UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





ANNUAL
REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
the fiscal year ended September 30, 2008





Commission
file number: 0-6428





ASI
Technology Corporation


(Exact
name of registrant as specified in its charter)


Nevada
              88-0105586(State or
      other jurisdiction of
                incorporation or organization)
              (I.R.S.
      Employer
                Identification
Number)


980
American Pacific Drive, Suite #111


Henderson,
Nevada 89014


(Address
of principal executive offices)





(702)
734-1888


(Registrant’s
Telephone Number, Including Area Code)





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





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


Common
Stock, par value $0.02





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





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes [_] No [X]





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





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





Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company
..  Seethe
definitions of “accelerated filer,” “large accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
Accelerated Filer [_]  Accelerated filer
[_]  Non-accelerated
filer   [_]   Smaller reporting company
[X]





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





The
aggregate market value of the issuer’s Common Stock held by non-affiliates of
the registrant on March 31, 2008 was approximately $3,828,000 based on the
closing price as reported on the NASD’s OTC Electronic Bulletin Board
system.





As of
December 15, 2008 there were 17,125,723 shares of ASI Technology Corporation
Common Stock, par value $.02, outstanding.













TABLE
OF CONTENTS


PART
      IITEM
      1.
              Business
              3ITEM
      1A.
              Risk
      Factors
              12ITEM
      1B.
              Unresolved
      Staff Comments
              15ITEM
      2.
              Properties
              15ITEM
      3.
              Legal
      Proceedings
              16ITEM
      4.
              Submission
      of Matters to a Vote of Security Holders
              16PART
      IIITEM
      5.
              Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              16ITEM
      6.
              Selected
      Financial Information
              17ITEM
      7
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              17ITEM
      7A.
              Quantitative
      and Qualitative Disclosures about Market Risk
              21ITEM
      8.
              Financial
      Statements and Supplementary Data
              21ITEM
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              38ITEM
      9A(T).
              Controls
      and Procedures
              38ITEM
      9B.
              Other
      Information
              39PART
      IIIITEM
      10.
              Directors,
      Executive Officers and Corporate Governance
              39ITEM
      11.
              Executive
      Compensation
              41ITEM
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              44ITEM
      13.
              Certain
      Relationships and Related Transactions and Director
      Independence
              45ITEM
      14.
              Principal
      Accounting Fees and Services
              46PART
      IVITEM
      15.
              Exhibits,
      Financial Statement Schedules
              46SIGNATURES
              48





FORWARD-LOOKING
STATEMENTS





IN
ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE “SAFE HARBOR” PROVISIONS
THEREOF. THEREFORE, THE COMPANY IS INCLUDING THIS STATEMENT FOR THE EXPRESS
PURPOSE OF AVAILING ITSELF OF THE PROTECTIONS OF SUCH SAFE HARBOR WITH RESPECT
TO ALL OF SUCH FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN
THIS REPORT REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS
AND FINANCIAL PERFORMANCE. EXAMPLES OF FORWARD LOOKING STATEMENTS INCLUDE THE
EXPECTATIONS OF THE COMPANY WITH RESPECT TO ITS STRATEGY. THERE CAN BE NO
ASSURANCES THAT THE COMPANY'S FINANCIAL GOALS WILL BE REALIZED. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED HEREIN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS REPORT, THE
WORDS “ANTICIPATES,” “ESTIMATES,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FUTURE,”
“GOAL,” “OBJECTIVE” AND SIMILAR EXPRESSIONS GENERALLY IDENTIFY FORWARD-LOOKING
STATEMENTS. READERS ARE CAUTIONED TO CONSIDER THE SPECIFIC RISK FACTORS
DESCRIBED BELOW AND NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE
HEREOF.





In this
report, the terms “ASI,” “the Company,” “we,” “us,” and “our” refer to ASI
Technology Corporation.




2





Part
I





ITEM
1. BUSINESS.





Introduction




ASI
Technology Corporation (“ASI”) is incorporated under the laws of the State of
Nevada. We are primarily a specialty finance company that provides financing for
commercial, residential and venture capital loans. In December 2006, we
incorporated a wholly-owned subsidiary, ASI Capital Corporation (“Subsidiary”)
and conduct specialty finance real estate loan activities through this
subsidiary. Our limited other activity has been focused on the development of
plasma technology for sterilization and decontamination that we licensed in
January 2003. We have no current plans or commitments regarding any other
operating or development activities, however we have acquired other technologies
in the past and may pursue other technology or acquisitions or mergers in the
future.





We have
two reportable segments, specialty finance and technology
development.





Our
specialty finance activities to date have focused on making real estate loans
and corporate and other loans. Real estate notes generally are advanced to
“bridge” finance projects during the development, zoning or permitting phase
from land acquisition to the start of construction or resale. Our real estate
notes are generally receivable over a term of up to one-year with varying
interest rates. Term extensions are sometimes granted when additional time is
required for development, zoning or permitting. Generally real estate related
notes are secured by deeds of trust or similar legal liens such as mortgages on
property but may be subordinate to a first deed of trust or other obligations.
Corporate and other loans are generally collateralized by various corporate or
other assets and are generally for terms up to one year. All these types of
loans are considered high risk and are not insured or guaranteed by any other
party or any government agency.





The
credit and capital markets have deteriorated on a global basis over the last two
years, triggered initially by credit problems in the United States subprime
residential mortgage sector. In 2008, the “subprime contagion” spread to
virtually every debt market, including the market for real estate loans, causing
dramatic declines in asset values, widespread illiquidity and massive losses at
many financial institutions. The mortgage banking environment has experienced
considerable strain from rising delinquencies and liquidity pressures. This
environment has adversely affected real estate values and the volume of real
estate activities. Current real estate, credit and economic conditions are
affecting real estate values and activity which has and likely will continue to
negatively affect the ability of our borrowers to refinance or otherwise repay
outstanding notes or our ability to work out of troubled loans. Holders of our
individual notes have been affected by such general industry risks increasing
our exposure to loss.





