UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934

                   For the fiscal year ended December 31, 2006

|_|      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF  1934

     For the transition period from __________________ to __________________

                        Commission file number: 333-87293

                              SENSE HOLDINGS, INC.
               --------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                Florida                                     82-0326560
      -----------------------------                   -----------------------
    (State or Other Jurisdiction of                        (I.R.S. Employer
    Incorporation or Organization)                       Identification No.)



                      10871 NW 103rd Ave.
                         Sunrise, Fla.                         33351
                 ------------------------------               --------
               (Address of Principal Executive Offices)      (Zip Code)

Issuer's Telephone Number: (954) 726-1422

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  None

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

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

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

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

       The issuer's revenues for the fiscal year ended December 31, 2006 was
$81,517.

       The aggregate market value of the issuer's common equity held by
non-affiliates, as of March 28, 2007 was $2,471,492.

       As of March 28, 2007, there were 56,139,057 shares of the issuer's common
equity outstanding.

       Documents incorporated by reference: None.

       Transitional Small Business Disclosure Format (Check one): Yes || No |X|



<PAGE>




                                Table of Contents




                                      Page

PART I

     Item 1.    Description of Business........................................4

     Item 2.    Description of Property.......................................25

     Item 3.    Legal Proceedings.............................................26

     Item 4.    Submission of Matters to a Vote of Security Holders...........26


PART II

     Item 5.    Market for Common Equity, Related Stockholder Matters.........26

     Item 6.    Management's Discussion and Analysis or Plan of Operation.....27


..    Item 7.    Financial Statements.....................................F1-F-25

     Item 8.    Changes In and Disagreements With Accountants on Accounting and
                Financial Disclosure..........................................36

     Item 8A.   Controls and Procedures.......................................37

     Item 8B.   Other Information.............................................37


PART III

     Item 9.    Directors, Executive Officers, Promoters,Control Persons and
                Corporate Governance; Compliance with Section 16(a) of the
                Exchange Act..................................................38

     Item 10.   Executive Compensation........................................43

     Item 11.   Security Ownership of Certain Beneficial Owners and Management
                 and Related Stockholder Matters..............................50

     Item 12.   Certain Relationships and Related Transactions, and Director
                Independence..................................................51

     Item 13.   Exhibits......................................................52

     Item 14.   Principal Accountant Fees and Services........................53



                                      -2-
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           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

         Certain statements in this annual report contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, our ability to implement our strategic
initiatives, economic, political and market conditions and fluctuations,
government and industry regulation, interest rate risk, U.S. and global
competition, and other factors. Most of these factors are difficult to predict
accurately and are generally beyond our control. You should consider the areas
of risk described in connection with any forward-looking statements that may be
made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this annual
report in its entirety, including the risks described in Item 1. Part I.
Business - Risk Factors. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this annual report, and
you should not rely on these statements without also considering the risks and
uncertainties associated with these statements and our business.

         When used in this annual report, the terms the "Company," "Sense,"
"we," "us," "ours," and similar terms refers to Sense Holdings, Inc., a Florida
corporation, and our subsidiaries.

                                      -3-
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

BUSINESS

BACKGROUND

We design, develop, manufacture and sell fingerprint-based identification
products and systems that incorporate state-of-the-art biometric technology to
verify a person's identity. We have developed two turnkey integrated
applications that incorporate our proprietary BioClock(R) hardware platform:

        o      Our "CheckPrint(R) T/A" systems are designed primarily for use by
               employers who desire to verify the presence of employees at the
               workplace, and to monitor their time and attendance at work; and,

        o      Our "CheckPrint(R) A/C" systems are designed to permit access to
               locked buildings, offices or other secured areas only to selected
               individuals, whose identities can be verified using our
               fingerprint identification software.

Our modest revenue-generation to date has been derived primarily from our sales
of our biometric BioClock(R) and CheckPrint(R) products. These sales have taken
place for the most part to a few major customers. As such we are dependent upon
the few major customers and any disruption in that business will significantly
decrease our sale revenues if other business is not secured. Our negative
financial results have been due, in substantial part, to a lack of capital
necessary to commence aggressive marketing programs. While we have funded our
growth to date through the sale of our debt and equity securities, we require
operating revenues or alternative financing in order to increase revenue
production and achieve profitability.

We also license, with an option to purchase, certain microsensor technology that
we hope can be developed into commercially viable products for use in detecting
the presence of chemical vapors and explosive devices. It is our intention to
effectuate a "spin off" to our shareholders of the shares of an entity that owns
the rights to this microsensor technology. The "spin off" is subject to
completion of regulatory filings and review. See "Micro Electro Mechanical
Sensors - Proposed Spin Off to Shareholders," below.

BIOMETRICS INDUSTRY

The use of unique physical traits to verify a person's identity is known as
biometric identification. Biometric identification includes fingerprinting, hand
geometry, iris scanning, retinal scanning, voice recognition, face recognition
and signature analysis. Biometric technology has been used for decades in
government and law enforcement applications. Until recently, these systems were
too expensive to manufacture to make retail marketing realistic. However, with
the introduction of more powerful computers and the development of more advanced
software applications, biometric identification techniques can be adapted for
commercial purposes on an economically feasible basis. In addition, there is
currently a much greater awareness of biometrics as it relates to security
applications.

There are many alternatives in the biometric industry that include, but are not
limited to, fingerprint recognition, facial recognition, voice recognition and
palm recognition, iris scanning and retinal scanning. Many providers have used
the different methods in different applications. To date, applications include
time and attendance, access control, crowd scanning and computer access. The
industry is in its infancy regarding applications however the technology
regarding biometric detection is a rapidly maturing science. Presently, there
are many companies entering the biometric detection and application industry
while many other companies have failed at trying to create a marketable product.
There are few companies that have been in the industry for multiple years and
continue to use their experience to market biometric detection devices and
applications.

                                      -4-
<PAGE>

We believe that fingerprint identification is far more effective in
authenticating employees' actual attendance at work than traditional time clock
verification. By authenticating a person's identity, biometric identification
can substantially reduce incidents of employee fraud inherent in the use of
other forms of employee identification and attendance verification, such as
punch clocks. We also believe that fingerprint verification is less intrusive,
more widely accepted and more cost effective than other available forms of
biometric identification. Also, the use of biometrics for access control is
becoming widely accepted in the marketplace. This is especially true for access
to sensitive workspaces like an airport tarmac.

Many factors, including recent world events, have created increased demand for
new biometric applications to secure access, not only to physical areas, but
also sensitive data. Among the applications that are being developed are the use
of biometrics to validate the identities of individuals at security checkpoints
before boarding a plane, entering a building, crossing a border, and accessing a
computer.



PRODUCTS AND SYSTEMS

BIOCLOCK(R)

Our biometric systems are designed and built around our proprietary hardware
platform known as BioClock(R), a stand-alone platform, or completely network
enabled system, that replaces a traditional wall-mounted or freestanding swipe
or punch-card time clock. Identity verification is accomplished by comparing an
individual's scanned and digitized fingerprint to the fingerprint profile stored
in a computer database. The user's fingerprint is scanned by means of a
silicon-based reader with sensors that capture the fingerprint image. The image
is then converted into data that is stored in the system's computer database,
and saved as a reference for comparison to the fingerprint offered for
identification.

BioClock(R) replaces traditional identification devices such as: swipe cards;
punch cards; PIN numbers; or, passwords that can be stolen or voluntarily
provided by the owner to another person. Alternatively, BioClock(R) can be used
in conjunction with traditional identification devices for added security. We
have made our systems modular so the user can choose which parts of the
technology they wish to use. In addition, we have designed our systems to be
compatible with many existing technologies so that they can be integrated into
an existing system in a seamless fashion. As a result, we believe BioClock(R)
reduces incidents of fraud associated with traditional identification systems
that do not effectively preclude individuals from using another person's means
of identification while keeping integration hurdles and costs down.

We have also developed two integrated hardware and software applications that
incorporate BioClock(R) in an "off the shelf" configuration for performing time
and attendance and access control.

CheckPrint(R) T/A

Our time and attendance systems, which are marketed under the name,
CheckPrint(R) T/A:

        o       Use fingerprint verification to authenticate the identity of
                employees when they  arrive at and leave  work;  o Gather  data,
                including  the time each employee  attends  work and what
                areas were  accessed  by an  employee;

        o       Perform payroll functions and other record keeping  calculations
                 using the data that is gathered;

        o       Provide  electronic export capability to over 150 independent
                third-party payroll service providers to facilitate the use of
                automated  payroll checks between Sense customers and their
                payroll service provider;

        o       Generate logs and reports, including 60 standard reports; and

        o      Perform other functions including employee scheduling, job cost
               analysis, editing time punches, electronic calculations and
               related record keeping.

                                      -5-
<PAGE>

Our standard CheckPrint(R) T/A systems include a 100 person user base. We are
currently developing data base management capabilities for larger numbers of
employees, while maintaining system accuracy. These developments include the use
of a PIN number in conjunction with biometrics, that make the number of users
only limited by the data storage capacity of the system, without adverse effects
on accuracy.

CheckPrint(R) A/C

Our access control systems, which are marketed under the name CheckPrint(R) A/C,
are security systems that permit access to locked buildings, offices or other
secured areas only to those whose identities can be verified, using our
proprietary fingerprint identification software. Our CheckPrint(R) A/C systems,
which can be used with or without Smart Card technology, can be programmed for
different levels of security, permitting access only to recognized individuals
who have the requisite level of security clearance. Our current version of
CheckPrint(R) A/C system incorporates access control capability for single door
access. We are developing software application infrastructure that will enable a
single CheckPrint(R) A/C system to control access to multiple locations. We
market CheckPrint(R) A/C at a higher price than CheckPrint(R) T/A, to reflect
the increased level of technology and functionality provided by CheckPrint(R)
A/C.

CheckPrint(R) ATAC

Our access control systems and time and attendance systems have been combined
into one product offering both capabilities. We market this combined product
under the name CheckPrint(R) ATAC. The combined system can be used with or
without Smart Card technology. The system incorporates time and attendance and
access control capability for multiple doors at multiple locations. We market
CheckPrint(R) ATAC at a higher price than CheckPrint(R) A/C, to reflect the
increased level of technology and functionality.

BDS AND OTHER PRODUCT CONFIGURATIONS

We have developed software into a Biometric Distribution Server. We market this
software in combination with our other systems under the name CheckPrint(R) BDS.
The software allows our systems to operate in a multi-unit configuration. Thus
many remote sites can be managed from a central database. We believe the
CheckPrint(R) BDS application is a significant enhancement to our core product
offering and the field of biometrics. We have applied for patent protection with
the United States Patent and Trademark office and are currently protected by
Patent Pending.

                                      -6-
<PAGE>

We have also developed and are marketing:

                o    CheckPrint(R)  SDK, a software  development kit for
                     biometrics that enables purchasers and licensees to create
                     custom applications for our software and hardware.  The SDK
                     was developed to work in  conjunction  with our hardware
                     and assists  developers  in the  creation of robust
                     biometric  fingerprint applications.  The SDK is
                     separated into 3 categories - imaging, algorithm,
                     and database. We believe that a successful deployment of
                     an SDK application by a purchaser  or licensee  may lead
                     to  increased  sales of our  hardware products.

                o    CheckPrint(R) DTU, provides users with the ability to
                     secure a computer  terminal, and files and folders, via
                     fingerprint identification. The hardware is a stand-alone
                     peripheral that can be connected to a port on an existing
                     computer to permit fingerprint identification.

                o    CheckPrint(R) SDTU, provides users the ability to secure a
                     computer terminal with fingerprint biometric technology and
                     a smart card. The  hardware is a stand-alone peripheral
                     that can be connected to a port on an existing computer to
                     permit fingerprint identification. There are many
                     applications that can be written around the secure data
                     storage capability of a smart card that is unlocked by a
                     fingerprint biometric signature. For example, in a
                     university setting information such as meal plan credits
                     can be stored on the smart card and deducted as used
                     by the biometrically identified user.

The Bill of Materials and all associated design advantages for BioClock(R) are
kept strictly confidential and protected by trade secret laws of the United
States and Florida. In addition, all of the CheckPrint(R) software required to
run the hardware platform in Sense's configuration enjoys protection under the
copyright laws of the United States.

PRODUCT DEVELOPMENT, MANUFACTURING AND ASSEMBLY

CheckPrint(R) T/A is configured as a stand alone unit comprised of a TFT Flat
Panel display, internal computer, keypad, and silicon fingerprint reader.
CheckPrint(R) T/A automatically authenticates the employee's identity; tracks
total hours, and calculates the correct pay rates. Sense offers CheckPrint(R)
T/A models to support any size employee base.

We design, develop, manufacture, and sell the CheckPrint(R) T/A security
solution. We have developed time and attendance, access control and security
system software applications, as well as a complete hardware system solution
based on a Pentium(R) PC processor backbone. Our products work in a network
environment and we can connect to any existing network infrastructure or we can
setup the network at the customer's request. Data is transmitted through TCP/IP
protocol and we can link unlimited CheckPrint(R) T/A units together in any
environment or facility. Sense also can remotely communicate with other
CheckPrint(R) T/A units using a modem which transmits required data over the
standard telephone lines. The CheckPrint(R) T/A systems are unsupervised
security and clock-in stations replacing the standard wall mounted time clock or
swipe systems. An employee or another authorized user uses his or her
fingerprint to replace a password, PIN or swipe card.

                                      -7-
<PAGE>


CheckPrint(R) T/A systems and CheckPrint(R) A/C systems are driven by our
proprietary software. We believe that the software components for our biometric
identification systems are proprietary because the software was developed by our
technical staff, and all rights to the creation of these software applications
have been assigned to the Company. The source code for the software is our
proprietary property. All employees are under a contractual obligation, and /or
the work for hire doctrine, to assign their intellectual property rights to
Sense. This software enables our systems to gather, filter and sort data,
generate reports from the data and compute payroll information for export to
third party payroll services.

Most of the hardware components for our biometric systems are off-the shelf, and
we are not dependent on any one vendor for these components. However, certain
hardware components have been designed by our in-house engineering staff or
designed to our specifications as works for hire by independent contractors. We
have entered into an agreement with Test Systems Engineering, under which Test
Systems Engineering has designed, engineered and configured some of our hardware
components for CheckPrint(R) T/A and CheckPrint(R) A/C systems. They are a
valuable resource for many engineering tasks and have a state of the art design
and manufacturing facility. All product testing and assembly is performed
"in-house" in order to maintain quality control. Our agreement with Test Systems
Engineering initially terminated on December 31, 2005, and under its terms was
automatically renewed for consecutive one-year terms. For its services, Test
Systems Engineering receives a fee payable at the rate of $75 per hour. We are
not dependent on Test Systems Engineering for its services.

Our biometric systems currently incorporate a silicon-based fingerprint scanner
with sensors to capture a user's fingerprint. Related software then compares the
user's fingerprint to the digitized reference sample stored in the system's
database, and verifies the user's identity. The silicon-based technology is used
in conjunction with our own software that interfaces between the silicon product
and our biometric systems. We currently purchase the silicon-based technology
from an independent supplier. We believe that this supplier is able to provide
us with our foreseeable requirements for these components. We are not dependent
on the supplier for our sensor needs.

On September 9, 1999, we entered into an agreement with Integrated Design, Inc.
under which Integrated Design developed a software program to enable the payroll
data produced by CheckPrint(R) T/A to be exported to over 150 third party
payroll services such as ADP and Paychex. We have licensed the software from
Integrated Design and are required to pay license fees on a per user basis. This
fee is incorporated into the cost of our overall product. Integrated Design was
paid a $10,000 software development fee to customize their software to our
application. The software development agreement was for an initial term of five
years, and automatically renews on the five year anniversaries unless either
party notifies the other before the end of the then current term. Under the
terms of the agreement it automatically renewed in September 2004. The agreement
may be canceled by either party on 90 days written notice. The agreement also
provides us access to the software and allows us to continue to use Integrated
Design's software in the event of such company's dissolution, bankruptcy or
similar events. If we are unable to continue to purchase product from Integrated
Design, we will incur time and expense to develop alternative software links for
data export. Delays in the successful development of alternative software links
could adversely affect us.

                                      -8-
<PAGE>

RESEARCH AND DEVELOPMENT COSTS

From the inception of our current activities in July 1998 through December 31,
2006, we have spent approximately $2,400,000 on research and development
activities. For the years ended December 31, 2006 and 2005, research and
development, consisting mainly of salaries and research and development fees
associated with a Cooperative Research and Development Agreement, amounted to
$578,979 and $314,233, respectively.

SALES, MARKETING AND PRICING

Many of our goods and services are customized to individual customer needs.
However, our core products, which we market under the marks BioClock(R) and
CheckPrint(R) as systems, range from $2,500 to the hundreds of thousands of
dollars, depending on the number of users, sites and functionality of the
system. We also offer software updates and on-site service contracts for
additional fees. We also sell other goods and services, such as a desk top
finger sensor, a desk top finger sensor with a smart card reader built into the
desk top unit, software developer's kits and database management tools, at
suggested retail prices.

We market our systems to manufacturers, retailers and other businesses with at
least 15 to 100 employees, to whom we market our smaller turnkey solution. We
also market to larger businesses, including Fortune 500 Companies that require
full custom integration solutions. We sell our systems through an in-house sales
force of two employees, as well as original equipment manufacturers ("OEMS") and
independent sales representatives. We engage in direct marketing programs, trade
show participation, and local, regional and national advertising campaigns to
generate sales. Moreover, we have offered consulting and design services to
specialized biometric development and deployment projects. By offering our
expertise in the design and deployment of biometric systems we may gain
additional revenues and create another marketing avenue.

Our network of independent sales representatives, through which we presently
derive less than ten (10%) percent of our revenues, currently serve markets
throughout the United States, South America and the Pacific rim. Domestically,
or through international representatives, consultants or strategic partners, we
intend to seek penetration of the automotive, retail merchandise, home and
business security, food processing facilities, textile manufacturing and
trucking and transport distribution markets through the services of these
representatives. A commission based upon the sales prices of systems sold by
them generally compensates sales representatives.

We intend to license and sell our systems to third party OEMs, integrators and
software developers, for incorporation in their products. License fees and
royalty fees will be negotiated on a case by case basis, and take into
consideration various factors including competitive pricing, the nature of the
installation, the number of users to be tracked, and the extent of enhancements,
modifications and customization required by the customer. Basic, extended and
enhanced maintenance services will also be made available for an annual fee.


                                      -9-
<PAGE>

DEPENDENCE ON A FEW MAJOR CUSTOMERS

Significant portions of our sales to date have been, and will continue to be,
made through a small number of significant customers. Approximately 81% of our
sales for the year ended December 31, 2006, were derived from four customers,
DFAS accounted for 17%, Intermix accounted for 14%, Federal Express accounted
for 37%, and Pearson Education accounted for 13%. These customers represented
approximately 80% of our accounts receivable at December 31, 2006. Approximately
83% of the sales during the year ended December 31, 2005, were derived from one
customer, Federal Express. This customer accounted for 93% of the outstanding
accounts receivable at December 31, 2005. Any disruption in our relationships
with one or more of these customers, or any significant variance in the
magnitude or the timing of orders from any one of these customers, may result in
decreases in our results of operations, liquidity and cash flows. Any such
adverse operating results will likely decrease the market price of our common
stock.

MICRO ELECTRO MECHANICAL SENSORS - PROPOSED SPIN OFF TO SHAREHOLDERS

In addition to our core business, we hold eight exclusive worldwide patent
licenses for Micro Electro Mechanical Sensors, or MEMS, technology covering use
in the field of explosive detection which was developed by Oak Ridge National
Laboratory (ORNL). ORNL, located in Oak Ridge, Tennessee, is one of the premier
National Scientific Laboratories in the United States and is operated by
UT-Battelle, LLC for the United States Department of Energy (DOE). UT-Battelle
LLC is the technology transfer management company created at ORNL.

MEMS technology is comprised of micro cantilevers that molecules of explosive
material attach to, thus causing the cantilevers to diffract or bend. When
diffraction is detected, the sensors are alerted to the presence of an explosive
molecule. This technology can assist in the detection of unexploded ordinance
including bombs, grenades, shells, rockets, and other explosive devices either
placed as mines or fallen as projectiles whether buried or camouflaged. The
exclusive license from UT-Battelle did not include explosive detection for
security applications, including airport security. UT-Battelle acquired the
licensed rights under a contract with the United States Department of Energy,
pursuant to which the technology was developed at the Oak Ridge National
Laboratory in Oak Ridge, Tennessee.

On May 31, 2001, we acquired all of the outstanding shares of Micro Sensor
Technologies, Inc., a Florida corporation ("Micro Sensor"). Following the
acquisition, Micro Sensor became our wholly-owned subsidiary, and we indirectly
acquired the rights and obligations of Micro Sensor under various agreements to
which it is a party, including a Patent License Agreement with UT-Battelle LLC.
Under the original Patent License Agreement, Micro Sensor became the exclusive
licensee of UT-Battelle with respect to certain patented technology owned by
UT-Battelle relating to the use, sale or offer for sale of intellectual property
incorporating MEMS technology for the detection of explosives.

                                      -10-
<PAGE>


Effective August 1, 2005, we entered into an Exclusive Patent License Agreement
with UT-Battelle, LLC which replaced the original Patent License Agreement.
Under the August 1, 2005 Patent License Agreement, UT-Battelle has granted us
the exclusive right to manufacture, use, sell, offer for sale and sublicense yet
to be developed products incorporating the licensed patents, relating to
chemical vapor detection and the detection of unexploded ordnance, including
bombs, hand grenades, rockets and other unexploded devices. We were also been
granted for a 24-month right of first refusal to negotiate a patent license
agreement with UT-Battelle for its proprietary technology relating to the
detection of biological warfare agents in security applications, such as
anthrax, cholera, Ebola, plague, ricin, smallpox and tularemia. This right of
first refusal to negotiate an additional patent license expires on August 1,
2007.

As consideration for the license grants by UT-Battelle, we:

         o        Paid UT-Battelle an aggregate of $150,000 in cash proceeds;
         o        Issued  UT-Battelle 833,333 shares of our common stock;
         o        Agreed to pay to UT-Battelle a royalty equal to 4% of net
                  sales of products incorporating the licensed patents, subject
                  to minimum royalty payments, as amended on December 1, 2006,
                  of $10,000 for 2007, $20,000 for 2008 and $25,000 for 2009 and
                  thereafter;
         o        Agreed to pay to UT-Battelle, in the event we sublicenses the
                  licensed patents, the greater of 50% of our revenues from
                  sublicensing and the minimum required royalties described
                  above; and
         o        Agreed to reimburse UT-Battelle for certain costs and expenses
                  of securing patent protection for the licensed patented
                  technology.

On November 7, 2005, we entered into a Cooperative Research and Development
Agreement ("CRADA") with UT-Battelle, LLC under its U.S. Department of Energy
Contract No. DE-AC05-00OR22725. The CRADA was for the development of a hand-held
sensor with high sensitivity and selectivity for the detection of explosives
initially and then to expand the capabilities to include chemical and biological
warfare agents and narcotics. In connection with the CRADA, we agreed to make
payments aggregating $589,000. Through December 31, 2006, we paid $560,000
towards these commitments. We did not pay the remaining $29,000 payable under
this CRADA agreement and we are currently negotiating a new CRADA agreement for
continued research and development of the above mentioned projects.

On January 1, 2006, we entered into a stock exchange agreement with UT-Battelle
under which UT-Battelle returned 683,333 shares of common stock previously
issued by us for $150,000 in cash. The returned shares were cancelled upon
receipt.

                                      -11-
<PAGE>


Under the CRADA we developed a first generation working prototype with limited
detection capabilities. We are now in a phase of pattern recognition and
increased selectivity and the elimination of false positive reads. This phase
requires additional funding of approximately $300,000 to continue research and
development. We have started initial development of the PSM (personal safety
monitor), a chemical radiation detector product. The working prototype can
presently sense over 15 different dangerous chemicals and the list is growing.
This project would require approx $350,000 to complete research and development,
as well as a presently undetermined amount of additional funding to begin
commercialization. The product would be a multi substance detector the size of a
pager for hazardous chemical and radiation detection with the ability to add
explosive sensing at a later time. We are also evaluating the development of a
chemical radiation detector product for the sensing of hazardous and dangerous
materials.

While we believe that this technology will enable the development of products
for governmental use, as well as for security-related applications including
airport security, no products have yet been developed incorporating these
technologies and we require significant additional capital to continue the
development of this product line. Accordingly, in fiscal 2006 we determined to
impair our MEMS technology related assets and recognized a one time expense of
$230,000 related to those intangible assets.

