----

----

|  Nevada                               |  20-5506885           |
|--------------------------------------------|----------------------------|
| State or other jurisdiction of   | (I.R.S. Employer I.D. No.) |
| incorporation or organization              |                       |

|  Title of each class |  Name of each exchange on whichregistered |
|---------------------------|------------------------------------------------|
|  None                |  N/A                                      |

----

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

----

----

| -   | Category 1: Radioactive Isotope Identifier Products. |
|---------------|------------------------------------------------------|

| -   | Category 2: Nuclear/ Gamma-ray detectors and spectrometers: |
|---------------|-------------------------------------------------------------|

| -   | Category 3: X-ray detectors and spectrometers. |
|---------------|------------------------------------------------|

----

----

----

| US Patent # | Expiration Date | Title                                                       |
|-------------|-----------------|-------------------------------------------------------------|
| 5,349,193   | May 20, 2013    | Highly sensitive nuclear spectrometer apparatus and method. |
| 5,393,982   | May 20, 2013    | Highly sensitive nuclear spectrometer apparatus and method. |
| 5,608,222   | April 7, 2015   | Analog to digital conversion technique for spectroscopy.    |

| US Trade Mark # | Expiration Date | Mark      |
|-----------------|-----------------|-----------|
| 2,768,545       | January 7, 2010 | EXCALIBUR |

| §   | Nuclear Regulatory Commission licenses for the possession and distribution of radioactive sources used for testing and calibrating equipment. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

----

| §   | OSHA (Occupational and Safety Health Administration) regulations relating to the handling and use of hazardous chemicals. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| §   | EPA (Environmental Protection Agency) regulations relating to the storage, use and disposal of hazardous substances. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| §   | Department of Commerce Export Administration regulations relating to the sale of equipment overseas. |
|--------------------|------------------------------------------------------------------------------------------------------|

| §   | Various State and Federal Labor laws. |
|--------------------|---------------------------------------|

----

| Quarter Ended  | High Price | Low Price |
|----------------|------------|-----------|
| March 31, 2010 | $0.05      | $0.05     |
| December 2009  | $1.01      | $1.01     |
| September 2009 | $0.40      | $0.4      |
| June 2009      | $0.51      | $0.51     |
| March 2009     | $0.50      | $0.50     |

|    Plan Category                          |  Number of Securities to be issued upon exercise of outstanding options,warrants and rights |  Weighted-average exercise price of outstanding options, warrants andrights | Number of securities remaining available for future issuance under equity compensation plans excluding securitiesreflected in column (a) |
|----------------------------------------------------------|--------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|
|                                                     | (a)                                                                                              | (b)                                                                              | (c)                                                                                                                                      |
| Equity compensation plansapproved by securityholders     | 0                                                                                                | 0                                                                                | 0                                                                                                                                        |
| Equity compensation plans notapproved by securityholders | 1,600,000                                                                                        | $1.078                                                                           | 15,328,513                                                                                                                               |
| Total                                                    | 1,600,000                                                                                   | $1.078                                                                           | 14,328,513                                                                                                                               |

----

|  STATEMENT OF OPERATIONS DATA:                         |   |                                     |       |   |                               |   |
|-------------------------------------------------------------|--------|------------------------------------------|------------|--------|------------------------------------|--------|
|                                                        |   | For the Year EndedDecember 31, 2009 |       |   | For the YearEndedDecember 31, 2008 |   |
| Revenues                                                    |   | $                                        | 2,036,643  |   |                               | $      | 2,504,321 |   |
| General and Administrative Expenses                         |   |                                     | 619,618    |   |                               |   | 730,546 |   |
| Net Loss                                                    |   |                                     | 420,823    |   |                               |   | 583,950 |   |
| Basic Income (Loss) per Share                               |   |                                     | (0.03      | )      |                               |   | (0.05 | ) |
| Diluted Income (Loss) per Share                             |   |                                     | (0.03      | )      |                               |   | (0.05 | ) |
| Weighted Average Number of Shares Outstanding               |   |                                     | 12,119,932 |   |                               |   | 11,781,375 |   |
| Weighted Average Number of Fully Diluted Shares Outstanding |   |                                     | 12,119,932 |   |                               |   | 11,781,375 |   |
|  BALANCE SHEET DATA:                                   |   |                                     |       |   |                               |   |   |   |
|                                                        |   | December 31, 2009                        |       |   | December 31, 2008                  |   |
| Total Current Assets                                        |   | $                                        | 519,180    |   |                               | $      | 752,137 |   |
| Total Assets                                                |   |                                     | 548,154    |   |                               |   | 814,067 |   |
| Total Current Liabilities                                   |   |                                     | 422,736    |   |                               |   | 622,279 |   |
| Working Capital                                             |   |                                     | 157,566    |   |                               |   | 129,858 |   |
| Stockholders’ Equity (Deficit)                        |   |                                     | 86,540     |   |                               |   | (20,515 | ) |