We
believe our management’s experience in the Nevada market and their direct
involvement in the underwriting process of each new loan or extension of an
existing loan along with the limited number of real estate projects financed,
reduces our exposure from the general risks associated with the real estate
industry. However, we are seeing increased requests for extensions, increased
non-performing loans and suffered our first loan losses during
2008.  Our management has experience in managing loan delinquencies,
restructuring, workouts and foreclosures. The partial or full loss on any one
note has an adverse affect on our financial condition or results of operations
due to limited number and diversification of notes.





Our
Subsidiary was granted a Nevada Mortgage Banking license license in February
2007 and the license is currently in good standing.





Our
investment in technology has focused on our licensed plasma sterilization and
decontamination technology. This patented method uses low voltage to produce
high volumes of atmospheric pressure plasma also known as room temperature or
“cold plasma”. Cold plasma has been demonstrated in government and university
studies that we sponsored and in other published research to be useful for
sterilization and decontamination. This technology is in the early stage of
development and there can be no assurance that commercial viability will be
achieved. Our plan is to develop prototype devices to validate and demonstrate
this technology for commercial and government applications and license the
technology to others.





We were
incorporated on January 9, 1931 and have evolved through a number of name
changes and equity reorganizations. We have 31,000,000 shares authorized, $0.02
par value, of which 30,000,000 shares are designated common stock and 1,000,000
shares are designated preferred stock. As of the date of this annual report,
there were 17,136,723 shares of common stock issued and 17,125,723 shares
outstanding (11,000 shares are held as treasury stock). There are no shares of
preferred stock issued or outstanding.




3





Our
principal executive offices are located at 980 American Pacific Drive, Suite
#111, Henderson, Nevada 89014. Our telephone number is (702) 734-1888 and our
Internet Web site is www.asiplasma.com.
The information on our Web site is not part of this annual report.





Specialty
Finance Business





Strategy





The
investment objective of our specialty finance activities is to generate current
income and cash flow from high-interest notes to real estate developers and
other commercial, residential and corporate borrowers. Our business strategy is
to grow our business from internally generated funds. We may in the future seek
additional equity or debt financing to grow our business. To date, we have not
employed participating investor note financing or other institutional financing.
Our net income has depended on our net interest income, which is the difference
between interest and fee income from notes and investments, referred to as
interest-bearing assets, and interest expense on investor notes, referred to as
interest-bearing liabilities. In July 2008, we retired through warrant
conversion ($569,286) and cash payment ($430,714) the $1,000,000 outstanding
balance of subordinated notes payable and at September 30, 2008 we had no
investor note financing or debt other than trade accounts payable and accrued
expenses.





As a
non-conventional lender, we are more willing to invest in real estate or other
commercial loans to borrowers that conventional lenders may not deem to be
creditworthy. Because of our willingness to fund higher risk loans, borrowers
are more willing to pay us an interest rate that is typically at least five to
twelve points above the rates generally charged by conventional lenders. Most of
our real estate loans are made on properties being developed through zoning or
construction permitting and is not generating any income to the borrower.
Generally, the value of our collateral has declined subsequent to loan
origination due to national and local economic conditions and in some cases is
less than the amount receivable. The completion of improved zoning or permitting
by the borrower has historically had a favorable impact on collateral values but
this impact may be muted by the effect of such national and local economic
conditions.





These
“balloon payment” loans and other bridge loans are riskier because repayment
depends on the borrower’s ability to refinance the loan as the property is
developed or resell the property. Such loans may require extensions due to
delays in development, refinancing or sale. We evaluate extensions on a
case-by-case basis using basically the same criteria as for new credit and
generally require additional points or a principal reduction. We also consider
each loan or extension considering our ability to hold the underlying collateral
in case of temporary declines in collateral values. Our strategy is generally to
work with borrowers to restructure or recollateralize any past due notes not
qualifying for normal extensions prior to instituting formal collection or
foreclosure.





The
current tighter credit markets make conventional refinancing of real estate
loans more difficult making it more difficult for borrowers to retire notes such
as those held by us. However, we believe these conditions may create
opportunities for placing new funds in investments with lower debt to value
ratios and greater security due to unwillingness of conventional lenders to
finance such projects. We have no commitments for any such
investments.





We may
seek to participate in other types of notes, loans, real estate investments or
other ventures in the future. We may also participate in capital appreciation
through project equity or revenue participation or through other methods.
Capital appreciation with corporate loans or investments may consist of stock,
warrants, other equity or royalties. We have no commitments for any such loans
or investments.





Operations





Our
corporate and finance offices are located in Henderson and Las Vegas, Nevada. We
operate as a direct lender and perform the record keeping, note administration
and servicing functions with regard to our note assets and liabilities. Our real
estate lending activity is generally conducted by our Subsidiary and technology
development and venture activities through ASI.





Our
business strategy is to grow and enhance our profitability by increasing our
portfolio of notes by reinvesting any profits in our business. We may also
expand our capacity in the future through additional placements of equity or
debt, through institutional or bank financing or through investor notes or other
sources. We do not expect that we will need to add additional personnel or
expanded facilities during the next twelve months.





4




Lending
Activities





We do not
advertise to the public or the commercial sector as being a buyer or seller of
notes secured by real property or as making loans secured by real property or
otherwise. We do not seek participations by others in any loans and no other
party currently has a beneficial interest in any of our notes. We also do not
solicit or accept loan applications.





Our
outstanding notes are concentrated in Nevada with two out-of-state notes
($400,000 California and $1,000,000 Utah) at September 30, 2008.





We rely
primarily on our management’s contacts and referrals from attorneys, title
companies and other industry professionals to identify prospective borrowers.
Management selects the projects and loans and makes all investment decisions. We
have no formal policies for credit and collateral evaluation, collections or
foreclosure, timing of charging off uncollectible loans, and recovery and
management makes these decisions based on experience on a case-by-case basis.
However, management generally considers factors such as the following in
evaluating the credit worthiness of each opportunity:





·
              Loan
      to property value, generally supported by property
    appraisals


·
            Financial
      statements, background and experience of the
  borrower


·
            Location
      and condition of the
collateral





We deny
or approve loans based on our capacity, the above factors and other factors
including negotiating interest rates on a case-by-case basis. Should our
originations increase, management expects to establish more formal
procedures.