As described elsewhere herein, the revenues from our core operations are not
sufficient to meet our operating expenses, pay our obligations and provide funds
for sales and marketing of our biometric products and for our research and
development efforts. Our revenues declined substantially in fiscal 2006 from
fiscal 2005 due in part to the devotion of time by our management to the
MEMS-technology related products. While we were able to raise approximately $2
million of capital in fiscal 2006, it was not sufficient to satisfy our needs.
We believe that the divergent nature of our operations associated with biometric
products on the one hand and MEMS research and development on the other, has
required us to spread our limited fiscal resources and management time
availability too thin to effectively address the needs of each aspect of our
business.

In light of the foregoing, our management believes if we focus our attention on
our core biometric operations and spin off our MEMS technology into a new
company (a) investors will be better able to evaluate the potential risks and
benefits of each business unit, (b) we can improve the likelihood that each
operating unit will be able to raise the necessary working capital to continue
its respective operations and (c) management of each business unit will be in a
better position to devote the necessary time and attention to its own
operations.

In January 2007 we announced we intend to spin off the MEMS technology to our
shareholders. We presently intend to transfer all related assets and liabilities
to a newly formed subsidiary, Explosive Sensing Systems, Inc. In view of his
relationship with ORNL, initially, Mr. Perler, our CEO, will also serve as CEO
of Explosive Sensing. Thereafter, it is anticipated that Explosive Technology
will engage additional management with experience in that industry segment.

                                      -12-
<PAGE>


We presently intend to file a registration statement with the Securities and
Exchange Commission and, once declared effective, we will pay our shareholders a
dividend in the form of 100% of the common stock of Explosive Sensing Systems.
There are a significant number of regulatory hurdles to overcome before we can
effect a registered distribution of the Explosive Sensing Systems' stock. In
addition, we will need to raise additional capital to pay a portion of the legal
and accounting fees associated with the spin-off, and depending upon timing of
the spin-off, to fund any payment required to be made to ORNL in connection with
our exercise of the right of first refusal to acquire the MEMS chemical
detection technology. There are no assurances that we will ultimately receive
regulatory approval to undertake the spin-off, nor can we predict how long the
transaction will take to conclude if we ultimately receive regulatory approval.

INTELLECTUAL PROPERTY

Patents

We currently have on file with the United States Patent and Trademark Office, a
utility patent that was converted from a provisional patent covering the
proprietary use of our technology and the proprietary hardware used in our
application. In addition, we have on file a provisional patent regarding our
CheckPrint(R) BDS, a biometric middleware utility, and a utility patent
regarding a handheld explosive detection unit. Our goods and services are
clearly marked as patent pending. Several other products and methods are being
identified as potential patent subject matter, and once the analysis is complete
applications will be sought. There is no guarantee that our patent applications
will mature into registrations for patents. We have retained patent counsel to
review the projects and advise where subject matter applicable for patent
protection exists, and to prepare applications for the same. All of our
employees are under an obligation to assign inventive material to Sense.

Trademarks

We maintain common law rights to our trademarks. The common law rights protect
the use of marks used to identify our goods and services since the time of their
first use in commerce. We have a registration for our flagship software product
Check Print(R) and our flagship hardware product BioClock(R). In addition, we
have registered Sense(R) as our corporate identity, meCard(R) used to identify
identification cards used in conjunction with our biometric systems and
"Security Solutions at a Touch of a Finger" (R). During fiscal year ended
December 31, 2006 we had two additional trademarks registered. The two new
trademarks are Explosive Sensing Protocol(TM) and Sense-It(TM) Several other
marks are being identified as strong product and service identifiers and
trademark search and applications are underway. There is no guarantee that our
pending trademark applications will mature into registration of trademarks.

Copyrights

We currently have on file several copyright applications covering our source
code. We maintain common law rights to our proprietary copyrights. The common
law rights protect the actual programming code, the look and feel of its display
screens and material contained in our user manuals since the time of the
copyrightable works creation. In addition, we have an application on file with
the United States Copyright Office covering our proprietary source code, the
look and feel of our display screens and user manuals. There is no guarantee
that our application will mature into a registration for copyright.

                                      -13-
<PAGE>


Whether or not we obtain formal protection for our products and/or systems, we
intend to vigorously protect our ownership rights. However, protection of our
rights will not prevent others from developing similar technology on their own
or developing other products that may be used for purposes similar to ours. If
these events occur, others may become our competitors, which could have a
material adverse effect on our business, financial condition and results of
operations.

COMPETITION

We face competition from companies engaged in the time and attendance industry,
as well as in the security and access control industry. Competition may come
from companies using biometric fingerprint technology, as well as from companies
using other biometric identification methods. Competitors also include companies
marketing traditional forms of employee verification and attendance products,
including time clocks, ID badges, passwords and PIN numbers. Most of our
competitors may have longer operating histories and greater financial and other
resources than we have. Our ability to compete successfully will depend on many
factors, including our ability to raise sufficient working capital, our ability
adapt to changing technologies and meet the needs of the marketplace on a price
competitive and timely basis.

Competition in time and attendance services exists from various software
developers and product manufacturers, the largest of which is Kronos, a publicly
traded company (NasdaqGS: KRON) providing software applications based on a swipe
card identifier. Other competitors in time and attendance application
development include QQuest, Synel, Acroprint, Simplex, Stromberg, TimeAmerica,
Time Systems and ADP. Principal competition in fingerprint biometrics includes
Identix, Crossmatch, Secugen Fujitsu, and Cogent Systems. Other biometric
technology providers include Recognition Systems (hand geometry), LG Electronics
(LG Iris) (iris identification) and Visage ( Facial recognition ). Most of our
competitors have a substantially longer operating history than we do and have
substantially greater financial and other resources than we do. While we believe
that our ability to offer a total package of time and attendance and access
control software and innovative hardware gives us a competitive marketing
advantage, unless we are able to penetrate the marketplace and gain name
recognition for our products and technology, we may be unable to compete
effectively.

We believe that we can effectively compete in our industry because:

o Biometric identification is more reliable than traditional employment
verification methods; o Fingerprint identification is less costly and more
recognized than other currently available forms of biometric  identification;

                                      -14-
<PAGE>

        o     Our systems provide a total solution, turnkey approach to our
              customers;

        o     Our systems are network enabled and can be remotely accessed by a
              system administrator to get valuable real time information
              regarding the customer's work force and security at the workplace;

        o     Our systems offer an enterprise solution in that the systems are
              completely scalable for large numbers of employees and multiple
              access points and numerous locations;

        o     Our systems are modular and offer a variety of identification
               methods that can be added to the basic system;

        o     Our systems are software driven and the software  is customizable
              to a customer's particular needs; and,

        o     Biometric identification does not use ID badges, passwords, PIN
              numbers or other devices that have historically been misused
              by employees to the detriment of employers.

In addition, we face competition in the chemical and explosive detection fields
from companies such as Nomadics, Implant Sciences, GE Interlogix, L3
Communications and BAE Systems. As described elsewhere herein, at this time we
only completed the development of prototype explosive detection device and do
not have the resources to continue the project and complete development of a
properly functioning, market-ready device. Even if we complete development of a
marketable device, the companies we would be competing against in this market
segment generally have significantly greater resources and greater name
recognition than we do. We are unable to predict at this time if we will ever be
able to effectively compete in this market segment given our lack of resources.

Our inability to compete successfully with any of our products could have a
material adverse effect on our business, financial condition and results of
operations.

EMPLOYEES

We currently employ two people, both of whom are full-time employees. These
employees are our two executive officers, one of which is the Chief Executive
Officer, one of which is the Chief software designer and programmer. Our
employees are not subject to a collective bargaining agreement. We believe that
relations with our employees are good.

CORPORATE HISTORY

We were organized in Idaho, under the name Century Silver Mines, Inc., on
February 5, 1968. Originally, we developed mining properties, but by 1998 we had
ceased those operations.

Sense Technologies, Inc. was organized under the laws of the State of Florida on
July 13, 1998. Sense Technologies was formed for the purpose of engaging in
developing and marketing biometric devices for use in employee identification
and security-related products.


                                      -15-
<PAGE>

In January 1999, we acquired all of the outstanding shares of Sense Technologies
for a purchase price consisting of 4,026,700 of our shares, issued to the former
shareholders of Sense Technologies. We operated Sense Technologies, Inc. as our
wholly owned subsidiary. At the time of the acquisition, Century Silver Mines
had no operations and Sense Technologies was developing its proprietary
biometric security systems. Immediately following the acquisition, the former
shareholders of Sense Technologies owned approximately 93% of our outstanding
shares.

At the time of the acquisition, the principal owners of Sense Technologies were
Dore Scott Perler, who is our CEO and President, and Andrew Goldrich, who served
as our Chief Financial Officer until December 2006. Dore Perler was its
president, Andrew Goldrich was its secretary and treasurer, and Messrs. Perler
and Goldrich were the members of its board of directors. At the time of the
acquisition, the officers and directors of Century Silver Mines were John Branz,
Kirk Scott and Barbara Scott, the mother of Kirk Scott. There were 288,300
outstanding shares of Century Silver Mines owned by approximately 750 holders,
none of whom, to our knowledge, owned in excess of 5% of the outstanding shares.
However, we understand that Kirk Scott, Barbara Scott and James Scott, her
brother-in-law, owned an aggregate of approximately 29% of the outstanding
shares of Century Silver Mines at the time of the acquisition.

In January 1999, we reduced the shares of our stock that were outstanding by
combining each 7.74 shares that were outstanding, into one share. All numbers of
shares in this annual report reflect the January 1999 share combination. In June
1999, we changed our corporate domicile from Idaho to Florida and, in connection
with the domicile change we changed our name to Sense Holdings, Inc. In May
2000, we increased the number of shares of common stock we are authorized to
issue to 20,000,000, in January 2002, we increased our authorized common stock
to 40,000,000 shares and in April 2004, we increased our authorized to
100,000,000 shares. On February 23, 2007 we filed Articles of Amendment to our
Articles of Incorporation increasing the number of authorized shares of our
common stock from 100,000,000 shares to 350,000,000 shares. This action was
approved by our Board of Directors on November 28, 2006 and by our shareholders
at a Special Meeting of Shareholders held on December 29, 2006.

On May 31, 2001, we acquired all of the outstanding shares of Micro Sensor from
UTEK Corporation and UT-Battelle LLC, the shareholders of Micro Sensor, in a
stock-for-stock exchange, for total consideration of 2,000,000 shares of our
common stock. Pursuant to the stock-for stock transfer, UTEK received 1,850,000
common shares of Sense and UT-Battelle received 150,000 common shares of our
company.

MEMORANDUM OF UNDERSTANDING WITH JINYANG ENERGY COMPANY LIMITED

On December 21, 2006, we entered into a Memorandum of Understanding regarding
the purchase by our wholly-owned subsidiary of a 60% equity ownership in Jinyang
Energy Company Limited ("Jinyang") located in Taiyuan China. The Memorandum of
Understanding contemplates the purchase of the 60% equity ownership from
Jinyang's sole shareholder, Jinyang Coke Group Corp. If the acquisition is
consummated, under the structure of the Memorandum of Understanding it is not
anticipated that the acquisition will result in a change of management for
Sense. Consummation of the acquisition is conditioned upon the finalization of
definitive agreements, delivery of audited financial statements, securing
appropriate approvals, including Jinyang's sole shareholder, and normal closing
conditions for transactions of this kind. While the consummation of a definitive
agreement and closing is subject to various conditions, it was initially
contemplated that any acquisition would occur on or prior to March 31, 2007.

                                      -16-
<PAGE>

Since the execution of the Memorandum of Understanding we have begun undertaking
our due diligence on the proposed acquisition, including an analysis as to
whether the historic operations of Jinyang can be audited in compliance with
U.S. GAAP. Based upon the information known to us as of the date of this annual
report, it is unknown at this time if Jinyang can meet the necessary auditing
standards and, accordingly, we are unable to predict when, or if, this proposed
acquisition may close. Even if it is determined that the historic operations of
Jinyang can be audited in accordance with U.S. GAAP, there are no assurances
that definitive agreements and consummation of this acquisition will take place.
The Memorandum of Understanding is simply a non-binding letter of intent, and
neither party has any obligations until such time as definitive agreements are
completed.

RISK FACTORS

Readers should carefully consider the following risk factors and all other
information contained in this Annual Report. Investing in our common stock
involves a high degree of risk. Any of the following risks could adversely
affect our business, financial condition and results of operations and could
result in a complete loss of your investment. No assurances can be given that
the risks and uncertainties described below are the only risks and uncertainties
that we face.

RISKS RELATED TO OUR BUSINESS

OUR WEAK FINANCIAL CONDITION HAS RAISED, AND WILL LIKELY CONTINUE TO RAISE,
SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A "GOING CONCERN," WE
HAVE EXPERIENCED HISTORICAL LOSSES WE MAY HAVE TO CEASE OPERATIONS IF WE DO NOT
GENERATE MEANINGFUL REVENUE AND ACHIEVE PROFITABILITY AND INVESTORS MAY LOSE
THEIR INVESTMENT.

We have incurred substantial operating and net losses, as well as negative
operating cash flows, since our inception. For the fiscal years ended December
31, 2006 and 2005, we experienced net losses of $3,752,855 and $1,832,795,
respectively. At December 31, 2006, we had an accumulated deficit of
$14,812,705. Our operating results for future periods will include significant
expenses, including product development expenses, sales and marketing costs,
programming and administrative expenses, for which we may not have offsetting
revenues or available capital. As a result, we may never generate meaningful
revenue and/or achieve profitability in the future.

Our current working capital at December 31, 2006 of $45,397, among other
factors, resulted in our independent certified public accountants modifying
their audit report on our consolidated financial statements for the fiscal years
ended December 31, 2006 to express substantial doubt as to our ability to
continue as a going concern. We remain in need of substantial additional
investment capital to fund our long-term operating needs, including the need for
additional research and development to develop our products and the conducting
of those marketing activities we believe necessary to achieve meaningful sales
growth. If we do not raise additional working capital as necessary, we could be
forced to cease operations.

                                      -17-
<PAGE>


OUR REVENUES DECREASED SUBSTANTIALLY FOR FISCAL 2006 AS COMPARED TO FISCAL 2005.
THERE ARE NO ASSURANCES OUR REVENUES WILL RETURN TO PREVIOUS LEVELS WHICH COULD
CAUSE OUR COMPANY TO CEASE OPERATIONS.

Overall, our revenues decreased approximately 84% for fiscal 2006 from fiscal
2005. Our revenues from product sales decreased $393,108, or approximately 89%,
and our revenues from service and maintenance fees decreased $$26,453, or
approximately 43%. The decrease in revenues is mainly attributed to a decrease
in marketing efforts of our existing products and further concentration on the
development of new products which has taken away from sales efforts of our
existing product line. Due to a lack in working capital and the need to conduct
additional research and development on our products, during fiscal 2007 we do
not expect our marketing efforts to increase. The lack of funding for marketing
activities will have an adverse effect on any revenue growth.

OUR LIMITED FINANCIAL AND HUMAN RESOURCES MAKES IT DIFFICULT FOR US TO PURSUE
BOTH OF OUR BUSINESS GOALS, AND IF WE DO NOT CONSUMMATE OUR PROPOSED SPIN-OFF TO
SHAREHOLDERS, OUR OBJECTIVES, AND PROFITABILITY, WILL CONTINUE TO BE DELAYED.

As discussed elsewhere in this report, our limited financial resources have
prevented us from both increasing our marketing efforts relating to our
biometric products, and continuing the development of our MEMS technology. A
primary reason that we have proposed to spin-off a subsidiary owning the rights
to the MEMS technology to our shareholders is so that both of these initiatives
can pursue their own financing, which, in turn, is expected to expedite
implementation of their respective business objectives. In the event we are
unsuccessful in our efforts to spin-off our MEMS technology, we will continue to
face difficulties in financing both of these activities. Unless we are able to
raise significant funding, management will continue to allocate our resources as
they deem to be in our best interests. Management may also determine to devote
all or substantially all of our available resources to one project or the other
if they deem it appropriate. However, given our limited resources, the
allocation of both financial and human resources to one project necessarily
delays the other. There is no assurance that we will be successful in our
proposed spin-off, or that we can sufficiently fund our operations to permit us
to achieve profitability.

OUR BUSINESS IS CAPITAL INTENSIVE AND ADDITIONAL FINANCING MAY NOT BE AVAILABLE,
AS SUCH, ESPECIALLY IN LIGHT OF OUR HISTORICAL LOSSES, WE MAY HAVE TO CEASE
OPERATIONS AND INVESTORS MAY LOSE THEIR INVESTMENT.

Our operations are capital intensive and our growth and we do not generate
sufficient revenues to pay our operating expense and fund our growth. We have
engaged in numerous financing activities over the past few years but have been
unable to utilize the funds raised to achieve positive financial results. Over
the past several years the Company has experienced a greater than anticipated
expense for Research and Development, and has not been able to gain traction in
the marketplace for the Company's products. The Company's revenues have not
increased as anticipated due to the fact that the Research and Development
projects target completion date has been delayed from original target date of
completion, and therefore has not generated revenue to the Company. Due to our
limited revenues, low level of working capital and the inability to conclude
development agreements with major manufacturing companies, we have been unable
to aggressively pursue our product development strategy to date. We will require
significant additional financing and/or a strategic alliance with a well-funded
development partner to undertake our business plan. Failure to receive
additional funding or enter into a strategic alliance could limit our growth,
limit our likelihood of profitability and worsen our financial condition and may
correspondingly decrease the market price of our common stock, or may cause us
to cease operations all together.

                                      -18-
<PAGE>


BECAUSE WE ARE DEPENDENT UPON A FEW MAJOR CUSTOMERS FOR SUBSTANTIALLY ALL OF OUR
CURRENT SALES, THE LOSS OF ANY ONE OF THEM WOULD REDUCE OUR REVENUES, LIQUIDITY
AND HINDER OUR ABILITY TO BECOME PROFITABLE, AS SUCH, WE MAY HAVE TO CEASE
OPERATIONS AND INVESTORS MAY LOSE THEIR INVESTMENT.

Significant portions of our sales to date have been, and will continue to be,
made through a small number of significant customers. Approximately 81% of our
sales for the year ended December 31, 2006, were derived from four customers,
DFAS accounted for 17%, Intermix accounted for 14%, Federal Express accounted
for 37%, and Pearson Education accounted for 13%. Specifically, one customer,
Federal Express, accounted for approximately eighty-three percent (83%) of our
revenues for the fiscal year ended December 31, 2005. This same customer
accounts for 93% of the accounts receivable at year ending December 31, 2005.
Since we have no on-going contracts with our customers including our major
customers, we rely on recurring business and new customers to generate product
sales. Any disruption in our relationships with one or more of these customers,
or any significant variance in the magnitude or the timing of orders from any
one of these customers or new customers, may result in decreases in our results
of operations, liquidity and cash flows. Any such adverse operating results will
likely decrease the market price of our common stock.

WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF A
KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS, CAUSE DELAY AND ADD EXPENSE
TO OUR OPERATION.

The execution of our present business plan depends on the continued services of
Dore Scott Perler, our Chief Executive Officer and President and Shawn
Tartaglia, our Chief Technical Officer. We do not currently maintain key-man
insurance on their lives. While we have entered into employment
agreements with each of them, the loss of any of their services would be
detrimental to our business, financial condition and results of operations. We
may not retain or replace the services of our key officers.

WE HAVE ELECTED NOT TO VOLUNTARILY ADOPT VARIOUS CORPORATE GOVERNANCE MEASURES,
WHICH MAY RESULT IN SHAREHOLDERS HAVING LIMITED PROTECTIONS AGAINST INTERESTED
DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets. We
have not yet adopted these corporate governance measures and, since our
securities are not yet listed on a national securities exchange, we are not
required to do so. However, to the extent we seek to have our Common Stock
listed on a national securities exchange, such requirements will require us to
make changes to our current corporate governance practices, which changes may be
costly and time onsuming. Furthermore, the absence of such practices with
respect to our Company may leave our shareholders without protections against
interested director transactions, conflicts of interest and similar matters. As
an example of one Sarbanes-Oxley requirement, currently none of the members of
our board of directors are considered to be "independent" for purposes of
Sarbanes-Oxley. We may not be able to attract a sufficient number of directors
in the future to satisfy this requirement if it becomes applicable to us.


                                      -19-
<PAGE>

While we expect to expend significant resources in developing the necessary
documentation and testing procedures required by SOX 404, there is a risk that
we will not comply with all of the requirements imposed thereby. At present,
there is no precedent available with which to measure compliance adequacy.
Accordingly, there can be no positive assurance that we will receive a positive
attestation from our independent auditors.

In the event we identify significant deficiencies or material weaknesses in our
internal controls that we cannot remediate in a timely manner or we are unable
to receive a positive attestation from our independent auditors with respect to
our internal controls, investors and others may lose confidence in the
reliability of our financial statements and our ability to obtain equity or debt
financing could suffer.

FAILURE OF OUR INTERNAL SYSTEMS MAY CAUSE SYSTEM DISRUPTIONS, REDUCE LEVELS OF
CUSTOMER SERVICE, AND OTHERWISE DAMAGE OUR OPERATIONS WHICH COULD LEAD TO LOST
SALES AND MAY INCREASE OUR OVERHEAD WHICH WOULD ADD EXPENSE AND DELAY OUR
OPERATIONS.

We use internally developed systems to operate our service and for
transaction processing, including billing and collections processing. We must
continually improve these systems in order to meet the level of use.
Furthermore, in the future, we may add features and functionality to our
products and services using internally developed or third party licensed
technologies. Our inability to:

         a) add software and hardware;

         b) develop and upgrade existing technology, transaction processing
            systems and network infrastructure to meet increased volume through
            our processing systems; or

         c) provide new features or functionality may cause system disruptions,
            slower response times, reductions in levels of customer service,
            decreased quality of the user's experience, and delays in reporting
            accurate financial information. Any such failure could result in a
            loss of business and worsen our financial condition and may
            correspondingly decrease the market price of our common stock.

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

WE HAVE ACQUIRED LICENSE RIGHTS TO CERTAIN PATENTED INTELLECTUAL PROPERTY;
HOWEVER, WE MAY NOT BE SUCCESSFUL IN DEVELOPING OR MARKETING COMMERCIALLY VIABLE
PRODUCTS INCORPORATING THE INTELLECTUAL PROPERTY, WHICH COULD ADD EXPENSE AND
DELAY OPERATIONS.

We acquired Micro Sensor and the MEMS technology but have not yet commercially
exploited such intellectual property through the development of final products.
Under the terms of the License Agreement with UT-Battelle, we are required to
pay minimum royalty payments. We have not launched any products based on this
licensed technology and do not presently have sufficient capital to continue our
development efforts. Although we may never develop or market products
incorporating the intellectual property, we may still remain responsible for
paying minimum annual royalties to the licensor. The requirement to pay these
minimum royalties without the benefit of any offsetting revenues further strains
our working capital. If we were to default under the terms of the License
Agreement, UT-Battelle would have the right to terminate the agreement.

                                      -20-
<PAGE>


THERE IS UNCERTAINTY OVER WHETHER INTELLECTUAL PROPERTY WE HAVE LICENSED,
OPTIONED OR OTHERWISE HAVE RIGHTS TO INFRINGE ON THE RIGHTS OF THIRD PARTIES,
WHICH COULD ADD EXPENSE AND DELAY OPERATIONS.

We acquired Micro Sensor from its shareholders, including UTEK Corporation.
While UTEK has represented to us that, to the best of their knowledge, Micro
Sensor's licensed explosive detection technology does not infringe on the rights
of any third party, UTEK has also advised us that they did not undertake a
formal patent search or other investigation as to whether the detection
technology infringes on the rights of any third party. In the event it is
ultimately found that this technology does infringe on the rights of a third
party, we may be prohibited from developing or marketing products incorporating
the technology, we may remain responsible for paying minimum annual royalties to
the licensor and we may be liable for damages to the third party upon whose
technology we may have infringed.

IF WE FAIL TO OBTAIN THE ASSIGNMENT OF THE PATENT LICENSING AGREEMENT WITH
UT-BATTELLE TO OUR SUBSIDIARY, OUR PLAN TO SPIN OFF OUR MEMS TECHNOLOGY MAY BE
CANCELLED.

In order to proceed with the proposed spin-off of the MEMS technology, we will
need to obtain the consent of UT-Battelle to an assignment of our Patent License
Agreement covering the MEMS technology to our subsidiary. While we have engaged
in preliminary discussions with UT-Battelle regarding the assignment of this
agreement to our subsidiary and have no reason to believe that we will not be
able to obtain its consent to such an assignment, we will not proceed with the
spin off unless we receive this assignment.

WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, THEREBY PERMITTING
COMPETITORS TO DEVELOP THE SAME OR SIMILAR PRODUCTS AND TECHNOLOGIES TO OURS,
WHICH COULD ADD EXPENSE AND DELAY OPERATIONS.

