options granted are subject to a vesting schedule
as set forth in each individual option agreement.
 
 Maximum
      Sharesof
      Common StockPlan
                          
                          which
      can be issued2000
      Plan
                          
                          
                          1,200,0002002
      Plan
                          
                          
                          1,500,0002003
      Plan
                          
                          
                          1,500,0002003A
      Plan
                          
                          
                          3,500,0002006
      Plan
                          
                          
                          2,500,00010,200,000
 
 Activity
with respect to the stock-based compensation plans is summarized as
follows:
 Shares
                                
                                Range
      of Exercise
                                  Prices
                                
                                Weighted-
                                  averageOption
                                  price
      per shareOutstanding
      at December 31, 2006
                                
                                
                                7,000,000
                                
                                
                                
                                
                                0.65Options
      Granted
                                
                                
                                800,000
                                
                                $
                                0.04
                                
                                
                                0.04Options
      canceled/expired
                                
                                
                                (1,960,000
                                )
                                0.26-3.85
                                
                                
                                0.26Options
      exercisable at December 31, 2007
                                
                                
                                5,840,000
                                
                                0.11
                                
                                
                                0.11Options
      canceled/expired
                                
                                
                                (5,840,000
                                )
                                0.11
                                
                                
                                0.11Outstanding
      at December 31, 2008
                                
                                
                                ----
                                
                                
                                
                                
                                ----
 
 Aggregate
intrinsic value of options outstanding at December 31, 2008 is
$0.00.
 
 The total
intrinsic value of options exercised during 2007 and 2008 was $0.00 and $0.00,
respectively.
 
 Activity
with respect to warrants for common stock is as follows:
 Shares
                                        
                                        Range
      of Exercise
                                          Prices
                                        
                                        Weighted-average
      Option price per shareOutstanding
      at December 31, 2006
                                        
                                        
                                        7,536,042
                                        
                                        $
                                        0.62
                                        
                                        $
                                        0.62Warrants
      canceled/expired
                                        
                                        
                                        (386,875
                                        )
                                        0.68
                                        
                                        
                                        0.68Outstanding
      at December 31, 2007
                                        
                                        
                                        7,149,167
                                        
                                        0.62
                                        
                                        
                                        0.62Warrants
      canceled/expired
                                        
                                        
                                        (7,149,167
                                        )
                                        0.62
                                        
                                        
                                        0.62Outstanding
      at December 31, 2008
                                        
                                        
                                        ----
                                        
                                        
                                        
                                        
                                        ----
 
 The fair
value of the options granted in 2007 was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for the above years:
 
 2007
                    2008Dividend
      yield
                    0.00%
                    N/AExpected
      volatility
                    161%-228%
                    N/ARisk
      free interest rates
                    4.04%-5.03%
                    N/AExpected
      lives
                    3 -
      10 years
                    N/A
 
 The
weighted-average grant date fair value for options granted during 2007 was
approximately $0.04.
  F-13
  As of
December 31, 2008, there was no unrecognized compensation cost related to
non-vested share-based compensation arrangements.
 
 NOTE H -
COMMITMENT
 
 Operating
Leases
 
 For the
previous two years, the Company has occupied space in a building in Sarasota,
Florida under a lease with a five year term expiring December, 2009 and annual
lease payments of approximately $50,000. In the second quarter of 2007, the
Company assigned this lease to a new tenant and moved to space with less square
footage (less than 550 square feet) and which is occupied on a month to month
basis.  Rent expense for the years ended December 31, 2008 and 2007 was
$8,535 and $33,294, respectively.
  NOTE I -
DUE TO STOCKHOLDERS AND OFFICERS
 
 Due to
stockholders and officers consists of the following at December 31,
2008:
 
 Monarch
      Point Fund, Ltd
                      
                      $
                      85,074Edmund
      C. King
                      
                      
                      20,260Total
                      
                      $
                      105,334
 These
advances are due on demand and bear interest at 10% to
Monarch Point Fund, Ltd. and no interest is due on the remaining note of
$20,260.
 
  During
2007 a stockholder forgave $55,448 related to compensation from 2004 that had
previously been accrued.  This transaction has been recorded as a
capital contribution.
  NOTE J -
LINES OF CREDIT
 
 The
Company has four lines of credit with a private investor.  The credit
facilities allow for advances up to $500,000, bear interest at 10% and have a
first security interest in all of the Company’s assets.  Additionally
the credit facilities are secured by a security interest in 53,333,333 shares of
the Company’s common stock which are held in escrow.  Because the
credit facilities are not in default the shares are not treated as issued and
outstanding.  At December 31, 2008, $494,030 is
outstanding.  The Notes were due December 31, 2008, but under an oral
understanding had been held in abeyance while discussions are in progress for
anticipated additional financing.
 
 NOTE K –
GAIN ON THE SETTLEMENT OF DEBT
 
 During
2008 the Company recorded a gain on the settlement of debt aggregating $377,454
as follows:
 
 Cash:Amount
      of debt settled
                                
                                $
                                190,955Cash
      payments
                                
                                
                                (84,815
                                )Gain
                                
                                $
                                106,140Common
      stock:Amount
      of debt settled
                                
                                $
                                341,071Fair
      value of common shares issued
                                
                                
                                (69,757
                                )Gain
                                
                                $
                                271,314
 
 F-14
 
 NOTE L
- INCOME TAXES
 
 Deferred
taxes are recorded for all the tax effects of existing temporary differences in
the Company’s assets and liabilities for income tax and financial reporting
purposes. Due to the valuation allowance for deferred tax assets, as noted
below, there was no net deferred tax benefit or expense for the years ended
December 31, 2007 or 2008.
 
 Reconciliation
of the federal statutory income tax rate of 34.0% to the effective income tax
rate is as follows at December 31:
  2007
                            
                            
                            2008Federal
      statutory income tax rate
                            
                            
                            (34.0
                            )
      %
                            
                            
                            (34.0)
                            %State
      income taxes, net of federal tax benefit
                            
                            
                            (
      3.5
                            )
      %
                            
                            
                            (3.5)
                            %Deferred
      tax asset valuation allowance
                            
                            
                            37.5
                            %
                            
                            
                            37.5
                            %-0-
                            %
                            
                            
                            -0-
                            %
 
 SFAS No.
109 Accounting for Income
Taxes requires that a deferred tax asset be reduced by a valuation
allowance if, based on the weight of available evidence it is more likely than
not (a likelihood of more than 50 percent) that some portion or all of the
deferred tax assets will not be realized. The valuation allowance should be
sufficient to reduce the deferred tax asset to the amount that is more likely
than not to be realized. As a result the Company recorded a valuation allowance
with respect to all the Company’s deferred tax assets.
 
 The
Company has a federal net operating loss carryforward of approximately $16.9
million as of December 31, 2008. Under Section 382 and 383 of the Internal
Revenue Code, if an ownership change occurs with respect to a “loss
corporation”, as defined, there are annual limitations on the amount of the net
operating loss and other deductions which are available to the Company. The
Company has not determined the impact of these limitations at this
time.
 
   F-15