We may
request corporate or personal guarantees, interest rates or repayment terms from
prospective borrowers that may result in that borrower electing to take a loan
from other lenders, including entities that are affiliated with our
president.





We
evaluate loans for collectability at least quarterly through a review of each
loan, its payment status, the perceived value of the collateral, our ability to
protect subordinate positions in the collateral, if applicable, information from
borrowers and any other available information in accordance with appropriate
accounting standards including the guidance of SEC Staff Accounting Bulletin No.
102 – “Selected Loan Loss Allowance Methodology and Documentation
Issues.”





Our note
receivable portfolio consisted of the following types of notes at the dates
indicated:




Range
      ofStated
              
              
              September
      30,Description
              
              Interest
      Rates
              
              
              2008
              
              
              2007Land
      acquisition and development notes:Secured
      by first trust deeds
              
              
              15%-18%
              
              
              $
              2,747,025
              
              
              $
              2,747,025Secured
      by second trust deeds
              
              
              15%-18%
              
              
              
              1,268,000
              
              
              
              1,389,400Secured
      by third trust deeds
              
              
              24%
              
              
              
              1,000,000
              
              
              
              1,000,000Residential
      real estate second trust deed
              
              
              24%
              
              
              
              54,648
              
              
              
              85,000Corporate
      notes secured by asset liens
              
              
              18%-24%
              
              
              
              400,000
              
              
              
              845,000Other
      notes
              
              
              24%
              
              
              
              12,800
              
              
              
              17,8005,482,473
              
              
              
              6,084,225Unearned
      fees and other
              
              
              
              
              
              
              (2,000
              )
              
              
              (176,753
              )Allowance
      for loan losses
              
              
              
              
              
              
              (2,818,900
              )
              
              
              -$
              2,661,573
              
              
              $
              5,907,472





At
September 30, 2008, all notes receivable mature within twelve months. Unearned
fees and other includes loan origination fees, points and prepaid interest from
borrowers that are amortized to interest income over the estimated average life
of the notes under a method that approximates the effective interest rate
method. Direct loan origination fees and costs have been immaterial to
date.





We
believe our real estate related collateral has declined since loan origination
due to national and local economic conditions and in some cases is less than the
outstanding balance. At September 30, 2008, we considered six notes aggregating
$3,521,348 as impaired and had an allowance for loan losses of $2,818,900. We
expect we may be required to extend, restructure or foreclose on collateral
related to certain impaired notes.




5




The
following table summarizes finance activity related to notes receivable for the
periods presented:




Year
      endedSeptember
      30,2008
              
              
              2007Balance,
      beginning of year
              
              $
              5,907,472
              
              
              $
              1,785,000Originations
              
              
              500,000
              
              
              
              4,848,925Note
      purchased from related party
              
              
              -
              
              
              
              760,000Notes
      sold or assigned to related party
              
              
              -
              
              
              
              (148,083
              )Deferred
      finance charges, net
              
              
              174,753
              
              
              
              (176,753
              )Loan
      loss provision
              
              
              (2,948,370
              )
              
              
              -Principal
      collected
              
              
              (972,282
              )
              
              
              (1,161,617
              )Balance,
      end of year
              
              $
              2,661,573
              
              
              $
              5,907,472




In
September 2008, we assigned our $1,000,000 undivided interest in a
non-performing note receivable and related deed of trust payable by an
unaffiliated borrower to a related party entity in exchange for a $1,000,000
unsecured note. This entity is considered a variable interest entity and has
been consolidated with our financial results. See discussion of non-performing
assets below.





Non-Performing
Assets





We define
non-performing assets as non-accrual notes and collateral (generally real
estate) owned and held for sale. Notes that are delinquent in payment for more
than 30 days are evaluated by management for collectibility and notes delinquent
more than 90 days are considered in non-accrual status (and non-performing) when
management determines that future earnings on the notes may be impaired. While
in non-accrual status, collections on notes, if any, are recorded as collection
of note principal and no interest is recorded.





In
September 2007, we sold two notes to a related party. See “Conflicts of Interest
and Related Party Note Transactions” below. These notes were 30 and 60 days past
due in principal and interest payment and the borrowers were seeking amended or
restructuring terms that were unacceptable to us. If we had been unable to sell
these notes to a related party the notes would have become non-performing, and
we may have had to provide an allowance for loan losses related
thereto.





We had
one non-performing note at September 30, 2008, with a principal balance of
$1,000,000. In September 2008, we assigned our $1,000,000 undivided interest in
such non-performing note and related deed of trust payable by an unaffiliated
borrower to DavCap, LLC (“DavCap”), a consolidated variable interest entity 50%
owned by our president and director, of which ASI is the primary beneficiary
under FASB Interpretation (“FIN”) No. 46R, Consolidation of Variable Interest
Entities (Revised). The note was due in July 2008. The assignment was
made without recourse or participation.





The
$1,000,000 note receivable held by DavCap is included in notes receivable and
has a full allowance for loan loss due to improbability of collection. We expect
to consolidate DavCap as long as it continues to qualify for consolidation as a
variable interest entity. Subsequent to September 30, 2008, we received payments
of $119,500 on the unsecured (effectively, intercompany) note.





During
the year ended September 30, 2008 we had seven additional impaired notes that we
provided a loan loss reserve of $1,948,370 and wrote off $129,470 of the notes.
There is no assurance of any future recovery.





We may be
required to expend funds to foreclose on problem notes in the future and, to
protect our asset, may need to repay or assume superior loan positions, or
negotiate an alliance with other inferior positioned lenders, further increasing
exposure to a particular project or collateral position. Should such
circumstances arise we may not have the resources to accomplish such
objective.