Our future results and ability to compete will be dependent, in large part, upon
the marketing and sales of our developed proprietary products and technologies,
the development of future proprietary products and technologies and the
commercialization of licensed and purchased patented technologies. We intend to
rely primarily upon copyright, trade secret and trademark laws to protect the
proprietary components of our systems. While we have filed U.S. patent
applications covering certain of our systems, the patent applications may not
result in the issuance patent. Additionally, if granted, any patent may be
successfully challenged and will not provided us with meaningful proprietary
protections or that we may not have the financial resources to mount sustained
patent defense. Also, while we have licensed or optioned certain patented
technologies, the validity of these patents may be challenged in the future or a
claim of infringement of a holder of a previously filed patent may be claimed.
We could also incur substantial costs in asserting our intellectual property or
proprietary rights against others or if others assert their rights against us.
The failure to successfully protect our intellectual property and proprietary
rights could enable others to duplicate or claim rights to our products and
systems or otherwise develop similar or competitive products and systems which
may result in decreases in our results of operations, liquidity and cash flows.
Any such decreases may correspondingly decrease the market price of our common
stock.

                                      -21-
<PAGE>

RISKS RELATED TO THE INDUSTRIES IN WHICH WE OPERATE

WE ARE DEPENDENT UPON THIRD PARTY SOFTWARE, AND IF WE HAVE DIFFICULTY OBTAINING
NECESSARY SOFTWARE, WE WILL BE UNABLE TO MEET CONTRACTUAL OBLIGATIONS, WHICH
COULD CAUSE US TO LOSE SALES AND ADD EXPENSE AND DELAY OUR OPERATIONS.

We license software from Integrated Design, Inc. pursuant to a contract that
enables the data gathered by CheckPrint(R) T/A systems to be formatted and
transmitted to third party payroll services. Either party, on 90 days prior
written notice with or without cause, may terminate such agreement. In the event
such agreement was terminated, we would be required to license similar software
from a third party vendor or develop our own links for data export. Any failure
or delay in licensing or developing such software could result in our inability
to meet our contractual obligations and may result in decreases in our results
of operations, liquidity and cash flows. Any such decreases may correspondingly
decrease the market price of our common stock.

OTHER TYPES OF BIOMETRIC SECURITY DEVICES ARE BEING DEVELOPED AND MARKETED, AND
WE ARE UNCERTAIN IF FINGERPRINT BIOMETRIC SECURITY DEVICES WILL BE ACCEPTED IN
THE MARKETPLACE, WHICH COULD CAUSE US TO LOSE SALES ADD EXPENSE AND DELAY OUR
OPERATIONS.

Our developed products incorporate fingerprint biometrics as the basis for
authenticating a person's identity. Other forms of biometric identification,
including iris scanning, voice patterns and signature verification, are being
marketed, developed and tested, both by us and others. We have integrated
several other forms of biometrics into our products on a proto-type basis, but
the fingerprint remains our standard offering. Our future results will be
dependent on our ability to successfully market our biometric systems and
support services to end-users, distributors and resellers. Successful marketing
will depend upon the acceptance of fingerprint biometrics as a preferred form of
identification. We have not commissioned a formal market or research study to
determine whether fingerprint identification is preferred to other forms of
biometric identification or whether sufficient demand for our products and
services exists to enable us to sustain operations, expand or achieve
profitability. A lack of demand for fingerprint biometric systems could reduce
our revenues attributable almost exclusively to sales of systems incorporating a
fingerprint biometric, and may result in decreases in our results of operations,
liquidity and cash flows. Any such decreases may correspondingly decrease the
market price of our common stock.

OUR PRODUCTS RELY ON FINGERPRINT BIOMETRICS AND THE LACK OF TECHNOLOGICAL
DIVERSIFICATION IN OUR PRODUCTS COULD CAUSE OUR RESULTS TO SUFFER, WHICH COULD
CAUSE US TO LOSE SALES ADD EXPENSE AND DELAY OUR OPERATIONS.

Almost all of our products and systems incorporate fingerprint biometric
technology. Our future results may depend on the continued reliability and
acceptance of Biometrics as a method of identity verification. As a result, in
the event of unforeseen adverse events in the development, enhancement,
reliability, marketing or acceptance of fingerprint biometrics, we will be
unable to temper its effects by relying upon sales of other products. In
addition, we do not currently know when products under development incorporating
other biometrics, explosive detection technology will generate revenues, or
whether they can be successfully marketed. In light of our lack of product
diversification unforeseen events related to our narrow product offering may
result in decreases in our results of operations, liquidity and cash flows. Any
such decreases may correspondingly decrease the market price of our common
stock.
                                      -22-
<PAGE>


RISK RELATED TO OUR SECURITIES AND CAPITAL STRUCTURE

THE ISSUANCE OF SHARES OF OUR COMMON STOCK IN LIEU OF CASH AS PAYMENT FOR OUR
OBLIGATIONS IS DILUTIVE TO OUR SHAREHOLDERS.

From time to time we issue shares of our common stock to third party either as
compensation for services being rendered to us, such as to consultants, or in
satisfaction of obligations, such as our rent. During fiscal 2006 we issued an
aggregate of 6,151,500 shares of our common stock valued at $684,170 in
transactions such as these. While the use of equity to pay these costs allows us
to conserve our limited cash resources, it is also dilutive to our existing
shareholders. Given our limited cash resources we will in all likelihood
continue to issue equity as compensation for services and as satisfaction for
our obligations in future periods, although we are unable at this time to
quantify the effect of such potential issuances.

TRADING IN OUR COMMON STOCK DURING 2005 WAS LIMITED, SO OUR SHAREHOLDERS MAY NOT
BE ABLE TO SELL AS MUCH STOCK AS THEY WANT AT PREVAILING PRICES.

Shares of the common stock are traded on the OTCBB. Approximately 127,000 shares
were traded on an average daily trading basis during 2006. If limited trading in
the common stock continues, it may be difficult for our shareholders to sell in
the public market at any given time at prevailing prices. Also, the sale of a
large block of our common stock at any time could depress the price of our
common stock to a greater degree than a company that typically has higher volume
of trading of securities.

THE LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE POSSIBLE VOLATILITY
IN OUR STOCK PRICE WHICH MAY CAUSE YOU TO LOSE SOME OR ALL OF YOUR INVESTMENT.

There has only been a limited public market for our common stock and an active
trading market in our common stock may not be maintained. The OTCBB is an
unorganized, inter-dealer, over-the-counter market that provides significantly
less liquidity than stock exchanges such as NASDAQ, and quotes for stocks
included on the OTCBB are not listed in the financial sections of newspapers, as
are those for stock exchanges. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of many smaller companies. The trading price of our
common stock is expected to be subject to significant fluctuations in response
to variations in quarterly operating results, changes in analysts' earnings
estimates, announcements of innovations by us or our competitors, general
conditions in the industry in which we operate and other factors. These
fluctuations, as well as general economic and market conditions, may decrease
the market price of our common stock.

THE MARKET PRICE FOR OUR COMMON STOCK MAY BE SUBJECT TO EXTREME VOLATILITY,
WHICH MAY CAUSE YOU TO LOSE SOME OR ALL OF YOUR INVESTMENT.

The market for securities of high-technology companies, including companies such
as ours that participate in emerging markets, has historically been more
volatile than the market for stocks in general. As a result, the price of our
common stock may be subject to wide fluctuations in response to factors some of
which are beyond our control, including, without limitation, the following:

                                      -23-
<PAGE>

        o     Quarter-to-quarter variations in our operating results;

        o     Our announcement of material events;

        o     Price fluctuations in sympathy to others engaged in our
              industry; and,

        o     The effects of media coverage of our business.

PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF THE
COMPANY'S SECURITIES, WHICH MAY CAUSE YOU TO LOSE SOME OR ALL OF YOUR
INVESTMENT.

The Securities and Exchange Commission has adopted regulations which generally
define a "penny stock" to be any equity security that has a market price (as
defined) of less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. As a result, our common stock is
subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the Securities and Exchange Commission relating
to the penny stock market. The broker-dealer must also disclose the commission
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell our securities
and may affect the ability of investors to sell our securities and the price at
which such purchasers can sell any such securities.

Our shareholders should be aware that, according to the Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:

        o      Control of the market for the security by one or a few
               broker-dealers that are often related to the promoter or issuer;
        o      Manipulation of prices through prearranged matching of purchases
               and sales and false and misleading press releases;
        o      "Boiler room" practices involving high pressure sales tactics and
               unrealistic price projections by inexperienced sales  persons;
        o      Excessive and undisclosed bid-ask differentials and markups by
               selling broker-dealers; and

        o      The wholesale dumping of the same securities by promoters and
               broker-dealers after prices have been manipulated to a
               desired level, along with the inevitable collapse of those
               prices with consequent investor losses.

                                      -24-
<PAGE>


Our management is aware of the abuses that have occurred historically in the
penny stock market.

ADDITIONAL AUTHORIZED SHARES OF COMMON STOCK AND PREFERRED STOCK AVAILABLE FOR
ISSUANCE MAY DECREASE THE MARKET PRICE FOR OUR COMMON STOCK.

We are authorized to issue 350,000,000 shares of common stock. As of March 28,
2007, there were 56,139,057 shares of common stock issued and outstanding. We
have also reserved a total of 23,197,135 shares for future issuance consisting
of 4,120,000 shares issuable upon the exercise of options that have been
granted, approximately 1,066,840 shares available for issuance under our stock
option plans and 18,010,295 shares issuable upon exercise of warrants that have
been granted. The options and warrants are exercisable at prices ranging from
$.10 to $1.50 per share. To the extent stock is issued upon the exercise of
options or warrants, our existing shareholders will experience further dilution.
In addition, in the event that any future financing should be in the form of, be
convertible into or exchangeable for, equity securities, the issuance of our
shares upon their exercise will result in additional dilution.

WE MAY ISSUE PREFERRED STOCK, WHICH MAY DECREASE THE MARKET PRICE FOR OUR COMMON
STOCK AND MAY HAVE RIGHT SUPERIOR TO YOUR COMMON STOCK RIGHTS.

In addition to the above-referenced shares of common stock that we may issue
without shareholder approval, we have the right to authorize and issue preferred
stock. We presently have no issued and outstanding shares of preferred stock and
while we have no present plans to issue any shares of preferred stock, our Board
of Directors has the authority, without shareholder approval, to create and
issue one or more series of such preferred stock and to determine the voting,
dividend and other rights of holders of such preferred stock. The issuance of
any of such series of preferred stock may have superior rights to the holders of
common stock.

OTHER RISKS

LIMITATION ON DIRECTOR/OFFICER LIABILITY MAY LIMIT THE AMOUNT YOU CAN RECOVER
FOR A BREACH FIDUCIARY DUTIES BY AN OFFICER OR DIRECTOR.

As permitted by Florida law, our certificate of incorporation limits the
liability of our directors for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of our
charter provision and Florida law, shareholders may have limited rights to
recover against directors for breach of fiduciary duty. In addition, our
certificate of incorporation provides that we shall indemnify our directors and
officers to the fullest extent permitted by law. Thus your right to recover
damages as a shareholder may be limited.

ITEM 2.  DESCRIPTION OF PROPERTY

On January 1, 2007 we relocated our principal executive offices to a smaller
facility with 850 square feet of office/warehouse space in Sunrise, Florida. We
lease this space from an unrelated third party under a one year lease expiring
on December 31, 2007 with a an annual lease of approximately $12,500. Mr. Dore
Scott Perler, our CEO, is also a party to this agreement. These facilities are
suitable and adequate for our current needs.

                                      -25-
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

We are not a party to any material legal proceeding, nor are any of our
officers, directors or affiliates, a party adverse to us in any legal
proceeding.

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

On December 29, 2006 we held a Special Meeting of our shareholders for the
purposes of approving an amendment to our Articles of Incorporation increasing
the number of authorized shares of our common stock from 100,000,000 shares to
350,000,000 shares. This action had previously been approved by our Board of
Directors on November 28, 2006. On November 28, 2006, the record date for
Special Meeting, there were 55,550,021 shares of our common stock issued and
outstanding. Shareholders representing 40,852,458 shares of our common stock,
which represented a quorum for meeting purposes, voted in person or by proxy at
the Special Meeting. Following is the vote tally for this Special Meeting:



                Voting "FOR"                         38,033,367 shares
                --------------------------------    -----------------------
                Voting "AGAINST"                     2,391,811 shares
                ---------------------------------   -----------------------
                Abstentions and broker non-votes     427,280 shares
                ---------------------------------   -----------------------

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our shares of common stock are quoted on the Over-the-Counter Bulletin Board
under the symbol SEHO. The quarterly reported high and low bid prices for the
common stock are shown below for the period two fiscal years ended December 31,
2006. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions. The quotation
of our common stock on the OTC Bulletin Board does not assure that a meaningful,
consistent and liquid trading market for such securities currently exists and,
in fact at the present time, such a market does not exist.

         Period                                     High              Low
         ---------                                 ------           --------
         First Quarter ended 3/31/05               $0.35              $0.17
         Second Quarter ended 6/30/05              $0.21              $0.15
         Third Quarter ended 9/30/05               $0.38              $0.17
         Fourth Quarter ended 12/31/05             $0.37              $0.24

         First Quarter ended 3/31/06               $0.33              $0.30
         Second Quarter ended 6/30/06              $0.23              $0.22
         Third Quarter ended 9/30/06               $0.16              $0.155
         Fourth Quarter ended 12/31/06             $0.085             $0.065

On March 27, 2007, the last sale price of our common stock as reported on the
OTCBB was $0.045.
                                      -26-
<PAGE>


As of March 22, 2007, our common stock is owned of record by approximately 1,000
holders. We have never paid cash dividends on our common stock. We intend to
keep future earnings, if any, to finance the expansion of our business, and we
do not anticipate that any cash dividends will be paid in the foreseeable
future. Our future payment of dividends will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.


Recent Sales of Unregistered Securities

On October 1, 2006, we issued 85,000 shares of our common stock to a consultant
as compensation for business development services rendered valued at $12,500.

On October 16, 2006, we issued 5,000,000 shares of our common stock to China
Direct Investments, Inc. as compensation for business development and advisory
services rendered valued at $450,000.

On November 21, 2006, we issued 168,000 shares of our common stock valued at
$15,960 to an individual as payment for rent.

In each of the foregoing transactions, the consultants and advisors (a) had a
preexisting business relationship with us, (b) had access to financial
statements and other relevant information concerning the Company; (c) had such
knowledge in business and financial matters that they were able to understand
the risks and merits of an investment in the Company, and were, therefore,
sophisticated investors at the time of acquisition and (d) the shares that were
issued contained a legend restricting their transferability absent registration
under the Act or the availability of an applicable exemption there from.
Accordingly, these transactions were exempt from the registration requirements
of the Act by reason of Section 4(2) of the Act and the rules and regulations
there under.

Please refer to Item 11 Section - Compensation Under Existing Equity
Compensation Plans for options granted under existing employee stock
compensation plans.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following analysis of the results of operations and financial condition of
the Company should be read in conjunction with the financial statements of Sense
for the year ended December 31, 2006 and notes thereto contained in this Report
on Form 10-KSB of Sense.

OVERVIEW

We design, develop, manufacture and sell fingerprint-based identification
products and systems that incorporate state-of-the-art biometric technology to
verify a person's identity. We also own, license or have optioned for purchase
the additional security-related technologies. We also license certain patented
technology designed to detect chemical vapors and unexploded ordinance including
bombs, grenades, shells, rockets, and other explosive devices. We have also been
granted a 24-month right of first refusal to negotiate a patent license
agreement covering security-related applications for proprietary technology
relating to the detection of biological warfare agents.

We have deployed over 100 biometric units nationwide to a Fortune 100 company
and continue to service and support this client. We have also continued to
generate minimal revenue from the sale of biometrics and we have continued to
increase our visibility in the field of Homeland security and chemical and
explosives detection. We have funded various initiatives and have made
substantial progress in the focused areas.

                                      -27-
<PAGE>


Our current base of customers primarily consists of one large enterprise level
client and numerous smaller companies. To date, our ability to conduct
significant marketing activities that we deem critical to building broad market
awareness of, and demand for, our systems have been severely limited due to
financial constraints. The financial constraints were brought on in part by the
cash required to be spent in research and development. However, we have been
successful in limiting further research and development expenses and have sought
to market and refine our existing systems. We continue to seek funds to enable
us to begin to move forward with such marketing without the burden of past
research and development expenditures.

We have incurred substantial operating and net losses, as well as negative
operating cash flows, since our inception. As a result, we continued to use
significant working capital and have limited shareholders' equity at December
31, 2006. In recognition of such circumstances, our independent certified public
accountants included an explanatory paragraph in their report on our
consolidated financial statements for the year ended December 31, 2006 that
expressed substantial doubt regarding our ability to continue as a going
concern.

Although profit margins may be lower for existing system sales, lower profit
margins are significantly offset by dramatically lower operating costs. In
addition, we will continue to make customizations to our existing systems if
such systems can be supported by our reduction in research and development
spending and our smaller staff. However, as discussed above, additional
financing is still needed to fund our longer-term operating needs, including our
continued conducting of those marketing activities we deem critical to building
broad public awareness of, and demand for, our current systems. We believe that
additional financing and sales increases we expect to realize from additional
marketing activities will be sufficient to support us until that point in time
at which we forecast that our business will become self-sustaining from
internally generated cash flow. There is no assurance we will be able to raise
additional financing or increase sales in the coming year.

During the year ended December 31, 2006, we recorded an additional reserve of
$39,570 for slow-moving inventory acquired in previous years. With respect to
our operating cost structure, we implemented a series of difficult, yet
necessary, cost-cutting measures during our preceding fiscal year. The most
significant of which was the elimination of substantially all non-critical
personnel, consultants and infrastructure.

We currently operate with a core staff of two full-time employees who are also
our executive officers. Additionally, we eliminated a substantial portion of our
product research and development expenditures in the prior year. We expect to
continue to reduce research and development expenses as we focus on existing
systems. We expect that our product research and development needs and
expenditures for the foreseeable future will remain nominal.

Although we have limited our current expenditures on research and development,
and have eliminated non-critical personnel, we have maintained the employees
necessary to continue operations and incorporate changes to our core products
based on customers needs. We have done this to reduce expenses and because our
core products are operational and saleable to a broad market with very little
modification.

                                      -28-
<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2006 AS COMPARED TO YEAR ENDED DECEMBER 31, 2005

REVENUES, COST OF GOODS SOLD - TANGIBLE PRODUCTS AND GROSS PROFIT

For the year ended December 31, 2006, we generated revenues of $81,517. The cost
of goods sold - tangible products was $48,977. We do not record a cost of goods
sold related to service and maintenance revenues. This resulted in a gross
profit of $32,540 and an overall gross profit percentage of 40% for the year
ended December 31, 2006. For the year ended December 31, 2005, we generated
revenues of $501,078. The cost of goods sold - tangible products was $167,577.
This resulted in a gross profit of $333,501 and a gross profit percentage of 67%
for the year ended December 31, 2005. The decrease in revenues generated was
$419,561 or a decrease of 83.7%. The decrease in revenues is mainly attributed
to a decrease in marketing efforts of our existing products and further
concentration on the development of new products which has taken away from sales
efforts of our existing product line. During the year ended December 31, 2006,
our overall gross profit was lower due to the recording of additional reserves
of $39,570 on slow-moving inventory. We continue to refocus on the sale of our
existing product line, expanding our existing product line and continue to seek
sufficient capital to engage in effective sale efforts.



OPERATING EXPENSES

Overall, total operating expenses increased $1,164,301, or approximately 57%,
for fiscal 2006 from fiscal 2005. This increase included the following:

         o For the year ended December 31, 2006, compensation and related taxes
increased to $596,596 as compared to $435,148 for the year ended December 31,
2005, an increase of $161,448 or 37.1%. The increase was primarily attributable
to stock-based compensation of $150,000 for the year ended December 31, 2006 for
stock options granted to an employee and directors as compared to options valued
at $5,000 for the year ended December 31, 2005. Additionally, compensation and
related taxes in fiscal 2006 includes a one-time expense of $20,000 representing
the forgiveness of loans to officers $10,000 each to Mr. Perler and Mr. Goldrich
which has been recorded as compensation. Due to a reduction in staff at the end
of fiscal 2006, we expect our compensation and related taxes to decrease during
fiscal 2007.

         o For the year ended December 31, 2006, consulting and investor
relation expenses amounted to $1,561,577 as compared to $718,653 for the year
ended December 31, 2005, an increase of $842,924 or 117.29%. The increase is
related to the grant of common stock and warrants for business development and
investor relations services during the year ended December 31, 2006 as well as
the amortization of deferred compensation expense for shares previously issued
in 2005. During 2006, we engaged various investor relations firms to bring
awareness of our Company and new product developments to the investment
community. However, as a result of our limited resources, we expect consulting
and investor relations expense to decrease substantially in fiscal 2007.

         o For the year ended December 31, 2006, research and development costs
amounted to $578,979 as compared to $314,233 for the year ended December 31,
2005, an increase of $264,746 or 84%. This increase included fees paid to third
parties for development of security products under a Cooperative Research and
Development Agreement in 2005 and during the year ended December 31, 2006 which
are being amortized over the period of the agreement. Subject to the
availability of additional funding, we plan on continuing our research and
development spending in fiscal 2007. If, however, such funding is not available
we expect to significantly curtail our research and development activities in
fiscal 2007.


                                      -29-
<PAGE>

         o For the year ended December 31, 2006, other selling, general and
administrative expenses were $478,727 as compared to $583,544 for the year ended
December 31, 2005, a decrease of $104,817 or 18% and included the following:

                                             2006                     2005
                                    ----------------------    ------------------
       Rent                             $  59,468              $  53,055
       Professional fees                  107,615                123,365
       Bad debt                            19,496                 26,226
       Other operating expenses           292,148                380,898
                                    ---------------------    -------------------


            Total                       $ 478,727              $ 583,544
                                    ====================    ===================

For the year ended December 31, 2006, rent expense increased $6,413 due to an
increase in common area maintenance expenses.

For the year ended December 31, 2006, professional fees decreased by $15,750 or
13%. The decrease is primarily related to a decrease in auditing fees and legal
fees. In 2005, we incurred legal fees related to our research and development
agreement with UT Battelle for which we did not have comparable expenses in
fiscal 2006.


For the year ended December 31, 2006, bad debt expense decreased $6,730 or 26%
due to the decrease in write-off of our accounts receivable during the year
ended December 31, 2006. This decrease was primarily attributable to less sales
by the Company as well as a better credit rating procedure put in place by the
company in January 2006,


For the year ended December 31, 2006, other operating expenses decreased $88,750
or 23%. Other operating expenses includes office expense, telephone, insurance
(including health insurance) travel and entertainment, and auto expenses. The
decrease was attributable to cost-cutting measures offset by an increase in the
amortization of acquired licensing fees of $45,000.

In fiscal 2007, we expect our expenses to decrease as we continue to cut costs
due to a lack of working capital.

OTHER INCOME (EXPENSES)

Total other expenses for fiscal 2006 increased $454,798, or approximately 400%,
for fiscal 2006 from fiscal 2005. This increase included the following:

o    Interest  income for the year ended December 31, 2006 was $19,493  compared
     to $10,305 for the year ended  December 31, 2005. The increase is due to an
     increase in the average interest-bearing deposits.

o    Interest expense increased to $128,885 for the year ended December 31, 2006
     as compared to interest  expense of $77,857 for the year ended December 31,
     2005,  an increase of $51,028.  This increase is  attributable  to interest
     paid on  outstanding  convertible  notes that were repaid or  converted  to
     common  stock in March 2006,  and the  amortization  of a discount on notes
     payable of $92,944.  Additionally,  in  connection  with the  conversion of
     notes  payable to common  stock,  we issued  additional  shares with a fair
     value of $21,923 which we charged to interest expense.


o    For the year ended  December 31,  2006,  we recorded  amortization  of debt
     issuance  costs of  $89,692  related  to fees paid in  connection  with our
     convertible  notes payable  compared to $46,593 for the year ended December
     31, 2005.  Since all of our debt has been  extinguished,  in fiscal 2007 we
     will not record  amortization of debt issuance costs absent the issuance of
     new debt instruments.

                                      -30-
<PAGE>



o    For the year ended  December 31, 2006,  we recorded a loss on impairment of
     intangible assets of $230,000 in connection with our license rights for the
     MEMS  technology.  While we believe that the  technology  continues to have
     value and may  inevitably  be used in  products  which are  marketable,  no
     products have yet been developed  incorporating  these  technologies and we
     require significant  additional capital to continue the development of this
     product line. Accordingly,  in fiscal 2006 we determined to impair our MEMS
     technology  related assets. We did not have a comparable  expense in fiscal
     2005.

o    For the year ended  December  31,  2006,  we recorded  registration  rights
     penalty of $140,432 related to registration  rights agreements entered into
     in  connection  with our  private  placement.  On May 31,  2006,  we issued
     392,000 shares of common stock and granted  98,000  warrants for payment of
     liquidating  damages  valued at  $94,080  and  $19,049,  respectively.   On
     November  29,  2006,  we issued  273,036  shares of common  stock valued at
     $27,303 for payment of accrued  liquidating  damages in connection with the
     registration  statement  covering the shares of common stock sold in a 2006
     private placement.  We did not have comparable  expenses in fiscal 2005. We
     do not expect to incur these  expenses in fiscal 2007 absent  entering into
     new financing  agreements which contain registration rights clauses and our
     failure to timely comply with those provisions.