----

----

----

| Name            | Age | Position      | Director Since |
|-----------------|-----|---------------|----------------|
| Juhani Taskinen | 53  | CEO, Director | 2005           |
| David Brown     | 38  | Director      | 2005           |

----

----

----

| Name and Principal Position |  Year |   | Salary |   |   | Bonus  |   |   | StockAwards |   |   | OptionAwards |   |   | Non-Equity Incentive Plan Compensation |   |   | All Other Compensation |   |   | Total  |   |
|-----------------------------|------------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------------------------------------|--------|--------|------------------------|--------|--------|--------|--------|
| JuhaniTaskinen, CEO         | 2009       |   |   | 0      |   |   |   | 0      |        |   |   | 0            |   |   |                                   | 0      |   |                   |   | 0      |   |   | $ | 144,000 |   |   | $ | 144,000 |   |
|                        | 2008       |   |   | --     |   |   |   | --     |        |   |   | --           |   |   |                                   | 0      |   |                   |   | --     |   |   | $ | 132000 |   |   | $ | 132,000 |   |
|                        | 2007       |   |   | --     |   |   |   | --     |        |   |   | --           |   |   | $                                      | 655    |   |                   |   | --     |   |   | $ | 144,000 |   |   | $ | 144,665 |   |

|                                                 |   | Option Awards                                                                          |                | Stock Awards |                                                                               |
|------------------------------------------------------|--------|----------------------------------------------------------------------------------------|---------------------|--------------|------------------------------------------------------------------------------------|
|         Name |   |     Number of securities underlying unexercised Options (#) Exercisable |                |         |    Number of Securities Underlying Unexercised Options (#) Unexercisable |   |   |     Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |   |      Option ExercisePrice ($) |        Option Expiration Date |   |    Number of Shares or Units of Stock That Have Not Vested (#) |   |   |     Market Value of Shares or Units of Stock That Have Not Vested ($) |   |   |   Equity Incentive Plan Awards: Number of Unearned Shares Units or Other Rights That Have Not Vested (#) |   |   | Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) |   |
|  JuhaniTaskinen                                 |   |                                                                                   | 350,00030,000       |         |                                                                               |   | -0-  |   |   |   | -0-  |   | $1.10 $1.10 |  12/31/20119/30/2012 |   |   | -0--0- |   |   |   | -0- -0- |   |   |   | -0--0- |   |   |   | -0--0- |   |
|  DavidBrown                                     |   |                                                                                   | 350,000 30,000 |         |                                                                               |   | -0--0- |   |   |   | -0- -0- |   | $1.10 $1.10 |  12/31/2001112/31/20012 |   |   | -0--0- |   |   |   | -0--0- |   |   |   | -0- -0- |   |   |   | -0--0- |   |

----

|   Name |   | Fees Earned or Paid in Cash ($) |   |   | Stock Awards ($) |   |   |   OptionAwards ($) |   |   | Non-Equity Incentive Plan Compensation ($) |   |   | Non-Qualified Deferred Compensation Earnings ($) |   |   | All Other Compensation ($) |   |   |   Total ($) |   |
|------------------|--------|---------------------------------|--------|--------|------------------|--------|--------|-------------------------|--------|--------|--------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|----------------------------|--------|--------|------------------|--------|
| Juhani Taskinen  |   |                            | --     |   |             |   | --     |                    |   |   | -                                          |   |   |                                             | --     |   |                       |   | --     |             |   | $ | 144,000 |   |   | $ | 144,000 |   |
| David Brown      |   |                            | --     |   |             |   | --     |                    |   |   | -                                          |   |   |                                             | --     |   |                       |   | --     |             |   | $ | 27,494 |   |   | $ | 27,494 |   |