6


Allowance for Loan
Losses





Our
allowance for loan activity is summarized below:




Year
      endedSeptember
      30,2008
              
              
              2007Allowance,
      beginning of year
              
              $
              -
              
              
              $
              -Provision
              
              
              2,948,370
              
              
              
              -Charge-offs
              
              
              (129,470
              )
              
              
              -Allowance,
      end of year
              
              $
              2,818,900
              
              
              $
              -


We review
the need for an allowance for loan losses periodically based on a specific
review of each note pursuant to either Statement of Financial Accounting
Standards (“SFAS”) No. 5, Accounting for Contingencies,
or SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. Impairment occurs when it is deemed
probable we will not be able to collect all amounts due according to the
contractual terms of the loan. Impairment is then measured based on the present
value of expected future cash flows or the fair value of the collateral, if the
loan is collateral dependent. Upon measurement of impairment, we establish an
allowance for loan losses and a corresponding charge to earnings through the
provision for loan losses. Write-off of a note decreases the allowance and
changes in estimates of collateral values can increase or decrease the
allowance. Significant judgments are required in determining impairment, which
includes making assumptions regarding the value of the loan, the value of the
real estate or other collateral that secures the loan and any other applicable
provisions, including guarantees, if any.





At
September 30, 2008, we considered six notes aggregating $3,521,348 as impaired
with a related allowance for note losses of $2,818,900. We expect we may be
required to extend, restructure or foreclose on related collateral on certain
impaired notes during fiscal 2009.The mortgage banking environment has been
experiencing considerable strain from rising delinquencies and liquidity
pressures. The current environment appears to be affecting real estate values
and the volume of real estate activities. We believe the value of our real
estate related collateral has declined since loan origination due to national
and local economic conditions and in some cases is less than the outstanding
receivable balance. Merchant builders are the typical purchasers of raw land
zoned and likely intended for residential development near existing
infrastructure and similar parcels under development like those that
collateralize some of our notes receivable. Many merchant builders are not
currently in the market for such land parcels or are willing to pay only prices
significantly reduced from prior years.  Sellers have not been willing to
accept significantly reduced prices, and management expects this trend to
continue until there is a balance in the supply and demand for single-family new
and resale homes.   We believe this imbalance to be a temporary
condition that will continue for approximately another 12 to 18 months. If
circumstances require us to foreclose on any of residential raw land collateral
in the near future, we estimate that a holding period of up to approximately 24
months is likely before certain such collateral could be liquidated on terms
acceptable to us.





Market Area, Credit Risk
Concentration and Competition





Our
specialty finance business has been limited to a few notes to a few customers.
Three customers accounted for 52%, 24% and 13% of interest and fees on notes for
fiscal 2008 and three customers accounted for 39%, 27% and 15% of interest and
fees on notes for fiscal 2007. A single customer for this disclosure includes
affiliated entities under common control. As of September 30, 2008, the
Company's gross amount of notes receivable of  $5,482,473 is comprised
of nine notes advanced to various entities including two notes ($1,268,000) from
entities controlled by one developer and three notes ($2,747,025) from another
developer. Due to the limited number of notes and the concentrated amounts,
non-payment of interest or a default on a note has a material adverse impact on
our operations.





We do not
believe competition is a factor affecting our business but may be so in the
future if we substantially increase our originations. At that time, competition
will be the providers of non-conventional real estate loans, that is, lenders
who offer short-term high-interest, or short-term high-interest and equity-based
loans on an expedited basis for higher fees and rates than those charged by
conventional lenders. Also conventional lenders may from time to time make
riskier high-interest loans thus being competitive. These conventional lenders
include commercial banks, thrifts, conduit lenders, insurance companies,
mortgage brokers, pension funds and other financial institutions. No particular
competitor dominates the market but they have substantially greater financial
and other resources than us. Our venture capital type loans that are unrelated
to real estate, face a similar competitive environment.





7




Conflicts of Interest and
Related Party Lending Transactions





Our
officers and directors and consulting personnel devote only part-time services
to our Company and have other employment and business interests to which they
devote attention and will continue to do so, resulting in potential conflicts of
interest.





Our
president and other directors and officers, in addition to being part-time and
having other business interests, also invest in real estate and venture loans
through other entities. There is a risk that management may select a loan that
has different returns or risk profile than loans not so selected and funded
through other entities. There are no restrictions or guidelines on how
management will determine which loans are appropriate for us and which are
appropriate for other entities in which management may have an interest.
Management has no obligation to provide us with any particular
opportunities.





In March
2007, we purchased from an entity owned by our president a 15% note secured by a
deed of trust payable by an unaffiliated borrower with a stated principal of
$760,000 with an original issue date of December 28, 2006, and a due date of
December 28, 2007. The purchase price paid represented the cash advanced under
the note adjusted only for the pro rata interest and finance charges to the
purchase date. Management determined this note met our underwriting requirements
and the purchase allowed us to deploy new equity funds more rapidly than seeking
a new loan.





Effective
September 21, 2007, we sold two 24% notes receivable from an unaffiliated
borrower with aggregate outstanding principal of $148,083 to an entity owned by
our president. The cash price received for the notes was $155,362 representing
the outstanding principal and accrued unpaid interest at the stated rate of 24%
per annum through the date of sale. We waived late fees of $2,809 owing by the
unaffiliated borrower. This borrower was in arrears on payments and seeking
amended terms that did not meet our underwriting objectives.





As
described above, in September 2008 we assigned our $1,000,000 undivided interest
in a note and related deed of trust payable by an unaffiliated borrower to a
related party variable interest entity that is consolidated with our
operations.





We have
no plans or commitments to purchase or sell notes receivable to related parties
but may do so on a case by case basis in the future.





Regulation





We are
not a real estate investment trust (“REIT”), a mutual fund or an investment
company within the meaning of the Investment Company Act of 1940, and we do not
believe we are subject to any regulation thereunder.





Even
though our lending activities are limited, we believe we are subject to
licensing by the State of Nevada Mortgage Lending Division and accordingly, we
applied for and in February 2007 our Subsidiary was granted and currently
maintains a Nevada Mortgage Banking license. Under applicable Nevada law, the
Nevada Mortgage Lending Division has broad discretionary authority over lending
activities, including the authority to conduct periodic regulatory audits of a
lender’s operations. We may also become subject to the Equal Credit Opportunity
Act of 1974, which prohibits creditors from discriminating against loan
applicants on the basis of race, color, sex, age or marital status, and the Fair
Credit Reporting Act of 1970, which requires lenders to supply applicants with
the name and address of the reporting agency if the applicant is denied
credit.