OVERALL

We reported a net loss for the year ended December 31, 2006 of $3,752,855
compared to a net loss for the year ended December 31, 2005 of $1,832,795. This
translates to an overall per-share loss of $.08 for the year ended December 31,
2006 compared to per-share loss of $.05 for the year ended December 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

         We have experienced losses and negative cash flows from operations
since inception and at December 31, 2006 we have an accumulated deficit of
approximately $14.9 million. The report of our independent registered public
accounting firm on our financial statements for fiscal 2006 contains an
explanatory paragraph regarding our ability to continue as going concern. At
December 31, 2006, we had cash on hand of approximately $153,000 and working
capital of approximately $45,000. We have financed our growth and cash
requirements through equity investments and debt and equity financing. We do not
currently have any credit facilities from financial institutions or private
lenders. We do not currently have any material commitments for capital
expenditures except as discussed later in this section.


On March 7, 2006, we completed a private placement of units to accredited
investors consisting in the aggregate of 11,140,910 shares of our common stock
and warrants to purchase 5,570,455 shares of common stock. The warrants are
exercisable at $0.35 per share for a term of five years. We received gross
proceeds of $2,451,000 and net proceeds of $2,086,282 in this transaction. The
net proceeds from the transaction were used to eliminate approximately $527,000
of debt of the Company owing to certain prior note holders, for working capital
purposes, and to fund our CRADA in the amount of approximately $410,000 in
fiscal 2006.

                                      -31-
<PAGE>


For the year ended December 31, 2006, net cash used in operating activities
amounted to $1,285,399 and was attributable primarily to the net loss of
$3,752,855 (includes the payment of cash for research and development efforts of
$578,979) and the repayments for accounts payable and accrued expenses of
$177,330 offset by stock-based compensation of $1,500,240, depreciation of
$7,297, the amortization of the debt offering costs of $89,692, the amortization
of the discount on notes payable of $92,994, the amortization of license rights
of $45,000, the registration right penalty of $140,432, impairment of intangible
asset of $230,000, the receipt of cash from accounts receivable of $399,484, and
other non-cash items and changes in asset and liability accounts of $139,647.

For the year ended December 31, 2005, net cash used in operating activities
amounted to $1,237,328 and was attributable primarily to the net loss of
$1,832,795 offset by non-cash compensation of $725,796, depreciation and
amortization of $11,620, the amortization of the debt offering costs of $46,593,
the amortization of the discount on notes payable of $45,675, the amortization
of license rights of $25,000, other non-cash items and change in asset and
liability accounts.

For the year ended December 31, 2006, net cash used in investing activities was
$150,000 attributable to a share exchange agreement whereby we paid $150,000 to
UT Battelle for the return and cancellation of 683,333 shares of our common
stock previously issued to them in August 2005. For the year ended December 31,
2005, net cash used in investing activities was $126,998 attributable to the
acquisition of patent license rights $150,000 offset by proceeds received from
the sale of marketable securities of $23,002.

For the year ended December 31, 2006, net cash provided by financing activities
was $1,559,282 and consisted of proceeds from the sale of common stock under a
private placement of $2,451,000 offset by the payment of placement fees and
expenses of $364,718 and the repayment of convertible notes payable of
$527,000.For the year ended December 31, 2005, net cash provided by financing
activities was $755,480 and consisted of proceeds from the exercise of common
stock warrants of $171,460 and the receipt of proceeds from notes payable of
$669,500 offset by the payment of placement fees of $66,950 and the repayment of
all outstanding margin loans of $18,530.

As a result of the above, total cash increased by $123,883 during year ended
December 31, 2006 as compared to a decrease in cash of $608,846 for the year
ended December 31, 2005.

Since our inception, we have been engaged in research development activities
relating to our first generation of biometric security products. We commenced
delivery of these products in the third quarter of 1999 and have been generating
revenues since the fourth quarter of 1999. We have completed development of our
second and third generation product, and have recognized revenue on their sales
since the year ended December 31, 2000. We have also recognized revenue for
consulting fees since the third quarter of 2000. We will continue to make
enhancements to our second-generation product so that it will support a larger
database, and enable us to market CheckPrint T/A to larger companies, resulting
in a greater profit margin to us. Subject to the availability of sufficient
working capital, we will continue to seek to develop other products and services
relating to biometrics, security, data management, explosive detection, and
consulting services.

                                      -32-
<PAGE>

The Company, at present, does not have any contractual obligations for capital
expenditures for fiscal year 2007. In addition the Company does not have any
obligations other than trade and operating payables incurred during the normal
course of business. During fiscal 2007 the Company may need to raise additional
capital to pay its overhead and expand its business.

Our fiscal 2006 revenues declined substantially from fiscal 2005. This decline
is partially attributable to the diversion of our management's time to the
development of products based on the MEMS technology. Our operations do not
generate sufficient capital to pay our overhead expenses or for the growth of
our company. If our revenues continue to decline, our need for working capital
will increase beyond current demands.

We do not have sufficient capital to continue the research and development
related to the MEMS based products. As described elsewhere in this annual
report, presently need approximately $650,000 to continue our research and
development efforts in that area. In addition, in order to undertake the spin
off of our MEMS technology we will need additional capital to pay the legal,
accounting and related fees as well as operating capital for that company and
any funds which are necessary is we want to exercise the right of first refusal
to acquire additional licensed technology from UT-Battelle and for the further
development of the MEMS based products. We estimate we will need approximately
$250,000 to pay the costs associated with the spin-off and for initial operating
capital. This excludes the presently unknown amount we would be obligated to pay
UT-Battelle to exercise the rights of first refusal, and the capital necessary
to continue the development of the MEMS based products. While we are unable at
this time to quantify such amount, it will be significant.

As long as our cash flow from operations remains insufficient to completely fund
operations, we will continue depleting our financial resources and seeking
additional capital through equity and/or debt financing. If we raise additional
capital through the issuance of debt, this will result in increased interest
expense. If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our company held by
existing shareholders will be reduced and those shareholders may experience
significant dilution. In addition, new securities may contain certain rights,
preferences or privileges that are senior to those of our common stock.

There can be no assurance that acceptable financing to fund our ongoing
operations can be obtained on suitable terms, if at all. If we are unable to
obtain the financing necessary to support our operations, we may be unable to
continue as a going concern. In that event, we may be forced to cease operations
and our shareholders could lose their entire investment in our company.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to our consolidated financial statements includes a
summary of the significant accounting policies and methods used in the
preparation of our consolidated financial statements. The following is a brief
discussion of the more significant accounting policies and methods used by us.

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.

                                      -33-
<PAGE>


PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned Subsidiaries. All material inter-company transactions have been
eliminated.

INVENTORY

Inventory is stated at the lower of average cost or market and consists of raw
materials and finished goods.

REVENUE RECOGNITION

The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements". 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. When a customer order contains multiple
items such as hardware, software, and services which are delivered at varying
times, the Company determines whether the delivered items can be considered
separate units of accounting as prescribed under Emerging Issues Task Force
("EITF") Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"
("EITF 00-21"). EITF 00-21 states that delivered items should be considered
separate units of accounting if delivered items have value to the customer on a
standalone basis, there is objective and reliable evidence of the fair value of
undelivered items, and if delivery of undelivered items is probable and
substantially in the Company's control.

The following policies reflect specific criteria for the various revenues
streams of the Company:

The Company generates revenue from the sale of its products. Revenues from the
sale of these items are recognized upon delivery of the product to the customer.

Revenue from periodic maintenance agreements is generally recognized ratably
over the respective maintenance periods provided no significant obligations
remain and collectibility of the related receivable is probable.

Revenue from the performance of services is recognized upon completion of the
service.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the balance sheet for cash, marketable
securities, receivables, inventory and accounts payable approximate their fair
market value based on the short-term maturity of these instruments.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. These costs primarily
consist of salaries paid for the development of the Company's software and
technology and fees paid to a third party in connection with a Cooperative
Research and Development Agreement.

                                      -34-
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the FASB issued SFAS 155, which applies to certain "hybrid
financial instruments," which are instruments that contain embedded derivatives.
The new standard establishes a requirement to evaluate beneficial interests in
securitized financial assets to determine if the interests represent
freestanding derivatives or are hybrid financial instruments containing embedded
derivatives requiring bifurcation. This new standard also permits an election
for fair value remeasurement of any hybrid financial instrument containing an
embedded derivative that otherwise would require bifurcation under SFAS 133. The
fair value election can be applied on an instrument-by-instrument basis to
existing instruments at the date of adoption and can be applied to new
instruments on a prospective basis. The adoption of SFAS No.155 did not have a
material impact on the Company's financial position and results of operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. The adoption of this statement is not
expected to have a significant effect on the Company's future reported financial
position or results of operations.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109." This interpretation provides guidance
for recognizing and measuring uncertain tax positions, as defined in SFAS No.
109, "Accounting for Income Taxes." FIN No. 48 prescribes a threshold condition
that a tax position must meet for any of the benefit of an uncertain tax
position to be recognized in the financial statements. Guidance is also provided
regarding de-recognition, classification, and disclosure of uncertain tax
positions. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company does not expect that this interpretation will have a material
impact on its financial position, results of operations, or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company's financial statements issued
in 2008; however, earlier application is encouraged. The Company is currently
evaluating the timing of adoption and the impact that adoption might have on its
financial position or results of operations.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements ("SAB 108"). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each financial
statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108.
The rollover approach quantifies misstatements based on the amount of the error
in the current year financial statement, whereas the iron curtain approach
quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement's year(s) of origin. Financial statements would require
adjustment when either approach results in quantifying a misstatement that is
material. Correcting prior year financial statements for immaterial errors would
not require previously filed reports to be amended. If a Company determines that
an adjustment to prior year financial statements is required upon adoption of
SAB 108 and does not elect to restate its previous financial statements, then it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006
beginning balances of the affected assets and liabilities with a corresponding
adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108 is
effective for interim periods of the first fiscal year ending after November 15,
2006. The adoption of SAB 108 did not have an impact on the Company's
consolidated financial statements.

                                      -35-
<PAGE>


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

OFF-BALANCE SHEET ARRANGEMENTS

Under SEC regulations, we are required to disclose our off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. An off-balance sheet arrangement means
a transaction, agreement or contractual arrangement to which any entity that is
not consolidated with us is a party, under which we have:

o    Any obligation under certain guarantee contracts;

o    Any  retained  or  contingent   interest  in  assets   transferred   to  an
     unconsolidated  entity  or  similar  arrangement  that  serves  as  credit,
     liquidity or market risk support to that entity for such assets;

o    Any obligation under a contract that would be accounted for as a derivative
     instrument,  except that it is both indexed to our stock and  classified in
     shareholder's equity in our statement of financial position; and


o    Any obligation arising out of a material variable interest held by us in an
     unconsolidated  entity that provides financing,  liquidity,  market risk or
     credit risk  support to us, or engages in leasing,  hedging or research and
     development services with us.

As of the date of this report, we do not have any off-balance sheet arrangements
that we are required to disclose pursuant to these regulations. In the ordinary
course of business, we enter into operating lease commitments, purchase
commitments and other contractual obligations. These transactions are recognized
in our financial statements in accordance with generally accepted accounting
principles in the United States.

ITEM 7.  FINANCIAL STATEMENTS

See Index to Financial Statements for the financial statements included in this
Form 10-KSB.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE STATEMENTS

         None.

                                      -36-
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

Our Chief Executive Officer, who also serves as our principal financial and
accounting officer, is responsible for establishing and maintaining disclosure
controls and procedures for us. Based on such officer's evaluation of these
controls and procedures our Chief Executive Officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in this Annual Report is accumulated and
communicated to management to allow timely decisions regarding required
disclosure.

Our management does not expect that our disclosure controls or our internal
controls will prevent all error and fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people or by management override of the control. The design of any systems of
controls also is based in part upon certain assumptions about the likelihood of
future events, and their can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of these
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

There have been no changes in our internal control over financial reporting
during our fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.


ITEM 8B. OTHER INFORMATION

         NONE

                                      -37-
<PAGE>

                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

The following table includes the names, positions held and ages of our executive
officers and directors.

NAME                     AGE                       POSITION

Dore Scott Perler        46     Chief Executive Officer, President and
                                 Chairman of the Board

Shawn Tartaglia          38      Vice President, Chief Technical Officer and
                                 Director

Julie Slater             47      Director

DORE SCOTT PERLER has served as our Chief Executive Officer, President and
Chairman of our board of directors since July 1998. From May 1993 to July 1998,
Mr. Perler was a founder, Director, and Vice President of Sales covering the
Southeast United States and Latin America, for Latinrep, Inc., a manufacturer's
representative organization. He assisted in the formation of Latin Channels, a
trade show for Latin American distributors.

SHAWN TARTAGLIA has served as our Vice President, Chief Technical Officer and
Director since July 1998. From November 1997 to July 1998, Mr. Tartaglia was
Manager of Information Systems for CompScript, Inc., a privately held
pharmaceutical provider. From February 1993 to November 1997, Solopak
Pharmaceuticals, a privately held pharmaceutical supplier, employed him as its
Systems and Telecommunications Manager.

JULIE SLATER has served as a Director on our board of directors since January
1999. From 1984 and continuing until the present, Ms. Slater has been Vice
President of All Eyes Optical, a privately held optometry and retail eyewear
provider. She is the sister-in-law to our Chief Executive Officer, Dore Perler.

There are no family relationships between any of the executive officers and
directors. Each director is elected at our annual meeting of shareholders and
holds office until the next annual meeting of shareholders, or until his
successor is elected and qualified.

ADVISORY BOARDS AND KEY CONSULTANTS


We have established three advisory boards: an Operations Advisory Board, a
Scientific Advisory Board and the Executive Operation Board. The Operations
Advisory Board makes suggestions to the Board of Directors regarding hardware,
engineering and manufacturing. The Scientific Advisory Board makes suggestions
to the Board of Directors regarding our MEMS divisions and developments in that
area as it pertains to our licensed technologies acquired through our agreements
with Oak ridge National Laboratories. The Executive Advisory Board makes
suggestions to the Board of Directors regarding strategic goals and objectives
of the organization. All advisory board positions are voluntary.

                                      -38-
<PAGE>


Operations Advisory Board

         The members of our Operations Advisory Board include:

ALEX SCHLINKMANN.  Mr. Schlinkmann has also been a consultant to us, through
Test Systems Engineering, since July 1998. Since 1991 he has been President and
Design Engineer for Test Systems Engineering. He has helped with the design of
several components of our hardware housing, given advice on best manufacturing
methods and constructed prototypes of new hardware housings and components.

JAMIE SCHLINKMANN. Mr. Schlinkmann is the brother of Alex Schlinkmann, and has
been a consultant to us since July 1998. Since 1991 he has been Vice President
and Design Engineer for Test Systems Engineering. He has also helped with the
design of several components of our hardware housing, given advice on best
manufacturing methods and constructed prototypes of new hardware housings and
components.

Scientific Advisory Board

         The members of our Scientific Advisory Board include:

         DR. ROBERT J. (BRUCE) WARMACK. Dr. Warmack is a Senior Scientist at Oak
Ridge National Laboratory and also a research professor at the University of
Tennessee, Knoxville. He received his Ph. D. in Physics from the University of
Tennessee in 1975. Dr. Warmack has co-authored numerous articles on the field of
MEMS sensing and is the co-inventor of the Photon Scanning Tunneling Microscope.
He has been awarded various honors, including RD100 Awards, the Fabre-Gramont
Award, and is a fellow of the American Physical Society. Dr. Warmack's research
is currently focused on novel physical, chemical, and biological detection using
micro electromechanical sensors (MEMS).

         DR. LAL A. PINNADUWAGE. Dr. Lal A. Pinnaduwage is a Senior Scientist at
Oak Ridge National Laboratory and also a research professor at the University of
Tennessee, Knoxville. He received his Ph.D. in Physics from the University of
Pittsburgh, Pittsburgh, PA. He is the author of over 60 publications in refereed
journals, two patents and three pending patents. Dr. Pinnaduwage's research is
currently focused on novel physical, chemical, and biological detection using
micro electromechanical sensors (MEMS). His expertise includes negative ions,
electron-excited molecule interactions, gaseous dielectrics, interaction of
laser and microwave fields with fast atom beams, Rydberg atoms and molecules,
low-temperature plasmas and mass spectrometry.

         ALLEN HERTZ Mr. Hertz is a co-founder of Galahad, an Innovations
Incubating company. Mr. Hertz provides his broad expertise to Galahad and
Galahad's clients, including IP protection, product development, business
management, manufacturing, marketing, and licensing. In addition to his
responsibilities at Galahad, Mr. Hertz oversees iKno, inc., a Telemetry company
which utilizes wireless monitoring technology developed by Galahad. Mr. Hertz
holds 27 issued U.S. patents and has over 32 additional patents pending. Mr.
Hertz has a total of 19 years of extensive experience in product design and
deployment; holding senior staff positions in New Product Development and
Manufacturing at Motorola and Racal-Datacom; and a Director level position at
CopperCom. Mr. Hertz is a Registered United States Patent Agent and holds a
Bachelor of Science degree in Ocean Engineering from Florida Atlantic
University.

                                      -39-
<PAGE>


         RICHARD S. KENDALL Mr. Kendall is the Chairman and Chief Executive
Officer of International Print Group a full service financial printing company.
Mr. Kendall is also the Founder and Chief Executive Officer of the Federal
Enforcement Homeland Security Foundation www.fehsf.org. He is also actively
involved in companies that perform background check/drug testing for businesses,
and advises and consults small to medium sized companies in the area of
profitability enhancement/environmental statutes. Mr Kendall is also an active
member of the Police Athletic League ,YIVO Institute, Becca's Closet, and Stand
Among Friends.

Executive Advisory Board

         PHILIP KENDAL. Mr. Kendal is a successful business professional and
currently serves as the Chairman of G-Com2 Solutions, which provides systems and
services are designed to expedite document preparation and reduce production
time and cost. This value-added process dramatically benefits its clients in the
mutual fund, commercial and association industries. From time to time Mr. Kendal
also provides consulting services to us.


During fiscal 2005 we granted each member of our Operations Advisory Board, our
Scientific Advisory Board and our Executive Board options to purchase 50,000
shares of our common stock at an exercise price of $0.35 per share as
compensation for their services. We valued these options at $69,935. The value
attributable to these option awards is computed in accordance with FAS 123R.


We have also engaged the following key consultants:

ANDREW GOLDRICH. In December 2006 we entered into a consulting agreement with
Mr. Goldrich under which he provides services to us in the areas of assisting
our company in our ongoing financial reporting obligations and advising us on
general business matters. Mr. Goldrich served as our Chief Financial Officer and
a member of our Board of Directors until his resignation in December 2006. Mr.
Goldrich is now employed by China Direct, Inc., the parent company of China
Direct Investments, Inc. which also serves as a consultant to our company. Under
the terms of the consulting agreement which expires in May 2007 we pay Mr.
Goldrich a monthly consulting fee of $3,000 and we agreed to provide him with 90
days paid health insurance. The consulting agreement can be terminated by the
mutual agreement of the parties or for "cause" by us. The agreement contains
customary non-circumvention, confidentiality and indemnification provisions.

CHINA DIRECT INVESTMENTS, INC. In November 2006 we entered into a Consulting and
Management Agreement with China Direct Investments, Inc. Under the terms of the
agreement, China Direct Investments has agreed to provide general business
consulting, identification, evaluation and structure of potential mergers and
acquisitions, advice on corporate structure and financial structuring
transaction, advice on potential sources of investment capital and assistance in
connection with administrative matters pertaining to the Peoples Republic of
China. As compensation for its services, China Direct Investments was issued
5,000,000 shares of our common stock valued at $450,000 and may receive
discretionary award fees as determined by us. Mr. Andrew Goldrich, formerly an
executive officer and director of our company and who presently serves as a
consultant to us, is employed by China Direct, Inc., the parent company of China
Direct Investments

                                      -40-
<PAGE>


DIRECTOR COMPENSATION

Messrs. Perler and Tartaglia and Ms. Slater are the members of our Board of
Directors. We have not established standard compensation arrangements for our
directors and the compensation, if any, payable to each individual for their
service on our Board is determined from time to time by our Board of Directors
based upon the amount of time expended by each of the directors on our behalf.
The following table provides information concerning the compensation of Messrs.
Perler and Tartaglia and Ms. Slater for their services as members of our Board
of Directors for the fiscal year ended December 31, 2006.


                                                DIRECTOR COMPENSATION

<TABLE>
<CAPTION>

                           Fees                                              Non-Qualified
                           Earned or                         Non-Equity      Deferred
                           Paid in      Stock     Option     Incentive       Compensation    All Other
                           Cash         Awards    Awards     Plan            Earnings        Compensation    Total
Name                       ($)          ($)       ($)        Compensation    ($)             ($)             ($)
(a)                        (b)          (c)       (d)        ($)             (f)             (g)             (h)
                                                             (e)
<S>                        <C>         <C>        <c>       <C>              <C>            <C>             <C>
-------------------------- ------------ --------- ---------- --------------- --------------- --------------- ---------
Dore Scott Perler          none         none      none       none            none            none            none
-------------------------- ------------ --------- ---------- --------------- --------------- --------------- ---------
Shawn Tartaglia            none         none      none       none            none            none            none
-------------------------- ------------ --------- ---------- --------------- --------------- --------------- ---------
Julie Slater               none         none      none       none            none            none            none
-------------------------- ------------ --------- ---------- --------------- --------------- --------------- ---------
</TABLE>

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

We are not currently subject to Section 16(a) of the Securities Exchange Act of
1934, and, therefore, our directors and executive officers, and persons who own
more than ten percent of our common stock are not required to file with the
Securities and Exchange Commission reports disclosing their initial ownership
and changes in their ownership of our common stock. While we agreed with the
placement agent of our recently completed private placement to register our
common stock under Section 12(g) of the Securities Exchange Act of 1934, at
which time our directors, executive officers and 10% shareholders will have
become subject to Section 16(a), we have not as yet registered our common stock
under Section 12(g).


CODE OF ETHICS AND BUSINESS CONDUCT

         We have adopted a Code of Business Conduct and Ethics to provide
guiding principles to all of our employees. Our Code of Business Conduct and
Ethics does not cover every issue that may arise, but it sets out basic
principles to guide our employees and provides that all of our employees must
conduct themselves accordingly and seek to avoid even the appearance of improper
behavior. Any employee which violates our Code of Business Conduct and Ethics
will be subject to disciplinary action, up to an including termination of his or
her employment. A copy of our Code of Business Conduct and Ethics has been filed
with the Securities and Exchange Commission as an exhibit to this annual report.
We will provide a copy, without charge, to any person desiring a copy of the
Code of Business Conduct and Ethics, by written request to, 10871 NW 52 Street,
Sunrise, Florida 33351, Attention: Corporate Secretary.

                                      -41-
<PAGE>


COMMITTEES OF THE BOARD OF DIRECTORS

Our Board of Directors has not established any committees, including an Audit
Committee, a Compensation Committee a Nominating Committee, or any committee(s)
performing similar functions. The functions of those committees are currently
undertaken by the entire board as a whole. Our securities are not listed on a
national securities exchange and we are not subject to any legal requirement
that we establish board committees or that our Board of Directors (or any
committee that the board does establish) includes one or more independent
directors. Because we have only one director that satisfies the definition of
independence promulgated by NASD Marketplace Rule 4200, our Board of Directors
believes that the establishment of committees of the Board would not provide any
benefits to our company and could be considered more form than substance.

Except as otherwise provided by law, we do not have a policy regarding
shareholder nominations of directors, including the minimum qualifications for
director candidates, nor has our Board of Directors established a process for
identifying and evaluating director nominees. Our Board has not considered or
adopted any of these policies as we have never received a recommendation from
any shareholder for any candidate to serve on our Board of Directors. Given our
relative size and lack of directors and officers insurance coverage, we do not
anticipate that director nominees, if any, proffered by our shareholders, will
agree to serve on our board. While there have been no nominations of additional
directors proposed, in the event such a proposal is made, all members of our
Board will participate in the consideration of director nominees.