|    Plan Category                          |  Number of Securities to be issued upon exercise of outstanding options, warrantsand rights |   Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected incolumn (a) |
|----------------------------------------------------------|--------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|
|                                                     | (a)                                                                                              | (b)                                                                                     | (c)                                                                                                                                      |
| Equity compensation plansapproved by securityholders     | 0                                                                                                | 0                                                                                       | 0                                                                                                                                        |
| Equity compensation plansnot approved by securityholders | 1,600,000                                                                                        | $1.078                                                                                  | 14,865,496                                                                                                                               |
| Total                                                    | 1,600,000                                                                                   | $1.078                                                                                  | 14,865,496                                                                                                                               |

----

| Name and Address of Beneficial Owner                                      |   |   Amount and Nature ofBeneficial Owner |            |   | Percentage of OutstandingCommon stock   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------|-----------------|--------|---------------------------------------------------|
| Principal Shareholders                                                         |   |                                        |            |   |                                              |   |   |   |
| Finn-Partners, Inc./Juhani Taskinen                                            |   |                                        | 5,634,000  |   |                                              |   | 41.04  | % |
|    Newport Beach, California                                         |   |                                        |            |   |                                              |   |   |   |
| Third Letter Corporation                                                       |   |                                        | 1,600,000       |   |                                              |   | 11.65 | % |
|    San Rafael California                                             |   |                                        |            |   |                                              |   |   |   |
| Mikko Maijala                                                                  |   |                                        | 2,000,000       |   |                                              |   | 14.57 | % |
|    Espoo Finland                                                     |   |                                        |            |   |                                              |   |   |   |
| Ascendiant Capital Group, LLC                                                  |   |                                        | 970,000         |   |                                              |   | 7.07 | % |
|    Irvine California                                            |   |                                        |            |   |                                              |   |   |   |
| Officers and Directors                                                         |   |                                        |            |   |                                              |   |   |   |
| Juhani Taskinen                                                                |   |                                        | 5,634,000       |   |                                              |   | 41.03 | % |
| David Brown                                                                    |   |                                        | 1,600,000       |   |                                              |   | 11.65 | % |
| All directors and executive officers of the Company as a group (2 individuals) |   |                                        | 7,234,000       |   |                                              |   | 52.69 | % |

----

| Fee category             | 2009                              | 2008                              |
|--------------------------|-----------------------------------|-----------------------------------|
| Audit fees          | $21,000                           | $21,000                           |
| Audit-related fees  | $     -- | $    --       |
| Tax fees            | $4,000                            | $4,000                            |
| All other fees      | $     -- | $     -- |
| Total fees               | $25,000                           | $25,000                           |

----

| ExhibitNumber |  Description                          |
|---------------|--------------------------------------------|
| 3.2      | Articles of Incorporation             |
| 3.3           | Bylaws                                |
| 31.1     | 302 Certification of Juhani Taskinen  |
| 31.2     | 302 Certification of CFO              |
| 32.1     | 906 Certification-CEO                 |
| 32.1          | 906 Certification-CFO                      |

----

|  Date: October 15, 2010             |  By |  /s/ |  Juhani Taskinen                       |
|----------------------------------------------------|----------|-----------|---------------------------------------------|
|                                               |     |      |  Juhani Taskinen, CEO, President and   |
|                                               |     |      |  Chairman of the                       |
|                                               |     |      |  Board of Directors                    |
|                                               |     |      |                                        |
|  Date:  October 15, 2010  |  By |  /s/ |  Trupti Mehta                          |
|                                               |     |      |  Trupti Mehta, Principal Financial and |
|                                               |     |      |  Accounting Officer                    |

|  Date: May 14, 2010   |  By |  /s/ |  David Brown      |
|--------------------------------------|----------|-----------|-----------------------------|
|                                 |     |      |  David Brown, Director |

----

----

|                                                           |    |
|----------------------------------------------------------------|---------|
| Report of Independent Registered Public Accounting Firm        |  1 |
|                                                           |    |
| Consolidated Financial Statements                              |    |
|                                                           |    |
| Consolidated Balance Sheets                                    |  2 |
| Consolidated Statements of Operations                          |  3 |
| Consolidated Statement of Stockholders’ Equity (Deficit) |  4 |
| Consolidated Statements of Cash Flows                          |  5 |
| Notes to Consolidated Financial Statements                     |  6 |