There can
be no assurance that laws, rules or regulations will not be adopted in the
future that could make compliance much more difficult or expensive, restrict our
ability to make loans, limit or restrict the amount of interest and other
charges earned on loans by us, or otherwise adversely affect our business or
prospects.





Management and
Personnel





We have
one full-time employee in our specialty finance business and our two executive
officers provide only part-time services to our company. Our current executive
officers are not compensated for their services other than for attendance at
board and committee meetings, equity participation and the possibility of future
bonuses. We employ technical consultants and others on a contract or
project-by-project basis. We have not experienced any work stoppages and are not
a party to a collective bargaining agreement.





8





Plasma
Sterilization and Decontamination





Effective
January 1, 2003, we entered into an exclusive license agreement with the
inventor of U.S. Patent #6,232,723 granting us worldwide exclusive rights to the
patent and related technology for sterilization, decontamination and industrial
processing for a minimum term of 15 years, subject to certain commercialization
performance requirements after the third year. We believe we meet the
commercialization requirements to maintain the exclusive license. If we do not
meet the commercialization requirements, our license would revert to
non-exclusive. The agreement also provides for future royalty payments to the
licensor based on product sales or sublicense fees. The inventor has been a
consultant to us from time to time on various plasma technologies. The licensed
technology was independently developed by the inventor prior to any of his work
for us.





Plasma
Overview





The
different states of matter generally found on earth are solid, liquid, and gas.
Sir William Crookes, an English physicist, identified a fourth state of matter,
now called plasma, in 1879. Plasma is by far the most common form of matter.
Plasma in the stars and in the tenuous space between them makes up over 99% of
the visible universe and perhaps most of that which is not visible. Plasmas are
created each time a fluorescent light is turned on. Jets of plasma spin and
maneuver orbiting satellites. Important to our technology, plasmas are
conductive assemblies of charged and neutral particles and fields that exhibit
collective effects. Plasmas carry electrical currents and generate magnetic
fields.





Plasma Sterilization and
Decontamination





Atmospheric
pressure plasmas or room temperature, non-thermal plasmas generated at
relatively low energy levels are known as cold plasmas. Cold plasmas have
demonstrated effectiveness in rapid sterilization, decontamination and
industrial processing. When generated, cold plasma is a bluish substance that
resembles a fog like gas.





The
plasma process produces a sterilization effect using lower concentrations of
sterilant but with a higher reactivity than is possible with normal gases. This
activity disappears quickly when power is removed, thereby dissipating the
toxicity of the sterilant rapidly. Cold plasmas allow for rapid decontamination
of clothing, equipment and personal gear in military settings, and for
sterilization of medical equipment, food and packaging in commercial settings.
Present methods of sterilization and decontamination often require hours and may
generate damaging heat or other toxic side effects or require a vacuum; cold
plasma can sanitize often in mere minutes without toxic byproducts and at
atmospheric pressure.





Cold
plasmas generated using high power are also employed in industry, in
semiconductor manufacturing and flat screen televisions. Historically, such
plasmas have been generated in vacuum conditions with other gases or chemicals
or with very high power, making them cost, weight and size prohibitive for
broader or portable applications.





The
licensor, Dr. Igor Alexeff, developed, tested and patented a low power plasma
discharge apparatus that operates at atmospheric pressure to generate a plasma
cloud of activated oxygen in air. It produces a cloud of ionized gas at
atmospheric pressure and at low temperatures. The novel technique employs a
resistive barrier discharge by using ceramics to prevent unwanted arcing and
achieve an even, broad, high volume and efficient discharge. The generated cold
plasma cells destroy molecules using highly reactive free oxygen radicals –
atoms or molecules that have unpaired electrons that when paired with bacteria,
rapidly destroy the targeted organism. The cold plasma also contains a large
volume of hydroxyl ions, ozone and atomic oxygen to rapidly oxidize most
unwanted bacteria. We believe cold plasma treatment does not harm the skin or
body and has no effect on fragile plastic or steel instruments or
devices.





The U.S.
Air Force has been a leading sponsor of cold plasma research. The Persian Gulf
War in 1991 accelerated the need for rapid means of sterilization and
decontamination. By disrupting the integrity of cell membranes, cold plasma
offers a rapid, simple and economical means of destroying even the hardiest
bacterial spores in minutes compared to the hours required by alternative
methods. Independent research by others has demonstrated that cold plasma can
rapidly break down complex chemicals found in nerve gas and deadly biological
agents like anthrax.





We tested
our technology under contract for the U.S. Air Force in 2003 targeting a use to
decontaminate forward deployed equipment and facilities. We are expanding our
knowledge of how our cold plasma method kills viruses and bacteria, measuring
its efficacy in controlled studies sponsored by us and others, evaluating
commercial application and developing prototypes for demonstration to
prospective licensees and as a test platform for testing with bacteria and other
agents.




9




We have
sponsored Dr. Alexeff and students at the University of Tennessee, Knoxville to
test our method of sterilization and decontamination. Dr. Alexeff has also
performed his own continuing research. During the last three years, important
published and unpublished scientific reports on these experimental results
provided evidence to us that:




·
              Concentrations
      of E. Coli bacteria can be effectively killed in 4-10 minutes with the
      plasma discharge.


·
            The
      plasma discharge works away from the generating surface indicating the
      possibility of circulating the plasma away from the generating
      source.


·
            The
      plasma discharge is capable of penetrating a sealed standard business
      envelope and kill E. Coli bacteria in a short time without any application
      of heat to the envelope.


·
            The
      charged particles created in the process have separate biological killing
      properties distinct from the ozone also included in the discharge (ozone,
      is a primary commercial decontamination
  method).


·
            The
      plasma kill effect is accelerated in combination with hydrogen
      peroxide.


·
            The
      discharge is effective in not only rapidly killing bacteria but also
      inactivating resistant spores, a major goal of food
      sterilization.