None of our directors is an "audit committee financial expert" within the
meaning of Item 401(e) of Regulation S-B. In general, an "audit committee
financial expert" is an individual member of the audit committee or Board of
Directors who:

                o    understands generally accepted  accounting principles and
                    financial  statements,

                o    is able to assess the general application of such
                     principles in connection with accounting for estimates,
                     accruals and reserves,

                o    has experience preparing, auditing, analyzing or evaluating
                    financial statements  comparable  to the  breadth and
                     complexity  to our  financial statements,

                o    understands internal controls over financial reporting, and

                o    understands audit committee functions.

Since our formation we have relied upon the personal relationships of our CEO to
attract individuals to our Board of Directors. While we would prefer that one or
more of our directors be an audit committee financial expert, the individuals
whom we have been able to attract to our Board do not have the requisite
professional backgrounds. As with most small, early stage companies until such
time our company further develops our business, achieves a stronger revenue base
and has sufficient working capital to purchase directors and officers insurance,
we do not have any immediate prospects to attract additional independent
directors. When we are able to expand our Board of Directors to include one or
more additional independent directors, we will consider establishing board
committees, including an Audit Committee. We anticipate that at such time, if
any, that we are able to attract independent directors, one or more independent
directors will also qualify as an audit committee financial expert.

                                      -42-
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

                           Summary Compensation Table

         The following table summarizes all compensation recorded by us in each
of the last two completed fiscal years for our principal executive officer, each
other executive officer serving as such whose annual compensation exceeded
$100,000 and up to two additional individuals for whom disclosure would have
been made in this table but for the fact that the individual was not serving as
an executive officer of our company at December 31, 2006. The value attributable
to any option awards is computed in accordance with FAS 123R.

                                               SUMMARY COMPENSATION TABLE

<table>
<caption>
                                                                 NON-EQUITY
                                                                 INCENTIVE     NONQUALIFIED   ALL
NAME AND            YEAR                      STOCK    OPTION    PLAN          DEFERRED       OTHER
PRINCIPAL                  SALARY     BONUS   AWARDS   AWARDS    COMPENSATION  COMPENSATION   COMPENSATION   TOTAL
POSITION                   ($)        ($)     ($)      ($)       ($)           EARNINGS ($)   ($)            ($)
(A)                 (B)    (C)        (D)     (E)      (F)       (G)           (H)            (I)            (J)

                 <c>    <c>        <c>     <c>     <c>        <c>           <c>            <c>            <c>
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------
Dore Scott Perler
(1)                 2006   165,063         0        0    50,000             0              0         28,000      243,063
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------
                    2005   146,702         0        0    96,700             0              0              0      243,402
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------
Andrew Goldrich(2)
                    2006   153,063         0        0    50,000             0              0         31,000      234,063
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------
                    2005   146,702         0        0    96,700             0              0              0      243,402
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------
Shawn Tartaglia(3)
                    2006   97,846          0        0    50,000             0              0         12,000      159,846
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------
                    2005   96,000          0        0    61,800             0              0              0      157,800
------------------- ------ ---------- ------- -------- --------- ------------- -------------- -------------- ------------

</table>


(1) Mr. Perler has served as our Chief Executive Officer and President since
July 1998. Mr. Perler's fiscal 2006 compensation include options to purchase
250,000 shares of our common stock with an exercise price of $0.20 share. Mr.
Perler's fiscal 2005 compensation include options to purchase 400,000 shares of
our common stock with an exercise price of $0.22 share and options to purchase
150,000 shares of our common stock with an exercise price of $0.20 per share
which are valued in the aggregate at $96,700. Other compensation includes fees
paid for car allowance, health insurance and $10,000 related to the forgiveness
of debt.

                                      -43-
<PAGE>

(2) Mr. Goldrich served as our Vice President and Chief Financial Officer from
July 1998 until December 2006. He presently provides consulting services to us.
Mr. Goldrich's fiscal 2006 compensation include options to purchase 250,000
shares of our common stock with an exercise price of $0.20 share. Mr. Goldrich's
fiscal 2005 compensation include options to purchase 400,000 shares of our
common stock with an exercise price of $0.22 share and options to purchase
150,000 shares of our common stock with an exercise price of $0.20 per share
which are valued in the aggregate at $96,700. Other compensation includes fees
paid for car allowance, health insurance, $3,000 paid as a consulting fee, and
$10,000 related to the forgiveness of debt.

(3) Mr. Tartaglia has served as our Vice President and Chief Technical Officer
since July 1998. Mr. Tartaglia's fiscal 2006 compensation includes options to
purchase 250,000 shares of our common stock with an exercise price of $0.20 per
share. Mr. Tartaglia's fiscal 2005 compensation includes options to purchase
200,000 shares of our common stock with an exercise price of $0.22 per share and
options to purchase 150,000 shares of our common stock with an exercise price of
$0.20 per share which are valued in the aggregate at $61,800. Other compensation
includes fees paid for health insurance.

EMPLOYMENT AGREEMENTS

On April 1, 2005, we entered into three-year employment contracts with our Chief
Executive Officer and Chief Technology Officer which expire on April 1, 2008.
Specific terms are detailed below:

DORE PERLER. Pursuant to his employment agreement with us, Mr. Perler renders
full-time professional services to Sense in the capacity of Chief Executive
Officer. In consideration for these services as Chief Executive Officer,
effective April 1, 2005, we will pay Mr. Perler a salary of $137,500 per annum
through May 6, 2005 and $156,000 through May 7, 2006. After May 7, 2006 we
continue to compensate Mr. Perler at this salary level. In addition, Mr. Perler
is provided a car allowance of up to $500 per month.

SHAWN TARTAGLIA. Pursuant to his employment agreement with us, Mr. Tartaglia
renders full-time professional services to Sense in the capacity of Chief
Technical Officer. In consideration for these services as Chief Technical
Officer, Effective April 1, 2005, we will pay Mr. Tartaglia a salary of $96,800
per annum.

Incentive Compensation

In addition to the base salary, each of our executives who have employment
agreements with us are entitled to receive, as incentive compensation in respect
of each calendar year (or portion thereof) of Sense, an amount determined in
accordance with any bonus or short term incentive compensation program (which
may be based upon achieving certain specified performance criteria) which may be
established by the board. Sense's Board of Directors will review the
determination as to the amounts of any awards available to our executives under
these programs at least annually. The review will be made to ensure that such
amounts are competitive, and comparable, with awards granted to similarly
situated executives of publicly held companies comparable to Sense. Messrs.
Perler and Tartaglia represent a majority of our Board of Directors and,
accordingly, are in the position to make determinations on bonuses, if any,
payable to them.

                                      -44-
<PAGE>

Other Benefits

The employment agreements with our executives also provide other benefits.
Executives receive 10 paid vacation days and such other paid holidays in
accordance with Sense's policy. In addition, they are compensated in accordance
with Sense's disability policies. An executive may receive up to six (6) months
salary continuation in the event of short-term disability. An executive may be
granted permission to be absent from Sense during working days to attend
professional meetings and to attend to such outside professional duties in the
biometrics field as have been mutually agreed upon. Attendance at such approved
meetings and accomplishment of approved professional duties is fully compensated
service time and not be considered vacation time. We reimburse the executive for
all expenses incurred by the executive incident to attendance at approved
professional meetings and such entertainment expenses incurred by the executive
in furtherance of Sense's interests, provided, however, that such reimbursement
is approved by the Board of Directors. We pay dues to professional associations
and societies and to such service organizations and clubs of which the executive
is a member, which has been approved by the Board of Directors as being in the
best interests of Sense. The executives receive all other fringe benefits to
which all other employees of Sense are entitled.

Insurance

All of our executives are covered under our general liability insurance policy
for all acts done by him in good faith as an officer throughout the term of
their contracts with us. Sense does not have an additional insurance policy
covering its Directors and Officers. We also provide comprehensive health and
major medical insurance for our executives and their families, according to
Sense's benefit package.

Termination

In the event of involuntary termination without "cause" or disability, each
executive will be entitled to the following compensation for the succeeding 24
months following the date of termination:

        o    A total of two hundred (200%) percent of the executive's base
             compensation in effect on the date of the employment termination;
             plus

        o    A total of two hundred (200%) percent of the executive's annual
             incentive bonus earned on a quarterly basis as of the date of the
             termination, assuming the executive was employed on the last day
             of the quarter in which termination of employment occurred.

In the event the executive is terminated for "cause" the executive will be
entitled to any unpaid salary through the date of termination and deferred
compensation will be forfeited. In the event there is a "Change in Control", we
will be required to pay the executive a lump sum equal to 299% of the
executive's base compensation in effect on the date of employment plus 299% of
the executive's prior year incentive bonus. The executives may, at their
discretion, elect to terminate the contract the executive must give the board 90
days written notice and the executive would not be entitled to severance
benefits.

                                      -45-
<PAGE>


                  Outstanding Equity Awards at Fiscal Year-End

         The following table provides information concerning unexercised
options, stock that has not vested and equity incentive plan awards for each
named executive officer outstanding as of December 31, 2006:
<table>
<caption>

                                                                                                             EQUITY
                                                                                                             INCENTIVE
                                                                                                 EQUITY      PLAN
                                                                                                 INCENTIVE   AWARDS:
                                                                                         MARKET  PLAN        MARKET
                                                                               NUMBER    VALUE   AWARDS:     OR
                                           EQUITY                              OF        OF      NUMBER OF   PAYOUT
                                           INCENTIVE                           SHARES    SHARES  UNEARNED    VALUE OF
                                           PLAN                                OR        OR      SHARES,     UNEARNED
                                           AWARDS:                             UNITS     UNITS   UNITS OR    SHARES,
              NUMBER OF     NUMBER OF      NUMBER OF                           OF        OF      OTHER       UNITS OR
              SECURITIES    SECURITIES     SECURITIES                          STOCK     STOCK   RIGHTS      OTHER
              UNDERLYING    UNDERLYING     UNDERLYING                          THAT      THAT    THAT HAVE   RIGHTS
              UNEXERCISED   UNEXERCISED    UNEXERCISED  OPTION                 HAVE      HAVE    NOT         THAT
              OPTIONS       OPTIONS        UNEARNED     EXERCISE   OPTION      NOT       NOT     VESTED (#)  HAVE NOT
NAME          (#)           (#)            OPTIONS      PRICE      EXPIRATION  VESTED    VESTED  (I)         VESTED
              EXERCISABLE   UNEXERCISABLE  (#)          ($)        DATE        (#)       ($)                 (#)
(A)           (B)           (C)            (D)          (E)        (F)         (G)       (H)                 (J)

           <c>           <c>             <c>          <c>        <c>        <c>       <c>    <c>          <c>
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
Dore Scott
Perler
                   250,000              -            -       0.27     5/21/07         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   250,000              -            -       0.19    12/30/09
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   100,000              -            -       0.19    12/30/07
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   400,000              -            -       0.22     9/02/10         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   150,000              -            -       0.20     5/13/10         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   250,000              -            -       0.20     9/01/11         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------

Andrew
Goldrich           250,000              -            -       0.27     5/21/07         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   250,000              -            -       0.19    12/30/09         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   100,000              -            -       0.19    12/30/07         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   400,000              -            -       0.22     9/02/10         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   150,000              -            -       0.20     5/13/10         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   250,000              -            -       0.20     9/01/11         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
Shawn
Tartaglia          250,000              -            -       0.19    12/30/09         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ---------

                    150,000              -            -       0.79     2/22/07         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                     50,000              -            -       0.19    12/30/07         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                    200,000              -            -       0.22     9/02/10         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   150,000              -            -       0.20     5/13/10         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
                   250,000              -            -       0.20     9/01/11         -       -           -          -
------------- ------------- -------------- ------------ ---------- ----------- --------- ------- ----------- ----------
</table>


                                      -46-
<PAGE>

INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

We currently have three incentive plans, our 1999 Stock Option Plan, our 2001
Equity Compensation Plan and our 2005 Equity Compensation Plan. Following are
descriptions of these plans:

1999 Stock Option Plan

On July 19, 1999, the board of directors and shareholders adopted our 1999 Stock
Option Plan. We reserved 1,500,000 shares of common stock for issuance upon
exercise of options granted from time to time under the 1999 Stock Option Plan.
The 1999 Stock Option Plan is intended to assist us in securing and retaining
key employees, directors and consultants by allowing them to participate in our
ownership and growth through the grant of incentive and non-qualified options.

Under the stock option plan we may grant incentive stock options only to key
employees and employee directors, or we may grant non-qualified options to our
employees, officers, directors and consultants. Our board of directors currently
administers the 1999 Stock Option Plan.

Subject to the provisions of the stock option plan, the board will determine who
shall receive options, the number of shares of common stock that may be
purchased under the options, the time and manner of exercise of options and
exercise prices. The term of options granted under the stock option plan may not
exceed ten years or five years for an incentive stock option granted to an
optionee owning more than 10% of our voting stock. The exercise price for
incentive stock options will be equal to or greater than 100% of the fair market
value of the shares of the common stock at the time granted. However, the
incentive stock options granted to a 10% holder of our voting stock are
exercisable at a price equal to or greater than 110% of the fair market value of
the common stock on the date of the grant. The exercise price for non-qualified
options will be set by the board, in its discretion, but in no event shall the
exercise price be less than 75% of the fair market value of the shares of common
stock on the date of grant. The exercise price may be payable in cash or, with
the approval of the board, by delivery of shares or by a combination of cash and
shares. Shares of common stock received upon exercise of options will be subject
to restrictions on sale or transfer. As of December 31, 2006 we have outstanding
options to purchase 1,250,000 shares under the 1999 Stock Option Plan. There are
250,000 shares remaining under the 1999 Stock Option Plan and none of the
options granted to date have been exercised.

2001 Equity Compensation Plan

On November 28, 2001, the board of directors adopted our 2001 Equity
Compensation Plan, and on November 28, the 2001 Equity Compensation Plan was
ratified by holders of a majority of our outstanding common stock. We had
reserved 2,000,000 shares of common stock for issuance as stock grants and upon
exercise of options granted from time to time under the 2001 Equity Compensation
Plan. The 2001 Equity Compensation Plan is intended to assist us in securing and
retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options, as well as direct stock grants.

                                      -47-
<PAGE>


Under the 2001 Equity Compensation Plan, we may grant incentive stock options
only to key employees and employee directors. We may grant non-qualified options
and issue direct stock awards to our employees, officers, directors and
consultants. Our Board of Directors currently administers the 2001 Equity
Compensation Plan.

Subject to the provisions of the 2001 Equity Compensation Plan, the board will
determine who shall receive options or grants, the number of shares of common
stock that may be purchased under the options, the time and manner of exercise
of options and exercise prices. The term of options granted under the stock
option plan may not exceed ten years or five years for an incentive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options will be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted.
However, the incentive stock options granted to a 10% holder of our voting stock
are exercisable at a price equal to or greater than 110% of the fair market
value of the common stock on the date of the grant. The exercise price for
non-qualified options will be set by the board, in its discretion, but in no
event shall the exercise price be less than the par value for our common stock
The exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or by a combination of cash and shares. The board may also
direct the issuance of shares of our common stock as awards under the 2001
Compensation Plan. Absent registration under the Securities Act of 1933, as
amended, or the availability of an applicable exemption there from, shares of
common stock received as stock grants and upon exercise of options will be
subject to restrictions on sale or transfer. As of December 31, 2006, we have
granted options or awarded shares in the amount of 1,666,160 under the 2001
Equity Compensation Plan. Under the 2001 Equity Compensation Plan, there are
333,840 shares remaining and none of the options granted to date have been
exercised.


2005 Equity Compensation Plan

On June 16, 2005, the board of directors adopted our 2005 Equity Compensation
Plan, and on June 16, 2005, the 2005 Equity Compensation Plan was ratified by
holders of a majority of our outstanding common stock. We had reserved 2,000,000
shares of common stock for issuance as stock grants and upon exercise of options
granted from time to time under the 2005 Equity Compensation Plan. The 2005
Equity Compensation Plan is intended to assist us in securing and retaining key
employees, directors and consultants by allowing them to participate in our
ownership and growth through the grant of incentive and non-qualified options,
as well as direct stock grants.

Under the 2005 Equity Compensation Plan we may grant incentive stock options
only to key employees and employee directors. We may grant non-qualified options
and issue direct stock awards to our employees, officers, directors and
consultants. Our Board of Directors currently administers the 2005 Equity
Compensation Plan.

Subject to the provisions of the 2005 Equity Compensation Plan, the board will
determine who shall receive options or grants, the number of shares of common
stock that may be purchased under the options, the time and manner of exercise
of options and exercise prices. The term of options granted under the stock
option plan may not exceed ten years or five years for an incentive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options will be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted.
However, the incentive stock options granted to a 10% holder of our voting stock
are exercisable at a price equal to or greater than 110% of the fair market
value of the common stock on the date of the grant. The exercise price for
non-qualified options will be set by the board, in its discretion, but in no
event shall the exercise price be less than the par value for our common stock
The exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or by a combination of cash and shares. The board may also
direct the issuance of shares of our common stock as awards under the 2005
Equity Compensation Plan. Absent registration under the Securities Act of 1933,
as amended, or the availability of an applicable exemption there from, shares of
common stock received as stock grants and upon exercise of options will be
subject to restrictions on sale or transfer. As of December 31, 2006, we have
granted options or awarded shares in the amount of 1,517,000 under the 2005
Equity Compensation Plan. Under the 2005 Equity Compensation Plan, there are
483,000 shares remaining and none of the options granted to date have been
exercised.

                                      -48-
<PAGE>

Securities Authorized For Issuance Under Equity Compensation Plans

The following table sets forth securities authorized for issuance under equity
compensation plans, including individual compensation arrangements, by us under
our 1999 Stock Option Plan, 2001 Equity Compensation Plan and 2005 Equity
Compensation Plan and any compensation plans not previously approved by our
shareholders as of December 31, 2006.

<table>
<caption>
                                                                Number of            Weighted average    Number of securities
                                                                securities to be     exercise price of   remaining available
                                                                issued upon          outstanding         for future issuance
                                                                exercise of          options, warrants   under equity
                                                                outstanding          and rights (b)      compensation plans
                                                                options, warrants                        (excluding
                                                                and rights (a)                           securities reflected
                                                                                                         in column (a)) (c)

                                                             <c>                  <c>                <c>
--------------------------------------------------------------- -------------------- ------------------- ----------------------
Plan category
--------------------------------------------------------------- -------------------- ------------------- ----------------------
1999 Stock Option Plan                                                    1,250,000               $0.22                250,000
--------------------------------------------------------------- -------------------- ------------------- ----------------------
2001 Equity Compensation Plan                                               420,000               $0.40                333,840
--------------------------------------------------------------- -------------------- ------------------- ----------------------
2005 Equity Compensation Plan                                             1,000,000               $0.22                483,000
--------------------------------------------------------------- -------------------- ------------------- ----------------------
Equity compensation plans not approved by shareholders                    1,450,000               $0.23
--------------------------------------------------------------- -------------------- ------------------- ----------------------
</table>


Other Plans

Other plans include equity compensation plans not approved by shareholders.
These plans are comprised of options granted and/or warrants issued to employees
and non-employees, including directors, consultants, advisors, suppliers,
vendors, customers and lenders for purposes including to provide continued
incentives, as compensation for services and/or to satisfy outstanding
indebtedness to them.

As of December 31, 2006, we had outstanding options covering 1,450,000 shares of
our common stock under equity plans not approved by shareholders. The options
have exercise prices ranging from $.18 per share to $0.35 per share and
expiration dates ranging from September 2008 to September 2011.

The grants of these options were approved on a case-by-case basis by the board
of directors, and are within the limits of the number of shares that we are
authorized to issue. The grants of warrants were not authorized by our
shareholders. We may, in the future, authorize the grant of additional options
and/or issuance of additional warrants for the foregoing purposes and other
valid corporate purposes.

                                      -49-
<PAGE>


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

At March 22, 2007 we had 56,139,057 shares of our common stock issued and
outstanding. The following table sets forth, as of March 22, 2007, information
known to us relating to the beneficial ownership of shares of common stock by:

        o    each person who is the beneficial owner of more than five
             percent of the  outstanding shares of common stock;
        o    each director;
        o    each executive officer; and
        o    all executive officers and directors as a group.

Unless otherwise indicated, the address of each beneficial owner in the table
set forth below is in care of: Sense Holdings, Inc.,10871 NW 52 Street, Sunrise,
Florida 33351.

We believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them.

Under securities laws, a person is considered to be the beneficial owner of
securities he owns and that can be acquired by him within 60 days from March 28,
2007 upon the exercise of options, warrants, convertible securities or other
understandings. We determine a beneficial owner's percentage ownership by
assuming that options, warrants or convertible securities that are held by him,
but not those held by any other person and which are exercisable within 60 days
of that date, have been exercise or converted.

Except as other wise required by Securities and Exchange Commission rules
relating to beneficial ownership, the table does not give effect to the issuance
of up to:

        o    4,120,000  shares of common stock  issuable upon exercise of
             options that   have been granted;

        o    1,066,840 in the event that shares available for award under our
             stock option plans are awarded; and

        o    18,010,295 shares of common stock issuable upon exercise of
             outstanding purchase warrants;

<table>

                                                                         <c>                       <c>
                                                                             AMOUNT AND NATURE OF       % OF CLASS
NAME OF BENEFICIAL OWNER                                                     BENEFICIAL OWNERSHIP
------------------------------------------------------------------------- ---------------------------- -------------
Dore Scott Perler (1)                                                                       2,379,723          4.1%
------------------------------------------------------------------------- ---------------------------- -------------
Scott Tartaglia (2)                                                                         1,243,585          2.2%
------------------------------------------------------------------------- ---------------------------- -------------
Julie Slater (3)                                                                               53,703             *
------------------------------------------------------------------------- ---------------------------- -------------
All officers and directors as a group (three persons)1, 2, (3)                              3,677,011          6.3%
------------------------------------------------------------------------- ---------------------------- -------------
Andrew Goldrich (4)                                                                         2,279,519          4.0%
------------------------------------------------------------------------- ---------------------------- -------------
China Direct Investments, Inc. (5)                                                          5,000,000          8.9%
------------------------------------------------------------------------- ---------------------------- -------------
</table>

*        represents less than 1%

                                      -50-
<PAGE>


(1) Mr. Perler's holdings include 1,400,000 shares of our common stock issuable
upon the exercise of outstanding options.

(2) Mr. Tartaglia's holdings include 1,050,000 shares of our common stock
issuable upon the exercise of outstanding options.

(3)  Ms. Slater's holdings include 10,000 shares of common stock issuable upon
the exercise of outstanding options.

(4) Mr. Goldrich served as our Vice President and Chief Financial Officer until
December 2006. He presently provides consulting services to us. His holdings
include 1,400,000 shares of our common stock issuable upon the exercise of
outstanding options. Mr. Goldrich's address is 21653 Marigot Drive, Boca Raton,
FL 33428.

(5) China Direct Investments, Inc. is a wholly owned subsidiary of China Direct,
Inc., a publicly traded company (OTCBB: CHND). Messrs. David Stein, James Wang,
and Marc Siegel have voting and investment control over securities held by China
Direct Investments, Inc.

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


During the years 2000, 2001 and 2002, Dore Perler was loaned $42,000, Andrew
Goldrich was loaned $24,500 and Shawn Tartaglia was loaned $1,722. These loans
bear interest at 4% per annum, are secured by Sense common shares held by the
respective individual, and were payable on December 31, 2006. During the year
ended December 31, 2006 approximately $20,000 of these loans were forgiven and
recorded as additional compensation ($10,000 each to Mr. Perler and Mr.
Goldrich). At December 31, 2006, amounts due from Dore Perler amounted to
approximately $29,600 and amounts due from Andrew Goldrich amounted to
approximately $18,500.


Director Independence

Ms. Slater is an "independent" director within the meaning of Marketplace Rule
4200 of the National Association of Securities Dealers, Inc.

                                      -51-
<PAGE>


ITEM 13. EXHIBITS.