----

| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To The Board of DirectorsPrinceton Security Technologies, Inc.Princeton, New Jersey We have audited the accompanying consolidated balance sheets of Princeton Security Technologies, Inc. (the Company) and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. 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 of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 audits included consideration of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 Princeton Security Technologies, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.  /s/ Child, Van Wagoner & Bradshaw, PLLCChild, Van Wagoner & Bradshaw, PLLCSalt Lake City, UtahMay 13, 2010  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ASSETS                                                                                                                                                     |   | 2009   |       |   | 2008   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Current                                                                                                                                                    |   |   |       |   |   |   |
| Cash                                                                                                                                                       |   | $      | 21,333     |   |   | $      | 40,490 |   |
| Accounts receivable (net of allowance for doubtful accounts of $16,426 and $16,426, respectively)                                                          |   |   | 265,006    |   |   |   | 196,847 |   |
| Inventory                                                                                                                                                  |   |   | 199,949    |   |   |   | 460,741 |   |
| Prepaid Expenses                                                                                                                                           |   |   | 32,892     |   |   |   | 54,059 |   |
| Total Current Assets                                                                                                                                       |   |   | 519,180    |   |   |   | 752,137 |   |
|                                                                                                                                                       |   |   |       |   |   |   |   |   |
| Property, plant & equipment (net of depreciation of $1,375,337 and $1,353,231, respectively)                                                           |   |   | 28,374     |   |   |   | 50,480 |   |
| Deposits                                                                                                                                                   |   |   | 600        |   |   |   | 11,450 |   |
| Total Assets                                                                                                                                               |   | $      | 548,154    |   |   | $      | 814,067 |   |
|                                                                                                                                                       |   |   |       |   |   |   |   |   |
| LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                           |   |   |       |   |   |   |   |   |
| Current liabilities                                                                                                                                        |   |   |       |   |   |   |   |   |
| Accounts payable and accrued liabilities                                                                                                                   |   | $      | 321,701    |   |   | $      | 554,972 |   |
| Accrued other liabilities                                                                                                                                  |   |   | 534        |   |   |   | 438 |   |
| Accrued payroll expenses                                                                                                                                   |   |   | -          |   |   |   | 9,747 |   |
| Accrued vacation expenses                                                                                                                                  |   |   | 27,594     |   |   |   | 25,443 |   |
| Credit line advances                                                                                                                                       |   |   | 38,878     |   |   |   | 41,954 |   |
| Warranty reserve                                                                                                                                           |   |   | 10,500     |   |   |   | - |   |
| Deferred sales revenue                                                                                                                                     |   |   | 62,407     |   |   |   | 31,679 |   |
| Total Current Liabilities                                                                                                                                  |   |   | 461,614    |   |   |   | 664,233 |   |
|                                                                                                                                                       |   |   |       |   |   |   |   |   |
| Notes payable                                                                                                                                              |   |   | -          |   |   |   | 170,349 |   |
| Total Liabilities                                                                                                                                          |   |   | 461,614    |   |   |   | 834,582 |   |
|                                                                                                                                                       |   |   |       |   |   |   |   |   |
| Stockholders' Equity (Deficit)                                                                                                                             |   |   |       |   |   |   |   |   |
| Preferred stock; $.001 par value, 10,000,000 shares authorized; no shares issued and outstanding                                                           |   |   | -          |   |   |   | - |   |
| Common stock; $.001 par value, 90,000,000 shares authorized; 13,703,513 shares and 11,781,375 shares in 2009 and 2008 issued and outstanding, respectively |   |   | 13,703     |   |   |   | 11,781 |   |
| Additional paid-in capital                                                                                                                                 |   |   | 1,932,915  |   |   |   | 1,406,959 |   |
| Retained earnings (deficit)                                                                                                                                |   |   | (1,860,078 | )      |   |   | (1,439,255 | ) |
| Total Stockholders’ Equity (Deficit)                                                                                                                 |   |   | 86,540     |   |   |   | (20,515 | ) |
|                                                                                                                                                       |   |   |       |   |   |   |   |   |
| Total Liabilities and Stockholders’ Equity (Deficit)                                                                                                 |   | $      | 548,154    |   |   | $      | 814,067 |   |
|                                                                                                                                                       |   |   |       |   |   |   |   |   |
| See Notes to Consolidated Financial Statements.                                                                                                            |   |