·
            The
      discharge was effective in a hospital setting to rapidly kill the common
      bacteria responsible for staph
infections.





There are
competing methods to generate cold plasmas including using electron beams,
corona discharges, dielectric barrier discharges, pin array discharges and
others. Often RF (radio frequency) power supplies are employed to create
atmospheric gaseous discharges requiring high power and emitting high electro
magnetic radiation. Our plasma is generated with low non-RF power supplies.
Another important distinguishing feature of our method is the use of ceramic
discharge electrodes that produce an even diffuse discharge in the intended
area, whereas traditional materials often result in a small arc greatly
minimizing the discharge area. Our research supports that cold plasma is an
effective bacteria sterilizer and that our method produces bacteria killing
agents distinct from ozone generated in the process. Our research efforts have
focused on building and testing prototypes with a focus on selecting, sourcing
and evaluating various critical component options.





Our
research activity was limited in fiscal 2007 and 2008 as we expanded our
specialty finance business. Management has not determined the level of future
resources to be employed on plasma development in fiscal 2009, if
any.  These decisions will be based in part on an evaluation of
projects, progress and achievements with this technology and the availability of
financial resources.





Plasma Market Opportunities
and Strategy





Some
known applications of cold plasma that we believe we can target
include:




·
              Combating
      bacteria warfare


·
            Sterilization
      of medical instruments


·
            Rapid
      room temperature sterilization of food, including protection from
      Salmonella bacteria


·
            Destroying
      allergens or decontaminating homes, packages, ships, businesses or other
      environments


·
            Surface
      modification of materials, e.g. to cause water or paint to stick to
      plastics


·
            Combating
      the spread of staph infections in hospitals and
    clinics





We expect
to explore commercial markets focusing primarily on medical, food and package
sterilization. We believe portability and efficiency are key advantages, but the
lack of heat or steam or toxic side effects offers additional advantages over
some existing methods of sterilization and decontamination. We also believe our
methods could be adapted to decontaminate buildings, homes, cruise ships and
other facilities.





We are in
early stages of testing our method and evaluating opportunities. Our goal is to
prove our method in military and commercial applications. Management believes
the next major development milestone is to demonstrate and test improved
prototypes. Our strategy is to license others to manufacture devices. Our
efforts are at a early stage and we do not have a timetable or an estimate of
the cost of developing these applications and obtaining the necessary approvals
for sale or use of any devices. There can be no assurance we can develop the
plasma sterilization and decontamination technology successfully or that this
technology can be commercialized.





Plasma Sound
Reduction





We
purchased certain sound reduction technology in 2000. We are obligated to pay
royalties on product sales, license revenues and any sale proceeds from the
further sale of the technology for the term of the patent expiring in 2017. We
are not currently developing this technology and have no present plans to do
so.




10




Competition





Our
current technology investment and development business is limited to one
technology. The market for sterilization and decontamination is highly
competitive, with many companies supplying equipment for food and facility
decontamination and medical sterilization. Steam, chemicals and acids, radiation
and ultraviolet light are just some of the methods employed for sterilization
and decontamination. One example is a plasma system using hydrogen peroxide that
has been used for a number of years by a division of Johnson & Johnson
Medical, Inc. Another example is TSO3, Inc., a Canadian company that recently
obtained approval for an ozone medical sterilizer. The many companies engaged in
these activities are larger and have substantially greater resources than we do.
We may not be able to compete successfully in this market. The U.S. government
is also sponsoring cold plasma research by universities and others. Others have
developed cold plasma generation methods and systems. It is possible that such
organizations have developed or may develop in the future plasma generation
methods and systems superior to those envisioned by us.





Regulation





Medical
facilities, medical equipment and food processing and distribution are all
highly regulated. It is likely that any equipment developed for sterilization or
decontamination will be subject to existing government regulations and require
advance approval prior to sale or use. This could increase the costs of
development and commercialization and extend the time to market for any devices
developed with our plasma sterilization or decontamination
technology.





Intellectual Property
Rights





Dr.
Alexeff owns one U.S. patent on the plasma sterilization and decontamination
technology we have licensed. We may file additional patents on this technology
as we progress with development. No foreign rights have been applied for to date
and we may therefore be unable to protect any rights outside of the United
States. We purchased and own one U.S. patent on our plasma sound reduction
technology.





Our
policy is to file patent applications to seek protection for novel features of
our technologies. There can be no assurance that any additional patents on our
technology will be granted.





We
believe that a strong patent position is important to compete effectively if we
license our plasma technology. The technology industry is characterized by
frequent litigation regarding patent and other intellectual property rights.
Others, including academic institutions and competitors, may hold patents in
competing areas. Although we do not believe any existing patents would inhibit
our ability to license our plasma technology, there can be no assurance that
others will not assert claims in the future. There can be no assurance that such
claims, with or without merit, would not have a material adverse effect on our
financial condition or results of operations.





The
validity of our existing patent, or that licensed by us, has not been
adjudicated by any court. Competitors may bring legal action to challenge the
validity of our existing or future patents or may attempt to circumvent the
protection provided by such patents. There can be no assurance that either of
such activities by competitors would not be successful. The failure to obtain
patent protection or the loss of patent protection on our technologies or the
circumvention of our patents, by competitors could have a material adverse
effect on our ability to compete successfully.





Research and
Development





For the
year ended September 30, 2008 and 2007 we expended $14,902 and $5,465,
respectively, on research and development. Future levels of research and
development expenditures will vary depending on the timing of further technology
development and the availability of funds to carry on additional research and
development on currently owned technologies or in other areas. We currently have
no sources of sponsored research and development.





11




ITEM
1A. RISK FACTORS





Cautionary
Note on Forward Looking Statements


This
report contains a number of forward-looking statements that reflect our current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words “anticipates,” “believes,” “expects,” “intends,” “future,” “goal,”
“objective” and similar expressions identify forward-looking statements. Readers
are cautioned to consider the specific risk factors described below and not to
place undue reliance on the forward-looking statements contained herein, which
speak only as of the date hereof. We undertake no obligation to publicly revise
these forward-looking statements, to reflect events or circumstances that may
arise after the date hereof.