Exhibit No.                Description of Document


2.1          Agreement and Plan of Merger between Century Silver Mines, Inc. and
             Sense Holdings, Inc. (1)
3.1(a)       Articles of Incorporation of Sense Holdings, Inc. (1)
3.1(b)       Articles of Merger of Century Silver Mines, Inc. into Sense
             Holdings, Inc. (FL) (1)
3.1(c)       Articles of Merger of Century Silver Mines, Inc. into Sense
             Holdings, Inc. (ID) (1)
3.1(d)       Articles of Amendment to the Articles of Incorporation filed
             February 23, 2007 *
3.2          Bylaws (1)
4.1          Trilogy Capital Partners, Inc. Warrant Agreement dated August 29,
             2005 (6)
10.1         1999 Stock Option Plan (1)
10.5         Technology License Agreement, as amended, with SAC Technologies,
             Inc. (1)
10.6         Lease principal executive offices *
10.11        Manufacturing and Non-Compete Agreement with Test Systems
             Engineering (1)
10.12        Sales Agreement with Integrated Design, Inc.(1)
10.13        Agreement and Plan of Acquisition dated May 31, 2001 with Micro
             Sensor Technologies, Inc. (2)
10.14        Patent License Agreement dated March 26, 2001, between Micro Sensor
             Technologies, Inc. and UT-Battelle, LLC (2)
10.15        Consulting Agreement dated June 1, 2001, between Micro Sensor
             Technologies, Inc., and Dr. Thomas Thundat (2)
10.16        Work for Others Agreement dated June 4, 2001, between UT-Battelle,
             LLC and Micro Sensor Technologies, Inc. (2)
10.17        Form of Promissory Note, as amended (4)
10.18        2001 Equity Compensation Plan (3)
10.19        Employment Agreement between the Company and Dore Scott Perler as
             of April 1, 2005 (10)
10.20        Employment Agreement between the Company and Andrew Goldrich as of
             April 1, 2005 (11)
10.21        Employment Agreement between the Company and Shawn Tartaglia as of
             April 1, 2005 (12)
10.22        Promissory Notes and related Agreements closed on August 13,
             2003 (5)
10.23        Cooperative Research and Development Agreement (CRADA) between
             UT-Battelle, LLC and Sense Holdings Incorporated
10.24        Trilogy Capital Partners, Inc. Letter of Engagement dated
             September 19, 2005 (6)
10.25        2005 Equity Compensation Plan (7)
10.26        Consulting Agreement with Andrew Goldrich *
10.27        Consulting and Management Agreement with China Direct Investments,
             Inc. (9)
10.28        Exclusive Patent License Agreement dated August 1, 2005, by and
             between UT-Battelle, LLC and Sense Holdings, Inc.*
14           Code of Business Conduct and Ethics (8)
31.1         Rule 13a-14(A)/15d-14(A) Certification of Chief Executive
             Officer (*)
31.2         Rule 13a-14(A)/15d-14(A) Certification of principal financial and
             accounting officer*
32.1         Section 906 Certificate Of Chief Executive Officer (*)

                                      -52-
<PAGE>

------------


(1) Incorporated by reference to exhibits with the corresponding number filed
with our registration statement on Form SB-2 (File No. 333-87293).

(2) Incorporated by reference to exhibits with the corresponding number filed
with our registration statement on Form SB-2 (File No.333-62874).

(3) Incorporated by reference to exhibits with the corresponding number filed
with our registration statement on Form S-8 (File No.333-81306).

(4) Previously filed with Form 10-KSB December 31, 2002

(5) Previously filed with Form 10-QSB September 30, 2003

(6) Previously filed with Form 10-QSB for the period ended September 30, 2005 as
filed on November 15, 2005 (7) Incorporated by reference to the registration
statement on Form S-8, SEC File No. 333-125905, as filed June 17, 2005. (8)
Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2004. (9) Incorporated by reference to the
Current Report on Form 8-K as filed on November 28, 2006. (10) Incorporated by
reference to Exhibit 10.23 to the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2004. (11) Incorporated by reference to Exhibit 10.24 to
the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
(12) Incorporated by reference to Exhibit 10.25 to the Annual Report on Form
10-KSB for the fiscal year ended December 31, 2004.

(*) Filed herewith

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

The aggregate fees billed by the Company's auditors for professional services
rendered in connection with the audit of the Company's annual consolidated
financial statements for fiscal 2006 and 2005 and reviews of the consolidated
financial statements included in the Company's Forms 10-KSB for fiscal 2006 and
2005 were approximately $39,500 and $35,500, respectively.

AUDIT-RELATED FEES

For fiscal 2006 and 2005, the Company's auditors billed for service related to
an SB-2 registration filing with the SEC in the amount of $0 and $0
respectively. The Company's auditors did not bill any additional fees for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's financial statements and are not reported
under "Audit Fees" above.

TAX FEES

The aggregate fees billed by the Company's auditors for professional services
for tax compliance, tax advice, and tax planning were $0 and $0 for fiscal 2006
and 2005, respectively.

                                      -53-
<PAGE>


ALL OTHER FEES

The aggregate fees billed by the Company's auditors for all other non-audit
services rendered to the Company, such as attending meetings and other
miscellaneous financial consulting, in fiscal 2006 and 2005 were $0 and $0,
respectively.

Our Board of Directors has adopted a procedure for pre-approval of all fees
charged by the our independent auditors. Under the procedure, the Board approves
the engagement letter with respect to audit, tax and review services. Other fees
are subject to pre-approval by the Board, or, in the period between meetings, by
a designated member of Board. Any such approval by the designated member is
disclosed to the entire Board at the next meeting. The audit and tax fees paid
to the auditors with respect to fiscal year 2006 were pre-approved by the entire
Board of Directors.


<PAGE>



                                   SIGNATURES

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

                                                     Sense Holdings, Inc.
Date:    March 30, 2007
                            By: /s/ Dore Scott Perler
                            ------------------------
                             Dore Scott Perler, Director,
                             Chief Executive Officer and President, principal
                             executive officer, principal
                             financial and accounting officer

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.

         Signature                          Capacity                    Date

/s/ Dore Scott Perler    Director, Chief Executive Officer        March 30, 2007
---------------------    and President, principal executive officer,
Dore Scott Perler        principal financial and accounting officer


/s/ Shawn Tartaglia      Chief Technical Officer and Director     March 30, 2007
---------------------
Shawn Tartaglia


/s/ Julie Slater            Director                              March 30, 2007
---------------------
Julie Slater



                                      -54-
<PAGE>


                    SENSE HOLDINGS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS






                                    CONTENTS


      Report of Independent Registered Public Accounting Firm................F-2

       Consolidated Financial Statements:

           Consolidated Balance Sheet........................................F-3

           Consolidated Statements of Operations.............................F-4

           Consolidated Statement of Shareholders' Equity..............F-5/A-5/B

           Consolidated Statements of Cash Flows.............................F-6

       Notes to Consolidated Financial Statements....................F-7 to F-25













                                       F-1


<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Sense Holdings, Inc
Boca Raton, Florida


     We have audited the accompanying  consolidated  balance  sheet  of Sense
Holdings, Inc. and Subsidiaries as of December 31, 2006, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended December 31, 2006 and 2005. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the 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 purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amount and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


     In our opinion, the consolidated financial statements  referred to above
present fairly, in all material respects, the financial position of Sense
Holdings, Inc. and Subsidiaries as of December 31, 2006, and the results of
their operations and their cash flows for the years ended December 31, 2006 and
2005, in conformity with accounting principles generally accepted in the United
States of America.



     The accompanying financialstatements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has an accumulated deficit of
$14,812,705 and has cash used in operations of $1,285,399 for the year ended
December 31, 2006. This raises substantial doubt about its ability to continue
as a going concern. Management's plans in regards to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/Sherb & Co., LLP
Certified Public Accountants

Boca Raton, Florida
March 27, 2007




                                       F-2

<PAGE>



                       SENSE HOLDINGS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2006



                                     ASSETS
CURRENT ASSETS:
         Cash and cash equivalents                                    $ 152,579
         Accounts receivable                                             11,918
         Inventories, net                                                 7,436
         Other current assets                                             1,021
                                                                     -----------

            Total current assets                                        172,954
                                                                     -----------

PROPERTY AND EQUIPMENT, net                                               6,263
                                                                     -----------

         Due from shareholders                                           41,121
         Deposits                                                         2,042
                                                                     -----------

            Total other assets                                           43,163
                                                                     -----------

            Total assets                                              $ 222,380
                                                                     ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
         Note payable                                                  $ 25,000
         Accounts payable                                                44,519
         Accrued expenses                                                20,107
         Accrued interest payable                                        24,813
         Deferred revenue                                                13,118
                                                                     -----------

            Total current liabilities                                   127,557
                                                                     -----------

SHAREHOLDERS' EQUITY:
         Common stock, $.10 par value, 350,000,000 shares authorized;
           55,814,057 shares issued and outstanding                   5,581,406
         Additional paid-in capital                                   9,326,122
         Accumulated deficit                                        (14,812,705)
                                                                     -----------

            Total shareholders' equity                                   94,823
                                                                     -----------

            Total liabilities and shareholders' equity                $ 222,380
                                                                     ===========

                 See notes to consolidated financial statements.
                                       F-3
<page>


                       SENSE HOLDINGS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                        For the Years Ended
                                                              December 31,
                                                --------------------------------
                                                        2006             2005
                                                ---------------   --------------

Revenues:
   Sale of tangible products                          $ 46,934        $ 440,042
   Service and maintenance                              34,583           61,036
                                                ---------------   --------------

     Total revenues                                     81,517          501,078

Cost of goods sold - tangible products                  48,977          167,577
                                                ---------------   --------------

Gross profit                                            32,540          333,501
                                                ---------------   --------------

Operating expenses:
   Compensation and related taxes                      596,596          435,148
   Consulting and investor relation expense          1,561,577          718,653
   Research and development                            578,979          314,233
   Selling, general and administrative                 478,727          583,544
                                                ---------------   --------------

         Total operating expenses                    3,215,879        2,051,578
                                                ---------------   --------------

Loss from operations                                (3,183,339)      (1,718,077)
                                                ---------------   --------------

Other income (expenses):
   Interest income                                      19,493           10,305
   Interest expense                                   (128,885)         (77,857)
   Debt issuance costs                                 (89,692)         (46,593)
   Loss on sale of securities                                -             (573)
   Loss on impairment of intangible asset             (230,000)               -
   Registration rights penalties                      (140,432)               -
                                                ---------------   --------------

        Total other income (expenses)                 (569,516)        (114,718)
                                                 ---------------   -------------

Net loss                                          $ (3,752,855)    $ (1,832,795)
                                                ===============   ==============


Net loss per common share - basic and diluted          $ (0.08)         $ (0.05)
                                                ===============   ==============
Weighted average number of shares
   outstanding - basic and diluted                  48,859,080       33,884,551
                                                ===============   ==============



                 See notes to consolidated financial statements.
                                       F-4
<page>






                       SENSE HOLDINGS, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<table>
<caption>

                                                             Common Stock, $.10 Par Value
                                                            -----------------------------     Additional
                                                              Number of                        Paid-in
                                                                Shares         Amount          Capital
                                                             ------------- ---------------   -------------

                                                        <c>             <c>              <c>
Balance, December 31, 2004                                     32,572,858     $ 3,257,286     $ 6,932,317

Common stock issued upon exercise of warrants                     926,500          92,650          78,810

Common stock issued for debt                                       70,000           7,000           7,700

Common stock issued for services                                  639,500          63,950          80,605

Common stock issued for license rights                            833,333          83,334          66,666

Grant of warrants for services                                          -               -         785,123

Grant of stock options for services                                     -               -         135,276

Grant of warrants in connection with private placement                  -               -         208,004

Amortization of deferred compensation                                   -               -               -

Net loss for the year                                                   -               -               -
                                                             ------------- ---------------   -------------

Balance, December 31, 2005                                     35,042,191       3,504,220       8,294,501

Common stock issued for debt                                      647,727          64,773          99,650

Common stock issued for services                                6,151,500         615,150          69,020

Common stock issued for liquidated damages                        665,036          66,503          54,880

Common stock cancelled pursuant to stock exchange agreement      (683,333)        (68,333)        (81,667)

Grant of warrants for services                                          -               -          33,500

Grant of warrants for liquidated damages                                -               -          19,049

Grant of stock options to employees                                     -               -         150,000

Common stock issued for exercise of warrants                      399,025          39,903         (39,903)

Sale of common stock pursuant to private placement             13,591,911       1,359,190         727,092

Amortization of deferred compensation                                   -               -               -

Net loss for the year                                                   -               -               -
                                                             ------------- ---------------   -------------

Balance, December 31, 2006                                     55,814,057     $ 5,581,406     $ 9,326,122
                                                             ============= ===============   =============
</table>


                 See notes to consolidated financial statements.
                                      F-5/A
<page>


                       SENSE HOLDINGS, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
<table>
<caption>

                                                               Deferred      Accumulated     Shareholders'
                                                             Compensation      Deficit          Equity
                                                             -------------  ---------------  -------------

                                                         <c>             <c>              <c>
Balance, December 31, 2004                                     $ (299,212)    $ (9,227,055)     $ 663,336

Common stock issued upon exercise of warrants                           -                -        171,460

Common stock issued for debt                                            -                -         14,700

Common stock issued for services                                  (89,940)               -         54,615

Common stock issued for license rights                                  -                -        150,000

Grant of warrants for services                                   (755,100)               -         30,023

Grant of stock options for services                              (130,276)               -          5,000

Grant of warrants in connection with private placement                  -                -        208,004

Amortization of deferred compensation                             641,958                -        641,958

Net loss for the year                                                   -       (1,832,795)    (1,832,795)
                                                             -------------  ---------------  -------------

Balance, December 31, 2005                                       (632,570)     (11,059,850)       106,301

Common stock issued for debt                                            -                -        164,423

Common stock issued for services                                 (112,000)               -        572,170

Common stock issued for liquidated damages                              -                -        121,383

Common stock cancelled pursuant to stock exchange agreement             -                -       (150,000)

Grant of warrants for services                                    (33,500)               -              -

Grant of warrants for liquidated damages                                -                -         19,049

Grant of stock options to employees                                     -                -        150,000

Common stock issued for exercise of warrants                            -                -              -

Sale of common stock pursuant to private placement                      -                -      2,086,282

Amortization of deferred compensation                             778,070                -        778,070

Net loss for the year                                                   -       (3,752,855)    (3,752,855)
                                                             -------------  ---------------  -------------

Balance, December 31, 2006                                     $ -            $(14,812,705)     $  94,823
                                                             =============  ===============  =============

</table>


                 See notes to consolidated financial statements.
                                      F-5/B

<page>


                       SENSE HOLDINGS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<table>
<caption>


                                                                 For the Year Ended
                                                                     December 31,
                                                             ------------------------------
                                                                 2006            2005
                                                             ------------------------------

                                                         <c>              <c>
Cash flows from operating activities:
         Net loss                                             $ (3,752,855)   $ (1,832,795)
                                                             --------------  --------------
         Adjustments to reconcile net loss to net
         cash used in operations:
           Depreciation                                              7,297          11,620
           Common stock, warrants and options issued
           for services                                            722,170          83,838
           Amortization of deferred compensation                   778,070         641,958
           Interest income on shareholder loans                     (1,746)         (2,375)
           Amortization of debt issuance costs                      89,692          46,593
           Amortization of discount of notes payable                92,994          45,675
           Amortization of license rights                           45,000          25,000
           Common stock issued in connection with
           conversion of debt                                       21,923               -
           Loss on impairment of intangible asset                  230,000               -
           Loss on sale of investment                                    -             573
           Bad debts                                                19,496          (1,179)
           Allowance for slow moving inventory                      39,570           4,000
           Registration rights penalty                             140,432               -
         Changes in assets and liabilities:
              Accounts receivable                                  399,484        (405,775)
              Inventories                                           (6,986)         (7,419)
              Other current assets                                  70,114         (59,092)
              Due from shareholders                                 20,000               -
              Deposits                                               7,765               -
              Accounts payable                                    (125,449)        122,513
              Due to related parties                                (5,464)          5,464
              Accrued expenses                                     (51,881)         33,003
              Accrued interest payable                             (14,811)         18,561
              Deferred revenue                                     (10,214)         32,509
                                                             --------------  --------------

                  Total adjustments                              2,467,456         595,467
                                                             --------------  --------------

Net cash used in operating activities                           (1,285,399)     (1,237,328)
                                                             --------------  --------------

Cash flows from investing activities:
         Proceeds from sales of marketable securities                    -          23,002
         Purchase of intangible asset                             (150,000)       (150,000)
                                                             --------------  --------------

Net cash flows used in investing activities                       (150,000)       (126,998)
                                                             --------------  --------------

Cash flows from financing activities:
         Payments on convertible notes payable                    (527,000)        669,500
         Proceeds from sale of common stock                      2,451,000               -
         Payment of placement fees and expenses                   (364,718)              -
         Payment of debt issuance cost                                   -         (66,950)
         Proceeds from margin loan                                       -         (18,530)
         Proceeds from exercise of warrants                              -         171,460
                                                             --------------  --------------

Net cash flows provided by financing activities                  1,559,282         755,480
                                                             --------------  --------------

Net increase (decrease) in cash and cash equivalents               123,883        (608,846)

Cash and cash equivalents - beginning of year                       28,696         637,542
                                                             --------------  --------------

Cash and cash equivalents - end of year                       $    152,579    $    28,696
                                                             ==============  ==============

Supplemental disclosure of cash flow information:
         Cash paid for :
           Interest                                           $     28,813    $    15,876
                                                             ==============  ==============
           Income taxes                                       $          -    $         -
                                                             ==============  ==============

 NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Common stock issued for debt                            $    142,500    $    14,700
                                                             ==============  ==============
      Common stock issued for license rights                  $          -    $    150,000
                                                             ==============  ==============
       Warrants granted for debt discount and debt
       issuance costs                                         $          -    $    208,004
                                                             ==============  ==============
      Common stock cancelled pursuant to share
      exchange agreement                                      $    150,000    $         -
                                                             ==============  ==============
</table>

                 See notes to consolidated financial statements.
                                       F-6
<page>

                      SENSE HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Sense Technologies, Inc. (the "Company" or "Sense") is a Florida Corporation,
formed on July 13, 1998. The Company designs, develops, manufactures and sells
fingerprint-based identification products and systems that incorporate
state-of-the-art biometric technology to verify a person's identity. The Company
has also licensed certain patented technology designed to detect chemical vapors
and unexploded ordinance including bombs, grenades, shells, rockets, and other
explosive devices. The Company has also been granted a 24-month right of first
refusal to negotiate a patent license agreement covering security-related
applications for proprietary technology relating to the detection of biological
warfare agents.

Principles of Consolidation

The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP"). The
consolidated financial statements include the accounts of Sense Holdings, Inc.
and its wholly-owned subsidiary. All material intercompany balances and
transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates in 2006 and 2005 include the allowance for
doubtful accounts, stock-based compensation, and the useful life of property and
equipment and license rights.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are reported at net realizable value. The Company has
established an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written-off when it is determined that the amounts are
uncollectible. At December 31, 2006, the allowance for doubtful accounts was $0.

Inventories

Inventories are stated at the lower of average cost or market and consist of raw
materials and finished goods. The Company writes down inventory for estimated
obsolescence or unmarketable inventory based upon assumptions and estimates
about future demand and market conditions. If actual market conditions are less
favorable than those projected by the Company, additional inventory write-downs
may be required.

Property and Equipment


Property and equipment are carried at cost. Depreciation and amortization are
provided using the straight-line method over the estimated economic lives of the
assets. The cost of repairs and maintenance is expensed as incurred; major
replacements and improvements are capitalized. When assets are retired or
disposed of, the cost and accumulated depreciation are removed from the
accounts, and any resulting gains or losses are included in income in the year
of disposition. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", the Company examines the possibility of decreases in the value of fixed
assets when events or changes in circumstances reflect the fact that their
recorded value may not be recoverable.


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS
No. 123R establishes the financial accounting and reporting standards for
stock-based compensation plans. As required by SFAS No. 123R, the Company
recognized the cost resulting from all stock-based payment transactions
including shares issued under its stock option plans in the financial
statements.

Prior to January 1, 2006, the Company accounted for stock-based employee
compensation plans (including shares issued under its stock option plans) in
accordance with APB Opinion No. 25 and followed the pro forma net income, pro
forma income per share, and stock-based compensation plan disclosure
requirements set forth in the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123").

The following table sets forth the computation of basic and diluted income per
share for the year ended December 31, 2005 and illustrates the effect on net
loss and loss per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation:

                                      2005

    Net loss as reported                             $   (1,832,795)
    Less: total stock-based employee
    compensation expense determined under
    fair value based method, net of related tax
    effect                                                 (388,501)
                                                       ---------------

    Pro forma net loss                               $   (2,221,296)
                                                       ===============

    Basic and diluted loss per share:
                   As reported                                $(.05)
                                                              ======
                    Pro forma                                 $(.07)
                                                              ======

Advertising

Advertising is expensed as incurred. Advertising expenses for the years ended
December 31, 2006 and 2005 totaled approximately $13,300 and $88,717,
respectively.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
accounts receivable, and notes payable. The Company's investment policy is to
invest in low risk, highly liquid investments. The Company does not believe it
is exposed to any significant credit risk in its cash investment.

The Company performs on-going credit evaluations of its customer base including
those included in accounts receivable at December 31, 2006, and, generally, does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.

For the year ended December 31, 2005, one customer accounted for 83% of the
Company's revenues. For the year ended December 31, 2006, four customers
accounted for 81% of the Company's revenues.


                                       F-7

<page>





NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Registration Rights Agreements

The Company has adopted View C of EITF 05-4 "Effect of a Liquidated Damages
Clause on a Freestanding Financial Instrument Subject to EITF 00-19" ("EITF
05-4"). Accordingly, the Company classifies as liability instruments, the fair
value of registration rights agreements when such agreements (i) require it to
file, and cause to be declared effective under the Securities Act, a
registration statement with the SEC within contractually fixed time periods, and
(ii) provide for the payment of liquidating damages in the event of its failure
to comply with such agreements. Under View C of EITF 05-4, (i) registration
rights with these characteristics are accounted for as derivative financial
instruments at fair value and (ii) contracts that are (a) indexed to and
potentially settled in an issuer's own stock and (b) permit gross physical or
net share settlement with no net cash settlement alternative are classified as
equity instruments.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," The Company
periodically reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company recognizes an impairment loss when the sum of
expected undiscounted future cash flows is less than the carrying amount of the
asset. The amount of impairment is measured as the difference between the
asset's estimated fair value and its book value. The Company recognized a loss
on impairment of intangible assets during the year ended December 31, 2006 in
connection with the license rights (see note 5).

Income Taxes

Under the asset and liability method of FASB Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance, when in the Company's opinion
it is likely that some portion or the entire deferred tax asset will not be
realized.

Revenue Recognition

The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements". 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. When a customer order contains multiple
items such as hardware, software, and services which are delivered at varying
times, the Company determines whether the delivered items can be considered
separate units of accounting as prescribed under Emerging Issues Task Force
("EITF") Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"
("EITF 00-21"). EITF 00-21 states that delivered items should be considered
separate units of accounting if delivered items have value to the customer on a
standalone basis, there is objective and reliable evidence of the fair value of
undelivered items, and if delivery of undelivered items is probable and
substantially in the Company's control. The following policies reflect specific
criteria for the various revenues streams of the Company:

The Company generates revenue from the sale of its products. Revenues from the
sale of these items are recognized upon delivery of the product to the customer.

Revenue from periodic maintenance agreements is generally recognized ratably
over the respective maintenance periods provided no significant obligations
remain and collectibility of the related receivable is probable.

Revenue from the performance of services is recognized upon completion of the
service.

Shipping and handling costs

The Company accounts for shipping and handling costs as a component of "Cost of
Sales".

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Loss per Common Share

Basic net earnings (loss) per share equals net earnings (loss) divided by the
weighted average shares outstanding during the year. The computation of diluted
net earnings per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be anti-dilutive. The
Company's common stock equivalents at December 31, 2006 and 200 include the
following:

                                       December 31, 2006       December 31, 2005
                                      ------------------    --------------------

             Options                          4,120,000          4,445,000
             Warrants                        18,010,295         13,460,340
             Convertible Notes Payable                -          2,575,000
                                           ------------        ----------
                                             22,130,295         20,480,340
                                           ============        ==========

Non-Employee Stock-Based Compensation

The cost of stock based compensation awards issued to non-employees for services
are recorded at either the fair value of the services rendered or the
instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Emerging
Issues Task Force Issue ("EITF") 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18").

Fair value of financial instruments

The carrying amounts reported in the balance sheet for cash, accounts
receivable, inventory, accounts payable and accrued expenses, and note payable
approximate their fair market value based on the short-term maturity of these
instruments.

Research and Development

Research and development costs are expensed as incurred. These costs primarily
consist of salaries paid for the development of the Company's software and
technology and fees paid to a third party in connection with a Cooperative
Research and Development Agreement. Research and development costs for the years
ended December 31, 2006 and 2005 were $578,979 and $314,233, respectively.

Warranty Obligations

The Company generally provides the ultimate consumer a warranty with each
product and accrues warranty expense at the time of the sale based on the
Company's prior claims history. Actual warranty costs incurred are charged
against the accrual when paid. At December 31, 2006, the Company has accrued
warranty expense of $15,000 which has been included in accrued expenses on the
consolidated balance sheet.

Recent accounting pronouncements

In February 2006, the FASB issued SFAS 155, which applies to certain "hybrid
financial instruments," which are instruments that contain embedded derivatives.
The new standard establishes a requirement to evaluate beneficial interests in
securitized financial assets to determine if the interests represent
freestanding derivatives or are hybrid financial instruments containing embedded
derivatives requiring bifurcation. This new standard also permits an election
for fair value remeasurement of any hybrid financial instrument containing an
embedded derivative that otherwise would require bifurcation under SFAS 133. The
fair value election can be applied on an instrument-by-instrument basis to
existing instruments at the date of adoption and can be applied to new
instruments on a prospective basis. The adoption of SFAS No.155 did not have a
material impact on the Company's financial position and results of operations.