----

|                                                          |   | 2009   |       |   | 2008   |   |
|---------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                          |   |   |       |   |   |   |
| Revenues                                                      |   |   |       |   |   |   |
|    Sales (net of returns)                      |   | $      | 2,036,643  |   |   | $      | 2,504,321 |   |
|    Costs of goods sold                         |   |   | 1,236,039  |   |   |   | 1,664,992 |   |
|      Gross profit                    |   |   | 800,604    |   |   |   | 839,329 |   |
|                                                          |   |   |       |   |   |   |   |   |
| Expenses                                                      |   |   |       |   |   |   |   |   |
|    Depreciation and amortization               |   |   | 22,106     |   |   |   | 24,354 |   |
|    Selling and marketing                       |   |   | 95,909     |   |   |   | 251,346 |   |
|    General and administrative                  |   |   | 619,618    |   |   |   | 730,546 |   |
|    Research and development                    |   |   | 344,220    |   |   |   | 390,967 |   |
|                                                          |   |   | 1,081,853  |   |   |   | 1,397,213 |   |
|                                                          |   |   |       |   |   |   |   |   |
| Loss from operations                                          |   |   | (281,249   | )      |   |   | (557,884 | ) |
|                                                          |   |   |       |   |   |   |   |   |
| Other income/(expenses)                                       |   |   | (136,478   | )      |   |   | - |   |
| Loss on currency exchange                                     |   |   | (3,096     | )      |   |   | (26,066 | ) |
| Provision for income taxes                                    |   |   | -          |   |   |   | - |   |
|                                                          |   |   |       |   |   |   |   |   |
| Net income (loss)                                             |   | $      | (420,823   | )      |   | $      | (583,950 | ) |
|                                                          |   |   |       |   |   |   |   |   |
| Basic and diluted net income (loss) per share of common stock |   | $      | (0.03      | )      |   | $      | (0.05 | ) |
|                                                          |   |   |       |   |   |   |   |   |
| Weighted average number of common shares                      |   |   | 12,119,932 |   |   |   | 11,781,375 |   |
|                                                          |   |   |       |   |   |   |   |   |
| See Notes to Consolidated Financial Statements.               |   |

----

|                                            |   | Common stock |       |   |   |   |   |                       |   |   |                        |   |
|-------------------------------------------------|--------|--------------|------------|--------|--------|--------|--------|----------------------------|--------|--------|-----------------------------|--------|
|                                            |   | Shares       |       |   | Amount |   |   | Additional paid-in capital |   |   | Retained earnings (deficit) |   |   | Total stockholders’ equity (deficit) |   |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |
| Balance at December 31, 2007                    |   |         | 11,781,375 |   |   | $      | 11,781 |                       |   | $      | 1,406,959                   |   |   | $ | (855,305 | ) |   | $ | 563,435 |   |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Net loss for the year                           |   |         | -          |   |   |   | -      |                       |   |   | -                           |   |   |   | (583,950 | ) |   |   | (583,950 | ) |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2008                    |   |         | 11,781,375 |   |   |   | 11,781 |                       |   |   | 1,406,959                   |   |   |   | (1,439,255 | ) |   |   | (20,515 | ) |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Stock issued for services                       |   |         | 344,000    |   |   |   | 344    |                       |   |   | 91,906                      |   |   |   | - |   |   |   | 92,250 |   |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Stock issued for conversion of debt             |   |         | 1,578,138  |   |   |   | 1,578  |                       |   |   | 434,050                     |   |   |   | - |   |   |   | 435628 |   |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Net loss for the year                           |   |         | -          |   |   |   | -      |                       |   |   | -                           |   |   |   | (420,823 | ) |   |   | (420,823 | ) |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2009                    |   |         | 13,703,513 |   |   | $      | 13,703 |                       |   | $      | 1,932,915                   |   |   | $ | (1,860,078 | ) |   | $ | 86,540 |   |
|                                            |   |         |       |   |   |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| See Notes to Consolidated Financial Statements. |   |