A. 
Risks Related to Our
Business and Financial Results





Our
limited operating history makes evaluating our business difficult.  Until we began
investing in new technology in August 1999, we were inactive. Our specialty
finance activities only commenced in August 2005. As a result, we have limited
operating history with which you may evaluate our business. Our operations are
subject to all of the risks inherent in an early stage business enterprise. The
likelihood of our success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the growth of new business, as well as the competitive and regulatory
environments in which we operate.





Our
revenues would be adversely affected by non-payment or default on notes
receivable.We expect
interest from high-interest notes due to us to provide substantially all our
revenues during the next twelve months. Non-payment of interest or additional
note losses or defaults would adversely affect our operations and cash flow.
Foreclosure or other actions required by us or future defaults may require time
and may be costly and there is no assurance of adequate recovery from any such
actions. We may not be able to act on our security and the value of such
security, if any, may not be sufficient to protect us from additional losses.
Our notes are not guaranteed by any government agency. There is no secondary
market for the notes we hold.





Our note
portfolio consists of a limited number of notes concentrated geographically and
from a limited number of borrowers subjecting us to a risk of significant loss
from any default.
Our notes receivable are concentrated in Clark County, Nevada with a limited
number of borrowers, subjecting us to material risks from any nonpayment. Due to
this lack of diversification, non-payment of interest or a default on any one or
more notes or one or more borrowers has a material adverse impact on
operations.





Changes
in the economic conditions in our lending areas could have a material adverse
impact on our financial condition, the ability of our borrowers to repay their
notes and the value of the real estate and other collateral securing those
notes. Further negative changes that arise in the economy and/or real
estate market of the areas in which we make or hold loans could further
materially adverse impact our net income, the ability of our borrowers to make
payments under their loans, and any recovery we can obtain by proceeding against
the collateral securing those loans. The national and local real estate
economies have weakened during the past two years in part due to the
widely-reported problems in the sub-prime mortgage loan market. As a result,
real estate values across the country have decreased and the general
availability of credit, especially credit to be secured by real estate, has also
decreased. These conditions have made it more difficult for real estate owners
and owners of loans secured by real estate to refinance or sell their assets at
the times and on the terms or at the prices they desire.





Our
results of operations depend significantly on economic and real estate
conditions in the Clark County, Nevada area.Our specialty finance
operations depend primarily upon the general economic and real estate conditions
of the Clark County, Nevada area. The local economic and real estate conditions
in the area have a significant impact on the demand for our loans as well as the
ability of our customers to repay loans through refinancing, sales or otherwise.
These conditions also impact the value of the collateral securing loans. Local
economic conditions have shown decline in the last fiscal year increasing real
estate foreclosures and reducing the volume of real estate activity and thereby
increasing the risks of our lending operations. If there is a major downturn in
real estate values and we experience significant additional loan defaults in
excess of amounts reserved for note losses, we may not be able to prevent an
adverse affect on our financial condition or results of operations. A continued
decline in general economic conditions or inflation, recession, acts of
terrorism, outbreak of hostilities or other international or domestic
occurrences, unemployment, changes in securities markets or other factors could
further impact these local economic conditions and, in turn, have a material
adverse effect on our financial condition and results of
operations.




12




Our
allowance for loan losses may be insufficient and our estimate of losses may
change significantly in the future.We review the need for an
allowance for loan losses based on a specific review of each note based on
management’s evaluation of concentrations, specific credit risks including
individual note quality, payment and extension history, estimated current value
of our collateral and present economic, political and regulatory conditions. The
determination of an appropriate level of the allowance for note losses
inherently involves a high degree of subjectivity and requires management to
make significant estimates of current credit risks and future trends all of
which may undergo material changes. Changes in economic conditions affecting
borrowers, new information regarding existing loans, identification of
additional problem notes and other factors, both within and outside of our
control, may require an increase in the allowance for possible note losses or
charge-offs in future periods that may have a material adverse effect on our
financial condition and results of operations.





If we are
unable to sustain note originations on comparable terms to the past, our future
operating results could be adversely affected.  It is necessary
for us to continue to add new loans to reinvest proceeds from note payoffs. The
ability to continue to successfully originate high interest loans depends on a
variety of factors outside our control including interest rates, economic and
political conditions, regulations, changes in real estate values and
competition. Our interest income may decline if we are unable to reinvest
proceeds at comparable rates adversely affecting our results of
operations.





Our
technology is in an early stage of development and may not be
successful.  Our plasma
technology is still in the early stage of development. In order to attract
commercial interest, we believe we must develop additional prototypes in order
to demonstrate commercial viability. Our objective is to sell or license our
technology to companies that then must incorporate our technologies into
products (we do not presently intend to manufacture products ourselves). Even if
more prototypes can be developed successfully, we cannot provide any assurance
that commercially viable technology or products incorporating our technology can
be completed, developed, manufactured or sold due to the inherent risks of
technology development, limitations on financing, competition, obsolescence,
loss of key personnel and other factors. We cannot assure that there will be
future revenues. The development of new technology is subject to significant
delays and cost overruns from unforeseen technical hurdles and other factors. In
addition, as discussed below, we rely on outside consultants to provide us with
the necessary expertise to develop our technology rather than an in-house staff
of technology developers, thereby possibly increasing the costs and risks of
technology development.





If we
fail to establish and maintain personnel and strategic relationships, our
ability to develop our technology will suffer.  We currently rely
on management for the operation of our specialty finance business
and  consultants for the development of our plasma sterilization and
decontamination technology. Although we believe that there are other personnel
or consultants capable of working and managing our finance business or consult
regarding our technology, the loss or unavailability of any individual could
result in delays or added costs, impede development or adversely affect our
results of operations.





We also
believe that our success will depend, in part, on our ability to establish
additional personnel or strategic relationships to develop, produce and market
our technology.  Our success will also depend on our ability to
develop and maintain strategic development and marketing relationships with
producers, distributors, end-users and manufacturers or entities engaged in
supplying or servicing targeted markets. If we are unable to develop such
relationships, our chances for future success will be substantially
diminished.