                                       F-8

<page>


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. The adoption of this statement is not
expected to have a significant effect on the Company's future reported financial
position or results of operations.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109." This interpretation provides guidance
for recognizing and measuring uncertain tax positions, as defined in SFAS No.
109, "Accounting for Income Taxes." FIN No. 48 prescribes a threshold condition
that a tax position must meet for any of the benefit of an uncertain tax
position to be recognized in the financial statements. Guidance is also provided
regarding de-recognition, classification, and disclosure of uncertain tax
positions. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company does not expect that this interpretation will have a material
impact on its financial position, results of operations, or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company's financial statements issued
in 2008; however, earlier application is encouraged. The Company is currently
evaluating the timing of adoption and the impact that adoption might have on its
financial position or results of operations.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements ("SAB 108"). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each financial
statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108.
The rollover approach quantifies misstatements based on the amount of the error
in the current year financial statement, whereas the iron curtain approach
quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement's year(s) of origin. Financial statements would require
adjustment when either approach results in quantifying a misstatement that is
material. Correcting prior year financial statements for immaterial errors would
not require previously filed reports to be amended. If a Company determines that
an adjustment to prior year financial statements is required upon adoption of
SAB 108 and does not elect to restate its previous financial statements, then it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006
beginning balances of the affected assets and liabilities with a corresponding
adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108 is
effective for interim periods of the first fiscal year ending after November 15,
2006. The adoption of SAB 108 did not have an impact on the Company's
consolidated financial statements.

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


                                       F-9
<page>



NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements are prepared assuming the
Company will continue as a going concern. At December 31, 2006, the Company had
an accumulated deficit of $14,812,705, and for the year ended December 31, 2006,
incurred net losses and used cash flows from operations of $3,752,855 and
$1,285,399, respectively. While the Company is attempting to increase sales
through the licensing of exclusive right to manufacture, use, sell, offer for
sale and sublicense yet to be developed products relating to (a) chemical vapor
detection and (b) the detection of unexploded ordnance, including bombs, hand
grenades, rockets and other unexploded devices, the growth has not been
significant enough to support the Company's daily operations. On March 7, 2006,
the Company completed a private placement resulting in gross proceeds of
$2,451,000 and management intends to seek additional funding through sales of
equity and or/debt securities. While the Company believes in the viability of
its strategy to improve sales volume and in its ability to raise additional
funds, there can be no assurances that these measures will prove effective.

NOTE 3 - INVENTORIES

At December 31, 2006 inventories consists of:

         Raw materials                                   $        25,336
         Finished goods                                           12,100
                                                        -----------------
                                                                  37,436
         Less: Reserve for slow moving inventory
                                                                 (30,000)
                                                         -----------------

                                                          $        7,436
                                                          =================

The Company has written down in 2006 $30,000 of inventory and it is reflected
in cost of goods sold.


NOTE 4 - PROPERTY AND EQUIPMENT

At December 31, 2006, property and equipment consisted of the following:

                                             Estimated life
                                            --------------
      Computer equipment and software           3-5 years         $     16,585
      Furniture and fixtures                      7 years               19,105
                                                              -----------------
                                                                        35,690

      Less: Accumulated depreciation and amortization                  (29,427)
                                                               ----------------
                                                                   $     6,263
                                                               ================

For the years ended December 31, 2006 and 2005, depreciation and amortization
expense amounted to $7,297 and $11,620, respectively.

NOTE 5 - INTANGIBLE ASSETS

Effective August 1, 2005, the Company entered into an Exclusive Patent License
Agreement with UT-Battelle, LLC. The License Agreement supersedes and replaces
an agreement dated March 26, 2001. Under the August 1, 2005 Patent and License
Agreement, the Company licenses certain patent rights relating to the detection
of unexploded ordnance, and in connection therewith, UT-Battelle has granted the
Company the exclusive right to manufacture, use, sell, offer for sale and
sublicense yet to be developed products incorporating the licensed patents,
relating to all (a) chemical vapor detection and (b) the detection of unexploded
ordnance, including bombs, grenades, rockets and other unexploded devices. The
Company has also been granted a 24-month right of first refusal to negotiate a
patent license agreement with UT-Battelle for its proprietary technology
relating to the detection of biological warfare agents in security applications,
such as anthrax, cholera, ebola, plague, ricin, smallpox and tularemia.

                                       F-10
<PAGE>




NOTE 5 - INTANGIBLE ASSETS (continued)

As consideration for the license grants by UT-Battelle, the Company:


o    paid  UT-Battelle an aggregate of $150,000,  which amount has been paid and
     will be amortized over the estimated license life of 5 years;


o    issued to UT-Battelle  833,333 shares of the Company's  unregistered common
     stock (the "Shares").  The shares were issued at the fair value at the date
     of the  issuance of $150,000 or $.18 per share and will be  amortized  over
     the  estimated  license  life of 5 years.  On January 1, 2006,  the Company
     entered  into  a  stock  exchange  agreement  with  UT-Battelle,   LLC.  In
     connection with this agreement, UT-Battelle, LLC returned 683,333 shares of
     common stock previously  issued to the Company (see note 5) for $150,000 in
     cash. The Company cancelled the returned shares.

o    agreed to pay to  UT-Battelle,  as amended on December  1, 2006,  a royalty
     equal to 4% of net sales of products  incorporating  the licensed  patents,
     subject to minimum royalty  payments of $10,000 for 2007,  $20,000 for 2008
     and $25,000 for 2009 and thereafter;

o    agreed to pay to  UT-Battelle,  in the event the  Company  sublicenses  the
     licensed  patents,  the  greater  of  50% of the  Company's  revenues  from
     sublicensing and the minimum required royalties described above; and

o    reimburse  UT-Battelle  for certain  costs and expenses of securing  patent
     protection for the licensed patented technology.

Amortization expense of the license rights amounted to $45,000 and $25,000 for
the year ended December 31, 2006 and 2005, respectively.

In connection with the purchase by the Company of the license rights discussed
above, it was deemed by management during the period ended December 31, 2006,
that the unamortized portion of the license rights was deemed impaired due to a
lack of projected future cash flows. Accordingly, the Company recognized a loss
on impairment of intangible assets of $230,000 for the year ended December 31,
2006.

NOTE 6 - CONVERTIBLE NOTES PAYABLE

From June 2005 to September 2005, the Company offered for sale a maximum of 15
units (the "Units") for $50,000 per Unit, to accredited investors only. Each
Unit consisted of a promissory note in the principal amount of $50,000 (the
"Notes") and a common stock purchase warrant (the "Warrants") to purchase 50,000
shares of the common stock of the Company, exercisable at $0.16 per share for a
period of 5 years. The Notes had a term of 14 months, and provided for interest
accrual on unpaid principal at the rate of 10% per year. Interest under the
Notes was payable quarterly commencing on September 1, 2005.

At the sole election of the Holder, any portion of the unpaid principal balance
of these notes may be converted into shares of common stock of the Company at a
conversion rate equal to $0.26 per common share.

The Company agreed to file a registration statement within 45 days of the final
closing date of the Offering and use its good faith best efforts to cause the
registration to become effective within 90 days of the Final Closing Date. The
Company also agreed to respond to any SEC comments within 10 days. In the event
that the Company does not respond to SEC comments within 10 days or once the
Registration Statement is declared effective, it does not stay effective for 60
consecutive days, then the number of warrants shall be increased by two percent
(2%) for each 30 day period following such 10-day or 60-day period, as the case
may be. In connection with a private placement in March 2006, the investors
waived this registration rights penalty and the Company agreed to register the
investors' common shares and underlying warrants with the Company's filing of a
registration statement which was filed in June 2006. Accordingly, the Company
has no obligation to pay penalties under this private placement.

In aggregate, from June 2005 to September 2005, the Company sold to new
investors an aggregate of $669,500 of the Units for net proceeds of $602,550
(net of placement fees of $66,950). In connection with these convertible notes,
warrants to purchase 669,500 common shares were issued to the holders at an
exercise price per share of $0.16. The warrants are exercisable immediately and
expire five years from date of grant through September 23, 2010. These warrants
were treated as a discount on the convertible notes and were valued at $138,669
to be amortized over the note terms of 14 months. The fair market value of each
stock warrant grant is estimated on the date of grant using the Black-Scholes
option-pricing model, in accordance with SFAS No. 123 using the following
weighted-average assumptions: expected dividend yield 0%, risk-free interest
rate of 4.50%, volatility ranging from 138% to 145% and expected term of 5
years. Additionally, in connection with the convertible notes, the Company did
not record any beneficial conversion since the conversion price was greater than
the fair market value.

                                       F-11

<PAGE>


NOTE 6 - CONVERTIBLE NOTES PAYABLE (continued)

In March 2006, holders of the $669,500 convertible notes payable described in
the preceding paragraph converted $142,500 of debt into 647,727 shares of common
stock at a conversion price per share of $.22. This conversion price was less
than the market price of $.26 per share resulting in additional 99,650 shares
being issued (included in 647,727 shares issued). In connection with the
reduction of the conversion price and the issuance of additional shares, the
Company recorded interest expense of $21,923. Additionally, the Company repaid
notes holders the remaining principal balance of $527,000.

For the year ended December 31, 2006 and 2005, the amount of amortization of
imputed interest charged to interest expense was $92,994 and $45,675,
respectively.

Skyebanc, Inc. ("Skyebanc"), an NASD member broker dealer, acted as selling
agent in connection with the offering. The Company paid Skyebanc a commission
equal to eight percent (8%) of the gross proceeds from the sale of the
securities. The Company also paid Skyebanc, Inc. non-accountable expenses equal
to two percent (2%) of the gross proceeds.

In 2005, the Company also granted warrants to purchase 334,750 shares of its
common stock to Skyebanc for its services with regard to the offering at an
exercise price of $.16 per share, which warrants expire on July 1, 2010. These
warrants were treated as a deferred debt offering cost on the convertible notes
and were valued at $69,335 to be amortized over the 14-month note terms. The
fair market value of each stock warrant grant was estimated on the date of grant
using the Black-Scholes option-pricing model, in accordance with SFAS No. 123
using the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 3.25%, volatility ranging from 138% to 145% and
expected term of 5 years. For the year ended December 31, 2006 and 2005,
amortization of the debt issuance costs amounted to $89,692 and $46,593,
respectively.

NOTE 7 - NOTE PAYABLE

During fiscal 2003, the Company received funds in the amount of $750,000 in
connection with a private placement and issued 375,000 in purchase warrants. In
May 2004, note holders comprising the $750,000 notes payable converted $175,000
of debt into 673,078 shares of common stock. Additionally, in 2004, the Company
repaid notes holders $550,000. As of December 31, 2006, the Company has a
remaining note payable of $25,000 and has accrued interest payable in the amount
of $24,813 in connection with the notes.

For the year ended December 31, 2006, the amount of interest expense was $1,875.

NOTE 8 - RELATED PARTY TRANSACTIONS

Due from shareholders/officers

Prior to fiscal 2004, certain shareholders/officers received funds from the
Company in the form of demand notes. During 2006, the Company forgave debt
amounting to $20,000 which has been recorded as compensation expense and at
December 31, 2006, the balance on the amount owed to the Company was $41,121.
These loans bear interest at 4% per annum, are secured by Company common shares
held by the respective individuals, and were payable on December 31, 2006.

NOTE 9 - INCOME TAXES

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" "SFAS 109". SFAS 109 requires
the recognition of deferred tax assets and liabilities for both the expected
impact of differences between the financial statements and the tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax losses and tax credit carry forwards. SFAS 109 additionally requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. Internal Revenue Code Section 382 places a
limitation on the amount of taxable income that can be offset by carry forwards
after a change in control (generally greater than a 50% change in ownership).
The Company has a net operating loss carry forward for tax purposes totaling
approximately $10,472,000 at December 31, 2006, expiring through the year 2026.

                                       F-12

<page>


NOTE 9 - INCOME TAXES (continued)

 The table below summarizes the differences between the Company's effective tax
rate and the statutory federal rate as follows for the periods ended December
31, 2006 and 2005:

<table>
<caption>

                                                                  Year Ended              Year Ended
                                                               December 31, 2006       December 31, 2005
                                                               ------------------     --------------------

                                                          <c>                     <c>
Tax benefit computed at "expected" statutory rate                $   (1,290,000)      $         (623,000)
State income taxes, net of benefit                                      (38,000)                 (18,300)
Other permanent differences                                              342,000                  258,000
Increase in valuation allowance                                          986,000                  383,300
                                                               ------------------     --------------------

Net income tax benefit                                           $             -      $                -
                                                               ==================     ====================
</table>



Deferred tax assets and liabilities are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences, which give rise to a net deferred tax asset is
as follows:

<table>
<caption>

                                                                        December 31, 2006       December 31, 2005
                                                                        ------------------    --------------------
         
                                                          <c>                    <c>
         Tax benefit of net operating loss carryforward                $      3,661,000         $       2,655,300
         Allowance for doubtful accounts                                              -                    16,200
         Allowance for inventory obsolescence                                    10,500                    14,000
         Valuation Allowance                                                 (3,671,500)               (2,685,500)
                                                                      ------------------      --------------------

         Net deferred tax asset recorded                               $              -        $              -
                                                                       ==================     ====================

</table>

After consideration of all the evidence, both positive and negative, management
has recorded a valuation allowance at December 31, 2006 and 2005, due to the
uncertainty of realizing the deferred income tax assets. The valuation allowance
was increased by $986,000 from the prior year.

NOTE 10 - SHAREHOLDERS' EQUITY

Common stock

On January 1, 2005, the Company entered into a consulting agreement with a third
party for business development services for a six-month period. In connection
with the consulting agreement, the Company issued 75,000 common shares of its
common stock for services rendered and to be rendered in the future. The shares
were issued at the fair values at the date of the issuance of $.17 per share.
For the year ended December 31, 2005, in connection with these shares, the
Company recorded stock-based consulting expense of $12,750.

In January 2005, the Company issued 605,000 shares of common stock for exercise
of warrants for net proceeds of $120,800.

In February 2005, the Company issued 70,000 shares of common stock for accrued
rent of $14,700.

On March 15, 2005, the Company issued 1,000 common shares of its common stock
for services rendered. The shares were issued at the fair values at the date of
the issuance of $.19 per share. In connection with these shares, the Company
recorded stock-based compensation of $190.

                                       F-13

<page>


NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Common stock (continued)

On June 15, 2005, the Company entered into a consulting agreement with a third
party for business development services for a three-month period. In connection
with the consulting agreement, the Company issued 62,500 common shares of its
common stock for services rendered and to be rendered in the future. The shares
were issued at the fair values at the date of the issuance of $11,250 or $.18
per share. For the year ended December 31 2005, in connection with these shares,
the Company recorded stock-based consulting expense of $11,250.

On July 6, 2005, the Company entered into a consulting agreement with a third
party for legal and business services for a six-month period. In connection with
the consulting agreement, the Company issued 225,000 common shares of its common
stock for services rendered and to be rendered in the future. The shares were
issued at the fair values at the date of the issuance of $42,750 or $.19 per
share and were amortized over the service period. For the year ended December 31
2005, in connection with these shares, the Company recorded legal fees of
$42,750.

On August 1, 2005, in connection with a license agreement (see note 5), the
Company issued 833,333 shares of common stock for certain patent licensing
rights, as defined in the agreement. The shares were issued at the fair values
at the date of the issuance of $150,000 or $.18 per share and will be amortized
over the estimated license life of 5 years.

In September 2005, in connection with the exercise of 46,500 common stock
warrants, the Company issued 46,500 shares of common stock for proceeds of
$6,660.

On September 15, 2005, the Company entered into a consulting agreement with a
third party for business development services for a three-month period. In
connection with the consulting agreement, the Company issued 100,000 shares of
its common stock for services rendered and to be rendered in the future. The
shares were issued at the fair values at the date of the issuance of $23,000 or
$.23 per share. For the year ended December 31 2005, in connection with these
shares, the Company recorded stock-based consulting expense of $23,000.

On October 1, 2005, the Company issued 40,000 shares of its common stock for
business development services rendered. The shares were issued at the fair
values at the date of the issuance of $14,800 or $.37 per share. For the year
ended December 31 2005, in connection with these shares, the Company recorded
stock-based consulting expense of $14,800.

On October 3, 2005, the Company issued 20,000 shares of its common stock to a
consultant for accounting services rendered. The shares were issued at the fair
values at the date of the issuance of $6,000 or $.30 per share. For the year
ended December 31 2005, in connection with these shares, the Company recorded
accounting fees of $6,000.

On October 22, 2005, the Company issued 45,000 shares of its common stock for
business development services rendered. The shares were issued at the fair
values at the date of the issuance of $10,125 or $.23 per share. For the year
ended December 31 2005, in connection with these shares, the Company recorded
stock-based consulting expense of $10,125.

In October and November 2005, in connection with the exercise of 275,000 common
stock warrants, the Company issued 275,000 shares of common stock for proceeds
of $44,000.

On November 16, 2005, the Company issued 56,000 shares of common stock for
accrued rent. The shares were issued at the fair values at the date of the
issuance of $19,040 or $.34 per share. For the year ended December 31 2005, in
connection with these shares, the Company recorded rent expense of $19,040.

On November 23, 2005, the Company issued 15,000 shares of its common stock for
legal services rendered. The shares were issued at the fair values at the date
of the issuance of $4,650 or $.31 per share. For the year ended December 31
2005, in connection with these shares, the Company recorded legal fees of
$4,650.


                                       F-14
<page>



NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Common stock (continued)

On January 1, 2006, the Company entered into a stock exchange agreement with
UT-Battelle, LLC. In connection with this agreement, UT-Battelle, LLC returned
683,333 shares of common stock previously issued to the Company (see note 5) for
$150,000 in cash. The Company cancelled the returned shares.

On February 17, 2006, the Company entered into a consulting agreement with a
third party for business development services for a three-month period. In
connection with the consulting agreement, the Company issued 100,000 shares of
its common stock for services rendered and to be rendered in the future. The
shares were issued at the fair values at the date of the issuance of $.28 per
share. For the year ended December 31, 2006, in connection with these shares,
the Company recorded stock-based consulting expense of $28,000.

On February 17, 2006, the Company issued 40,000 shares of its common stock for
investor relations services rendered. The shares were issued at the fair values
at the date of the issuance of $11,200 or $.28 per share. For the year ended
December 31, 2006, in connection with these shares, the Company recorded
stock-based consulting expense of $11,200.

On February 17, 2006, the Company issued 10,000 shares of its common stock for
website services rendered. The shares were issued at the fair values at the date
of the issuance of $2,800 or $.28 per share. For the year ended December 31,
2006, in connection with these shares, the Company recorded stock-based
consulting expense of $2,800.

On March 6, 2006, the Company issued 20,000 shares of its common stock for
accounting services rendered. The shares were issued at the fair values at the
date of the issuance of $4,800 or $.24 per share. For year ended December 31,
2006, in connection with these shares, the Company recorded professional fees of
$4,800.

On March 7, 2006, the Company completed a private placement to accredited
investors and received gross proceeds of $2,451,000 from the sale of units
consisting in the aggregate of 11,140,911 shares of its common stock and
warrants to purchase 5,570,455 shares of common stock. The warrants are
exercisable at $0.35 per share for a term of five years. The net proceeds from
the transaction are being used to eliminate debt of the Company owing to certain
prior note holders and for working capital purposes. The warrants are redeemable
by the Company at any time following the first anniversary of the completion of
the transaction at a redemption price equal to $0.05 per warrant share, provided
the closing price of the Company's common stock is in excess of $0.60 for 20
consecutive trading days on the date of the notice of redemption, and further
provided that the average daily trading volume during the 20-day period is
greater than 100,000 shares per day. The securities are subject to "full
ratchet" anti-dilution protection during the initial one year period following
the closing, including common stock of the Company comprising the units and
retained by the investor, as well as shares received upon exercise of the
warrants. Following the initial one year period, the warrants are subject to
"weighted-average" anti-dilution protection. There are limited exceptions to the
anti-dilution protection afforded to the investors.

The Company agreed to file a registration statement covering the shares of the
common stock underlying the securities issued. In the event the registration
statement was not filed by May 7, 2006 or did not become effective by July 21,
2006, then the number of shares of common stock included within the units and
the number of common shares underlying the warrants would have increased by 2%
for each 30-day period following such period. The Company has adopted View C of
EITF 05-4 "Effect of a Liquidated Damages Clause on a Freestanding Financial
Instrument Subject to EITF 00-19" ("EITF 05-4"). Accordingly, the Company
classifies as liability instruments, the fair value of registration rights
agreements when such agreements (i) require it to file, and cause to be declared
effective under the Securities Act, a registration statement with the SEC within
contractually fixed time periods, and (ii) provide for the payment of
liquidating damages in the event of its failure to comply with such agreements.
Under View C of EITF 05-4, (i) registration rights with these characteristics
are accounted for as derivative financial instruments at fair value and (ii)
contracts that are (a) indexed to and potentially settled in an issuer's own
stock and (b) permit gross physical or net share settlement with no net cash
settlement alternative are classified as equity instruments. On May 31, 2006, in
connection with registration rights associated with a 2004 private placement,
the Company issued 392,000 shares of its common stock and granted 98,000
warrants for payment of liquidating damages. Additionally, on November 29, 2006,
the Company issued 273,036 shares of its common stock for payment of liquidating
damages. The Company filed the registration statement on June 16, 2006 and
became effective on July 10, 2006. As of December 31, 2006, the Company has
accrued estimated registration rights penalties of $0 related to the late filing
of its registration statement.


                                       F-15
<page>

NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Common stock (continued)

Joseph Stevens & Company, Inc. served as placement agent for the transaction and
received a placement agent cash fee of $245,100. In addition, the placement
agent also received a non-accountable expense fee of $73,530. The placement
agent also received 2,451,000 shares of common stock as additional compensation
for serving as placement agent, and, subject to applicable regulatory
requirements, is entitled to receive a cash fee equal to 5% of the gross
proceeds received by the Company upon exercise of the warrants.

In March 2006, holders of the $669,500 convertible notes payable (see note 6)
converted $142,500 of debt into 647,727 shares of common stock at a conversion
price per share of $.22. This conversion price was less than the original agreed
upon conversion price of $.26 per share resulting in additional 99,650 shares
being issued (included in 647,727 shares issued above). In connection with the
reduction of the conversion price and the issuance of additional shares, the
Company recorded interest expense of $21,923.

In April 2006, the Company issued 399,025 shares of common stock in a cashless
exercise of 529,250 warrants that were previously granted to investors.

On May 1, 2006, the Company issued 35,000 shares of its common stock for
business development services rendered. The shares were issued at the fair
values at the date of the issuance of $11,025 or $.315 per share. For the year
ended December 31, 2006, in connection with these shares, the Company recorded
stock-based consulting expense of $11,025.

On May 8, 2006, the Company issued 50,000 shares of its common stock for
consulting services rendered. The shares were issued at the fair values at the
date of the issuance of $15,000 or $.30 per share. For the year ended December
31, 2006, in connection with the issuance of these shares, the Company recorded
stock-based consulting expense of $15,000.

On May 31, 2006, the Company issued 392,000 shares of its common stock for
payment of liquidating damages in connection with the registration statement
covering the shares of common stock sold in a 2004 private placement. The shares
were issued at the fair values at the date of the issuance of $94,080 or $.24
per share and included in registration rights penalties on the accompanying
consolidated statement of operations..

On June 27, 2006, the Company issued 150,000 shares of its common stock for
investor relations services rendered. Additionally, in connection with this
consulting agreement, the Company agreed to issue an additional 350,000 shares
of common stock under this agreement with 150,000 shares due on August 27, 2006.
On October 16, 2006, the Company issued 150,000 shares of common stock in
connection with this consulting agreement. The remaining 200,000 shares were due
to the consultant on November 27, 2006 unless the contract is terminated by the
parties. The Company terminated this contract during the three months ended
December 31, 2006. The common shares issued were valued at the fair values at
the date of the contract of $63,000 or $.21 per share. For the year ended
December 31, 2006, in connection with these shares, the Company recorded
stock based consulting expense of $63,000.

On June 26, 2006, the Company issued 30,000 shares of its common stock for
accounting services rendered. The shares were issued at the fair values at the
date of the issuance of $6,300 or $.21 per share. For year ended December 31,
2006, in connection with these shares, the Company recorded professional fees of
$6,300.

On June 27, 2006, the Company issued 88,500 shares of its common stock for
consulting services rendered. The shares were issued at the fair values at the
date of the issuance of $18,585 or $.21 per share. For the year ended December
31, 2006, in connection with these shares, the Company recorded stock-based
consulting expense of $18,585.