----

|                                                  |   | 2009   |     |   | 2008   |   |
|-------------------------------------------------------|--------|--------|----------|--------|--------|--------|
| Cash flow from operating activities                   |   |   |     |   |   |   |
|    Net income (loss)                   |   | $      | (420,823 | )      |   | $      | (583,950 | ) |
|    Depreciation and amortization       |   |   | 22,106   |   |   |   | 24,354 |   |
|    Provision for inventory reserves    |   |   | 26,000   |   |   |   | - |   |
|    Stock issued for services           |   |   | 92,250   |   |   |   | - |   |
|    Provision for bad debt allowance    |   |   | -        |   |   |   | (10,107 | ) |
| Change in non-cash working capital items:             |   |   |     |   |   |   |   |   |
|    Inventory                           |   |   | 234,792  |   |   |   | 263,991 |   |
|    Accounts receivable                 |   |   | (145,990 | )      |   |   | 177,927 |   |
|    Prepaid expenses                    |   |   | 32,017   |   |   |   | (31,876 | ) |
|    Other receivables                   |   |   | 77,831   |   |   |   | (66,888 | ) |
|    Accounts payable                    |   |   | (33,271  | )      |   |   | 48,182 |   |
|    Accrued payroll                     |   |   | -        |   |   |   | - |   |
|    Accrued vacation expenses           |   |   | -        |   |   |   | - |   |
|    Accrued expenses                    |   |   | 54,703   |   |   |   | (24,629 | ) |
|    Deferred services contracts         |   |   | -        |   |   |   | (583 | ) |
|    Deferred sales                      |   |   | 30,728   |   |   |   | (49,413 | ) |
|    Accrued warranty expenses           |   |   | 10,500   |   |   |   | - |   |
| Cash flow used in operating activities                |   |   | (19,157  | )      |   |   | (252,992 | ) |
|                                                  |   |   |     |   |   |   |   |   |
| Cash flow from investing activities                   |   |   |     |   |   |   |   |   |
|    Purchase of property and equipment  |   |   | -        |   |   |   | - |   |
| Cash flow provided by investing activities            |   |   | -        |   |   |   | - |   |
|                                                  |   |   |     |   |   |   |   |   |
| Cash flow from financing activities                   |   |   |     |   |   |   |   |   |
|    Proceeds from notes payable         |   |   | -        |   |   |   | 212,303 |   |
| Cash flow provided by financing activities            |   |   | -        |   |   |   | 212,303 |   |
|                                                  |   |   |     |   |   |   |   |   |
| Decrease in cash position                             |   |   | (19,157  | )      |   |   | (40,689 | ) |
|                                                  |   |   |     |   |   |   |   |   |
| Cash position at beginning of year                    |   |   | 40,490   |   |   |   | 81,179 |   |
| Cash position at end of year                          |   | $      | 21,333   |   |   | $      | 40,490 |   |
|                                                  |   |   |     |   |   |   |   |   |
| Supplemental disclosure of cash flow information:     |   |   |     |   |   |   |   |   |
|    Cash paid for:                      |   |   |     |   |   |   |   |   |
|       Interest          |   | $      | -        |   |   | $      | - |   |
|       Income taxes      |   | $      | -        |   |   | $      | - |   |
|    Stock issued for conversion of debt |   | $      | 435,628  |   |   | $      | - |   |
|                                                  |   |   |     |   |   |   |   |   |
| See Notes to Consolidated Financial Statements.       |   |

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| 2010   | $    324,725                 |
|--------|--------------------------------------------------|
| 2011   |        81,181 |
| Totals | $    405,906                 |

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| Stock Price     | $0.408          |   | Volatility    | 30.38% |
|-----------------|-----------------|--------|---------------|--------|
| Exercise Prices | $1.00 and $1.10 |   | Discount Rate | 4.35%  |
| Term            | 5 Years         |   |          |   |

| Stock Price     | $0.408          |   | Volatility    | 29.38% |
|-----------------|-----------------|--------|---------------|--------|
| Exercise Prices | $1.00 and $1.10 |   | Discount Rate | 4.35%  |
| Term            | 5 Years         |   |          |   |

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