On August 25, 2006, the Company issued 125,000 shares of its common stock for
business development services rendered. The shares were issued at the fair
values at the date of the issuance of $25,000 or $.20 per share. For the year
ended December 31, 2006, in connection with the issuance of these shares, the
Company recorded stock-based consulting expense of $25,000.

                                       F-16

<page>



NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Common stock (continued)

On September 1, 2006, the Company issued 100,000 shares of its common stock for
business development services rendered. The shares were issued at the fair
values at the date of the issuance of $20,000 or $.20 per share. For the year
ended December 31, 2006, in connection with the issuance of these shares, the
Company recorded stock-based consulting expense of $20,000.

On October 1, 2006, the Company issued 85,000 shares of its common stock for
business development services rendered. The shares were issued at the fair
values at the date of the issuance of $12,500 or $.147 per share. For the year
ended December 31, 2006, in connection with the issuance of these shares, the
Company recorded stock-based consulting expense of $12,500.

On October 16, 2006, the Company issued 5,000,000 shares of its common stock for
business development and advisory services rendered. The shares were issued at
the fair values at the date of the issuance of $450,000 or $.09 per share. For
the year ended December 31, 2006, in connection with the issuance of these
shares, the Company recorded stock-based consulting expense of $450,000.

On November 21, 2006, the Company issued 168,000 shares of its common stock as
payment for rent. The shares were issued at the fair values at the date of the
issuance of $15,960 or $.095 per share. For the year ended December 31, 2006, in
connection with the issuance of these shares, the Company recorded stock-based
rent expense of $15,960.


On November 29, 2006, the Company issued 273,036 shares of its common stock for
payment of accrued liquidating damages in connection with the registration
statement covering the shares of common stock sold in a 2006 private placement.
The shares were issued at the fair values at the date of the issuance of $27,303
or $.10 per share.This was recorded as registration rights penalties.


On December 29, 2006, the Company obtained through a vote of majority of its
shareholders the approval to increase the authorized common shares from
100,000,000 to 350,000,000 shares of common stock at $0.10 par value.

For the year ended December 31, 2006, the Company amortized stock-based
compensation of $778,070 from the issuance of shares, options, and warrants in
2005 and 2006.

Stock options

1999 Equity Compensation Plan

On July 19, 1999, the board of directors adopted the Company's 1999 Stock Option
Plan (the "1999 Plan"). The Company has reserved 1,500,000 shares of common
stock for issuance upon exercise of options granted from time to time under the
1999 stock option plan. The 1999 stock option plan is intended to assist the
Company in securing and retaining key employees, directors and consultants by
allowing them to participate in the Company's ownership and growth through the
grant of incentive and non-qualified options. Under the stock option plan, the
Company may grant incentive stock options only to key employees and employee
directors, or the Company may grant non-qualified options to employees,
officers, directors and consultants. The 1999 stock option plan is currently
administered by the Company's board of directors. Subject to the provisions of
the 1999 stock option plan, the board will determine who shall receive options,
the number of shares of common stock that may be purchased under the options,
the time and manner of exercise of options and exercise prices. The term of the
options granted under the 1999 stock option plan may not exceed ten years (five
years for an incentive stock option granted to an optionee owning more than 10%
of our voting stock).

The exercise price for incentive stock options will be equal to or greater than
100% of the fair market value of the shares of the common stock at the time
granted. However, the incentive stock options granted to a 10% holder of the
Company's voting stock are exercisable at a price equal to or greater than 110%
of the fair market value of the common stock at the date of the grant. The
exercise price for non-qualified options will be set by the board, in its
discretion, but in no event shall the exercise price be less than 75% of the
fair market value of the shares of common stock on the date of grant. The
exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or a combination of cash and shares. Shares of common stock
received upon exercise of options will be subject to restrictions on sale or
transfer.


                                       F-17
<page>


NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Stock options (continued)

2001 Equity Compensation Plan

On November 26, 2001, the board of directors adopted the Company's 2001 Equity
Compensation Plan (the "2001 Plan"). The Company has reserved 2,000,000 shares
of the Company's common stock. The purpose of the 2001 Plan is to provide
designated employees, certain key advisors who perform services for the Company,
and non-employee board members with the opportunity to receive grants of
incentive stock options, nonqualified stock options and restricted stock. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders. The Plan will be administered by the Company's board of directors
or a committee appointed by the board. Subject to the provisions of the stock
option plan, the board of directors or its appointed committee shall have the
sole authority to determine the individuals to whom grants shall be made, the
type, size and terms of the grants to be made to each individual. In addition,
the board or its appointed committee will determine the time when the grants
will be made and the duration of grants including exercise or restrictions and
criteria for exercisability.

The term of the options granted under the 2001 Plan may not exceed ten years
(five years for an incentive stock option granted to an optionee owning more
than 10% of our voting stock). The exercise price for incentive stock options
may be equal to or greater than the fair market value of the shares of the
common stock at the time granted. However, the incentive stock options granted
to a 10% holder of the Company's voting stock are exercisable at a price equal
to or greater than 110% of the fair market value of the common stock at the date
of the grant. In the case of an option granted that qualifies as performance
based compensation, the exercise price may not be less than 100% of the fair
market value of the Company's stock on the date of grant. The exercise price for
non-qualified options granted to non-employee directors shall equal 100% of the
fair market value of the Company's common stock at the date of grant. The
exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or a combination of cash and shares. Shares of common stock
received upon exercise of options will be subject to restrictions on sale or
transfer.

2005 Equity Compensation Plan

On June 16, 2005, the board of directors adopted the Company's 2005 equity
compensation plan (the "2005 Plan") and on June 16, 2005, the 2005 Plan was
ratified by holders of a majority of our outstanding common stock. The Company
had reserved 2,000,000 shares of common stock for issuance as stock grants and
upon exercise of options granted from time to time under the 2005 equity
compensation plan. The 2005 plan is intended to assist the Company in securing
and retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options, as well as direct stock grants. Under the 2005 Plan, the
Company may grant incentive stock options only to key employees and employee
directors. The Company may grant non-qualified options and issue direct stock
awards to its employees, officers, directors and consultants. The Company's
Board of Directors currently administers the 2005 equity compensation plan.

Subject to the provisions of the 2005 Plan, the board will determine who shall
receive options or grants, the number of shares of common stock that may be
purchased under the options, the time and manner of exercise of options and
exercise prices. The term of options granted under the stock option plan may not
exceed ten years or five years for an incentive stock option granted to an
optionee owning more than 10% of our voting stock. The exercise price for
incentive stock options will be equal to or greater than 100% of the fair market
value of the shares of the common stock at the time granted. However, the
incentive stock options granted to a 10% holder of our voting stock are
exercisable at a price equal to or greater than 110% of the fair market value of
the common stock on the date of the grant. The exercise price for non-qualified
options will be set by the board, in its discretion, but in no event shall the
exercise price be less than the par value for our common stock The exercise
price may be payable in cash or, with the approval of the board, by delivery of
shares or by a combination of cash and shares. The board may also direct the
issuance of shares of our common stock as awards under the 2005 plan. Absent
registration under the Securities Act of 1933, as amended, or the availability
of an applicable exemption there from, shares of common stock received as stock
grants and upon exercise of options will be subject to restrictions on sale or
transfer.


                                       F-18
<page>



NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Stock options (continued)

On May 13, 2005, the Company granted options to purchase 450,000 shares of
common stock to employee and directors of the Company. The options are
exercisable at $0.20 per share, which was greater than the fair market value of
the common stock at the grant date. Accordingly, under APB 25, no compensation
expense was recognized.

On September 2, 2005, the Company granted options to purchase 1,000,000 shares
of common stock to employee and directors of the Company. The options are
exercisable at $0.22 per share, which was greater than the fair market value of
the common stock at the grant date. Accordingly, under APB 25, no compensation
expense was recognized.

On September 28, 2005, the Company granted options to purchase 250,000 shares of
common stock to various individuals serving on the Company's Science and
Security Advisory board for a period of one year. The options are exercisable at
$0.35 per share for a period of three years. These options were valued at
$69,935 to be amortized over the 12-month terms, beginning October 1, 2005. For
the year ended December 31, 2006 and 2005, the Company recorded stock-based
consulting expense of $ 52,451 and $17,484, respectively. The fair market value
of each stock option grant is estimated on the date of grant using the
Black-Scholes option-pricing model in accordance with SFAS No. 123 using the
following weighted-average assumptions: expected dividend yield 0%, risk-free
interest rate of 3.75%, volatility of 144% and expected term of 3 years.

On September 28, 2005, the Company granted options to purchase 400,000 shares of
common stock to an employee of the Company. The options are exercisable as
follows: 100,000 options at $.40 per share, 100,000 options at $.50 per share,
100,000 options at $.60 per share, and 100,000 options at $.70 per share. The
exercise prices were greater than the fair market value of the common stock at
the grant date. Accordingly, under APB 25, no compensation expense was
recognized for these options. Additionally, the Company granted options to
purchase 100,000 shares of common stock to this employee with an exercise price
of $.30 per share which was less than the fair market value of the common stock
at the grant date. Accordingly, in connection with these options, the Company
recorded stock-based compensation of $5,000 during the year ended December 31,
2005 under the intrinsic value method of APB 25.

On October 1, 2005, the Company entered into a one-year consulting agreement and
granted options to purchase 200,000 shares of common stock to a consultant for
business development services. The options are exercisable at $0.40 per share
and expire on October 1, 2010. These options were valued at $60,341 to be
amortized over the 12-month terms, beginning October 1, 2005. For the year ended
December 31, 2006 and 2005, the Company recorded stock-based consulting expense
of $ 45,256 and $15,085, respectively. The fair market value of each stock
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model in accordance with SFAS No. 123 using the following
weighted-average assumptions: expected dividend yield 0%, risk-free interest
rate of 3.75%, volatility of 144% and expected term of 5 years.

On September 1, 2006, the Company granted five-year options to purchase 750,000
shares of common stock to an employee and to two officers/directors of the
Company at an exercise price of $.20 per share. The Company valued these
warrants utilizing the Black-Scholes options pricing model at approximately
$0.20 or $150,000. For the year ended December 31, 2006, in connection with
these options, the Company recorded non-cash compensation expense of $150,000.

                                       F-19

<page>




NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Stock options (continued)

A summary of the stock options as of December 31, 2006 and 2005 and changes
during the periods is presented below:

<table>
<caption>

                                                Year Ended December 31, 2006               Year Ended December 31, 2005
                                                ----------------------------               ----------------------------
                                                                 Weighted Average        Number of        Weighted Average
                                          Number of Options       Exercise Price          Options          Exercise Price
                                          -------------------    ------------------    --------------- -- ------------------
   
                                   <c>
   Balance at beginning of year                   4,445,000        $          0.32         2,085,000     $             0.35
   Granted                                           750,000                  0.20          2,400,000                  0.30
   Exercised                                               -                     -                  -                     -
   Forfeited                                     (1,075,000)                  0.55           (40,000)                  0.39
                                          -------------------   ------------------    ---------------    ------------------
   Balance at end of year                         4,120,000        $          0.24         4,445,000     $             0.32
                                          ===================    ==================    ===============   ==================

   Options exercisable at end of year             4,120,000        $          0.24         4,445,000     $             0.32
                                          ===================    ==================    ===============   ==================
   Weighted average fair value of                                  $          0.20                       $             0.22
   options granted during the year
                                                                 ==================    ===============   ==================

</table>


The following table summarizes the Company's stock options outstanding at
December 31, 2006:

<table>
<caption>
                                       Options Outstanding                                  Options Exercisable
     ----------------------------------------------------------------------------    ----------------------------------
         
              <c>                    <c>                <c>              <c>                <c>
                                                   Weighted
                               Number               Average          Weighted           Number            Weighted
            Range of       Outstanding at         Remaining          Average         Exercisable at         Average
           Exercise          December 31,         Contractual         Exercise         December 31,         Exercise
             Price               2006                 Life             Price               2006               Price
          ------------     -----------------     ---------------    -------------    -----------------     ------------
     $           0.79               150,000           .17 Years  $          0.79              150,000   $         0.79
                 0.35               250,000          1.75 Years             0.35              250,000             0.35
            0.22-0.27             1,500,000          2.40 Years             0.24            1,500,000             0.24
            0.19-.020             2,220,000          2.75 Years             0.20            2,220,000             0.20
                           -----------------                        -------------    -----------------     ------------

                                  4,120,000                      $          0.24            4,120,000   $         0.24
                           =================                        =============    =================     ============
</table>

Common Stock Warrants

On February 21, 2005, the Company granted 200,000 warrants to consultants for
services rendered. The warrants expire 3 years from the date of grant and are
exercisable at $0.30 per warrant. The Company valued these warrants utilizing
the Black-Scholes options pricing model at approximately $0.15 or $30,023 and
recorded stock-based consulting expense.

During June 2005 to September 30, 2005, in connection with a private placement
(See Note 6), the Company granted 669,500 purchase warrants to investors and
granted warrants to purchase 334,750 shares of common stock, as compensation to
the placement agent. The warrants are exercisable at $.16 per common share and
expire in five years.


                                       F-20

<page>




NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Common Stock warrants (continued)

On September 19, 2005, the Company granted warrants to purchase 3,500,000 shares
of common stock to a consultant for investor relation services for a period of
one year. The warrants are exercisable at $0.19 per share for a period of three
years. The warrants vest and become exercisable as follows: (i) 2,500,000
warrants vest and are immediately exercisable; and (ii) 1,000,000 warrants shall
vest and become exercisable on the earlier of (a) the date the Company has
received aggregate proceeds from the sale of debt or equity securities of not
less than $500,000 after September 19, 2005 or (b) March 18, 2006. The warrants
contain cashless exercise provisions and are subject to registration. These
warrants were valued at $755,100 to be amortized over the 12-month term,
beginning September 19, 2005. The fair market value of each stock warrant grant
is estimated on the date of grant using the Black-Scholes option-pricing model
in accordance with SFAS No. 123 using the following weighted-average
assumptions: expected dividend yield 0%, risk-free interest rate of 3.75%,
volatility of 144% and expected term of 3 years. Since 1,000,000 warrants are
earned over the term of the agreement and the measurement date in not known, the
Company has accounted for these under variable accounting pursuant to EITF
96-18. For the year ended December 31, 2006 and 2005, the Company recorded
stock-based consulting expense of $ 534,863 and $220,237, respectively.

On March 7, 2006, in connection with a private placement, the Company granted
5,570,455 purchase warrants to investors. The warrants are exercisable at $.35
per common share and expire in five years.

In April 2006, the Company issued 399,025 shares of common stock in a cashless
exercise of 529,250 warrants that were previously granted to investors.

On April 25, 2006, the Company granted 100,000 warrants to a consultant at an
exercise price of $.20 per share. The Company valued these warrants utilizing
the Black-Scholes options pricing model at approximately $0.335 or $33,500. For
the year ended December 31, 2006, in connection with these warrants, the Company
recorded stock-based consulting expense of $33,500.

On May 31, 2006, the Company granted 98,000 warrants for payment of liquidating
damages in connection with the registration statement covering the shares of
common stock sold in a 2004 private placement. The Company valued these warrants
utilizing the Black-Scholes options pricing model at approximately $0.194 or
$19,049.

 Stock warrant activity for the years ended December 31, 2006 and 2005 is
summarized as follows:

<table>
<caption>


                                              Year Ended December 31, 2006               Year Ended December 31, 2005
                                              ----------------------------               ----------------------------
                                              Number of         Weighted Average        Number of        Weighted Average
                                              Warrants           Exercise Price          Warrants         Exercise Price
                                          ------------------    ------------------   ---------------  ------------------

                                       <c>                   <c>                 <c>                 <c>
   Balance at beginning of year                  13,460,340      $           0.67          9,682,590     $            0.87
   Granted                                        5,768,455                  0.35          4,704,250                  0.19
   Exercised                                      (529,250)                 0.185          (926,500)                 0.185
   Forfeited                                      (689,250)                     -                  -                     -
                                          ------------------    ------------------    ---------------    ------------------
   Balance at end of year                       18,010,295       $           0.55       13,460,340        $           0.67
                                          ==================    ==================    ===============    ==================

   Warrants exercisable at end of year          18,010,295       $           0.55        12,460,340       $           0.70
                                          ==================    ==================    ===============    ==================


</table>


                                       F-21

<page>


NOTE 10 - SHAREHOLDERS' EQUITY (continued)

Common Stock warrants (continued)

The following table summarizes the Company's stock warrants outstanding at
December 31, 2006:


<table>
<caption>
                                 Warrants Outstanding                                      Warrants Exercisable
     ----------------------------------------------------------------------------    ----------------------------------
       
                 <c>                   <c>                <c>             <c>                    <c>
                                                     Weighted
                                Number               Averagec         Weighted              Number           Weighted
             Range of       Outstanding at         Remaining          Average         Exercisable at         Average
            Exercise         December 31,         Contractual         Exercise         December 31,         Exercise
             Price               2006                 Life             Price               2006               Price
          -------------    -----------------     ---------------    -------------    -----------------     ------------
        $    0.35-0.55            8,572,255          1.70 Years      $      0.40            8,572,255       $     0.40
             1.25-1.50            4,422,290          0.20 Years             1.25            4,422,290             1.25
                  0.30              200,000          1.15 Years             0.30              200,000             0.30
             0.10-0.20            4,815,750          3.30 Years             0.18            4,815,750             0.18
                           -----------------                        -------------    -----------------     ------------
                                 18,010,295                          $      0.55           18,010,295       $     0.55
                           =================                        =============    =================     ============

</table>

NOTE 11- COMMITMENTS

Cooperative Research and Development Agreement

On November 7, 2005, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with UT Battelle/Oakridge National Laboratories,
covering the development of a hand-held sensor with high sensitivity and
selectivity for the detection of explosives initially and then to expand the
capabilities to include chemical and biological warfare agents and narcotics. In
connection with the CRADA, the Company agreed to make payments aggregating
$589,000. Through December 31, 2006, the Company has paid $560,000 towards these
commitments. The Company did not pay the remaining $29,000 payable under this
CRADA agreement due to the fact that all milestones were accomplished under
budget for the full payment of $560,000. The Company is currently negotiating a
new CRADA agreement for continued research and development of the above
mentioned projects.

Employment agreements

On April 1, 2005, the Company entered into three-year employment contracts with
our Chief Executive Officer, Chief Financial Officer and Chief Technology
Officer which expire on April 1, 2008. Specific terms are detailed below:

     Pursuant to an employment agreement with the Company's chief executive
     officer (CEO), in consideration for services as CEO, effective April 1,
     2005, the Company will pay CEO a salary of $137,500 per annum through May
     6, 2005 and $156,000 through May 7, 2006. On each successive anniversary
     date of this agreement, the Board shall review the base compensation and at
     its sole discretion may elect to increase the base salary. Subsequent to
     May 7, 2006, the CEO's base salary remains at $156,000 per annum. In
     addition, CEO is provided a car allowance of up to $ 500 per month.

     Pursuant to an employment agreement with the Company's chief financial
     officer (CFO), in consideration for services as CFO, effective April 1,
     2005, the Company will pay CFO a salary of $137,500 per annum through May
     6, 2005 and $156,000 through May 7, 2006. On each successive anniversary
     date of this agreement, the Board shall review the base compensation and at
     its sole discretion may elect to increase the base salary. Subsequent to
     May 7, 2006, the CFO's base salary remains at $156,000 per annum. In
     addition, CFO is provided a car allowance of up to $ 500 per month. On
     December 26, 2006, the Company's CFO resigned as an officer and director of
     the Company.

     Pursuant to an employment agreement with the Company's chief technical
     officer (CTO), in consideration for services as CTO, effective April 1,
     2005, the Company will pay CTO a salary of $96,800 per annum.

                                       F-23

<page>



NOTE 11- COMMITMENTS

Employment agreements (continued)

         Incentive Compensation

         In addition to the base salary, each of the Company's executives who
         have employment agreements with the Company are entitled to receive, as
         incentive compensation in respect of each calendar year (or portion
         thereof), an amount determined in accordance with any bonus or short
         term incentive compensation program (which may be based upon achieving
         certain specified performance criteria) which may be established by the
         board. The Company's Board of Directors shall review the determination
         as to the amounts of any awards available to our executives under these
         programs at least annually. The review shall ensure that such amounts
         are competitive, and comparable, with awards granted to similarly
         situated executives of publicly held companies comparable to the
         Company.

         Other Benefits

         The employment agreements with our executives also provide other
         benefits. Executives receive 10 paid vacation days and such other paid
         holidays in accordance with Sense's policy. In addition, they are
         compensated in accordance with Sense's disability policies. An
         executive may receive up to six (6) months salary continuation in the
         event of short-term disability. An executive may be granted permission
         to be absent from the Company during working days to attend
         professional meetings and to attend to such outside professional duties
         in the biometrics field as have been mutually agreed upon. Attendance
         at such approved meetings and accomplishment of approved professional
         duties shall be fully compensated service time and shall not be
         considered vacation time. We shall reimburse the executive for all
         expenses incurred by the executive incident to attendance at approved
         professional meetings and such entertainment expenses incurred by the
         executive in furtherance of the Company's interests, provided, however,
         that such reimbursement is approved by the Board of Directors. We pay
         dues to professional associations and societies and to such service
         organizations and clubs of which the executive is a member, which has
         been approved by the Board of Directors as being in the best interests
         of the Company. The executives receive all other fringe benefits to
         which all other employees of Sense are entitled.

         Termination

         In the event of involuntary termination without "cause" or disability,
         each executive will be entitled to the following compensation for the
         succeeding 24 months following the date of termination:

                o    A total of two hundred (200%) percent of the executive's
                     base  compensation in effect on the date of the employment
                     termination; plus


                o    A total of two hundred (200%) percent of the executive's
                     annual  incentive  bonus  earned  on a  quarterly  basis
                     as of the  date of the  termination, assuming the
                     executive was employed on the last day of the quarter in
                     which termination of employment occurred.


         In the event the executive is terminated for "cause" the executive will
         be entitled to any unpaid salary through the date of termination and
         deferred compensation will be forfeited. In the event there is a
         "Change in Control", we will be required to pay the executive a lump
         sum equal to 299% of the executive's base compensation in effect on the
         date of employment plus 299% of the executive's prior year incentive
         bonus. The executives may, at their discretion, elect to terminate the
         contract the executive must give the board 90 days written notice and
         the executive would not be entitled to severance benefits.



                                       F-24

<page>


NOTE 11- COMMITMENTS (continued)

Consulting agreement

On December 26, 2006, the Company has entered into a consulting agreement with
the Company's CFO effective upon his resignation where he will assist the
Company regarding financial accounting and general business matters. The
consulting agreement calls for a monthly payment of $3,000 for a period of 3
months, and the agreement may be extended for an additional 3 months as
determined by the parties.

NOTE 12 - PROPOSED ACQUISITION

     On  December  21, 2006, the Company entered into a Memorandum  of
Understanding regarding the purchase by a newly formed wholly-owned subsidiary
of a 60% equity ownership in Jinyang Energy Company Limited ("Jinyang") located
in Taiyuan China. The Memorandum of Understanding contemplates the purchase of
the 60% equity ownership from Jinyang's sole shareholder, Jinyang Coke Group
Corp. If the acquisition is consummated, under the structure of the Memorandum
of Understanding it is not anticipated that the acquisition will result in a
change of management for Sense. Consummation of the acquisition is conditioned
upon the finalization of definitive agreements, delivery of audited financial
statements, securing appropriate approvals, including Jinyang's sole
shareholder, and normal closing conditions for transactions of this kind. While
the consummation of a definitive agreement and closing is subject to various
conditions, it was initially contemplated that any acquisition would occur on or
prior to March 31, 2007.


NOTE 13- SUBSEQUENT EVENT

In January 2007 The Company announced its intention to spin off the
patented technology licensed through UT Battelle, LLC. to the company's
shareholders. The Company intends to transfer all related assets and liabilities
to a newly formed subsidiary, Explosive Sensing Systems, Inc. The Company
presently intends to file a registration statement with the Securities and
Exchange Commission, and once declared effective will pay its shareholders a
dividend in the form of 100% of the common stock of Explosive Sensing Systems.

On January 30, 2007, the Company granted five-year options to purchase 750,000
shares of common stock to two officers/directors of the Company at an exercise
price of $.08 per share. The Company valued these warrants utilizing the
Black-Scholes options pricing model at approximately $0.08 or $60,000. In
connection with these options, the Company recorded non-cash compensation
expense of $60,000.

On January 30, 2007, the Company issued 100,000 shares of its common stock for
accounting services rendered. The shares were issued at the fair values at the
date of the issuance of $8,000 or $.08 per share.

On February 5, 2007, the Company issued 225,000 shares of its common stock to
consultants for business development service services rendered. The shares were
issued at the fair values at the date of the issuance of $18,000 or $.08 per
share.



                                       F-25
<page>