Our
officers, directors and consulting personnel devote only part-time to our
business resulting in possible conflicts.  Our officers,
directors and consulting personnel devote only part-time services to our company
and have other employment and business interests to which they devote attention
and will continue to do so, resulting in potential conflicts of interest. There
can be no assurance these conflicts or the unavailability of full-time
management will not adversely impact our operations and chances for
success.





Our
management may face conflicts of interest relating to other investments in real
estate loans. Our president and other directors and officers, in addition
to being part-time and having other business interests, also invest in real
estate loans through other entities. There is a risk that management may select
a real estate loan that has different returns or risk profile than loans not so
selected and funded through other entities. There are no restrictions or
guidelines on how management will determine which loans are appropriate for us
and which are appropriate for other entities in which management may have an
interest. Management has no obligation to provide us with any particular
opportunities.




13




B. 
Risks Related to
Industries and Regulations Affecting our Business





The
specialty finance industry is highly regulated requiring licensing in multiple
jurisdictions for most types of loans; we may be subject to regulations and
costs that adversely impact or restrict our business.  Most finance
activities wherein an active business is conducted require some form of
registration and licensing. We believe we may be subject to licensing by the
State of Nevada Mortgage Lending Division and accordingly in February 2007 we
were granted a Nevada Mortgage Banking license. Under applicable Nevada law, the
Nevada Mortgage Lending Division has broad discretionary authority over lending
activities, including the authority to conduct periodic regulatory audits of a
lender’s operations. We may also become subject to the Equal Credit Opportunity
Act of 1974, which prohibits creditors from discriminating against loan
applicants on the basis of race, color, sex, age or marital status, and the Fair
Credit Reporting Act of 1970, which requires lenders to supply applicants with
the name and address of the reporting agency if the applicant is denied
credit.





If it
were determined we don’t have the proper licensing for any lending activity or
are in violation of any regulations of any jurisdiction we could incur costs or
restrictions that adversely affect our operations and business.





Our
technology markets are highly regulated and we may be subject to environmental
regulations.The
sterilization of medical devices and food, and the decontamination of items are
highly regulated and controlled in most major markets throughout the world.
Sterilization and decontamination devices, including our proposed products, must
be manufactured and tested to meet strict standards and often must be certified
for use. These factors increase the time and risk of introducing new technology.
We may not be able to obtain timely regulatory approvals for future products.
The failure to obtain any necessary approvals would adversely impact our
business.





Federal, state and local regulations
impose various controls on the storage, handling, discharge and disposal of
certain substances that may be used in anticipated plasma sterilizer
manufacturing processes or used as ingredients in decontamination or
sterilization equipment. We intend to conform and expect any contractors or
licensees to conform to governmental regulations applicable to operations and
facilities, including those related to environmental, land use, public utility
utilization and fire code matters. There can be no assurance that such
governmental regulations will not impose the need for additional capital
equipment or other process requirements or restrict our ability to continue or
expand our operations.





Competition
and obsolescence could preclude us from realizing revenues.  The markets for
our plasma technologies are extremely competitive. Many companies already
produce sterilization and decontamination equipment that are competitive to the
products or systems we intend to develop. These companies are larger and have
substantially greater resources than we do. We may not be able to compete
successfully in any of these markets. In addition, these companies expend
significant funds on research and development. They or others may have developed
or may succeed in developing technology and products that are more effective
than those proposed by us. There can be no assurance that we will be able to
compete successfully with such competitors or that additional competition will
not have a material adverse effect on our business.





Failure
to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002may
result in financial statements that areincomplete
or subject to restatement. Section
404 of the Sarbanes Oxley Act of 2002 requires significant procedures and review
processes of our system of internal controls. Section 404 requires that we
evaluate and report on our system of internal control over financial reporting
beginning with this Annual Report on Form 10-K for the year ended September 30,
2008. In addition, our independent registered public accounting firm will be
required to report on our internal controls over financial reporting for the
year ending September 30, 2010. The additional costs associated with this
process may be significant.





After
documenting and testing our system, management identified the lack of sufficient
industry specific internal accounting expertise to provide reasonable assurance
that our financial statements and notes thereto, are prepared in accordance with
generally accepted accounting principles (GAAP) as a material weakness in our
internal control over financial reporting. As a result our internal control over
financial reporting was not effective. Effective internal controls are necessary
for us to provide reliable financial reports. As a result of our internal
control over financial reporting being ineffective, investors could lose
confidence in our financial reports, and our stock price might be adversely
affected. In addition, remedying this or any future material weaknesses that we
or our independent registered public accounting firm might identify, could
require us to incur significant costs and expend significant time and management
resources. We cannot assure you that any of the measures we might implement to
remedy any such deficiencies would effectively mitigate or remedy such
deficiencies.




14




C.
 Risks Related to
Our Intellectual Property





Ourplasma
sterilization and decontamination technology is owned by us pursuant to an
exclusive license; the loss of which could adversely impact our
operations. Our plasma sterilization and decontamination technology is
owned pursuant to a license agreement providing us exclusive rights to the
technology through 2018 subject to certain exclusivity termination rights of the
licensor after January 1, 2006. Should the licensor notify us of intended
termination of exclusivity, we would have 90 days to provide reasonably
satisfactory evidence that we have attempted to sell licensed products as
defined in the agreement. Should we not prevail, then we could lose exclusivity
and our license could become nonexclusive which may reduce the value of this
technology to us and affect future operations should commercialization be
successful and we face direct competition from other licensees, if
any.





Our
ability to protect our intellectual property and technology is
uncertain.  Our success
depends, and will continue to depend, on our ability to maintain patent
protection for our technology and to preserve our trade secrets and to operate
without infringing the property rights of third parties. We cannot guarantee
that existing patents will be of sufficient scope or strength to give us
competitive advantages or that any patents that may be issued to us will not be
challenged or invalidated. We have not performed any analysis of patents of
others that may limit our ability to do business. We are aware of other parties
that are currently conducting research in the area of plasma sterilization and
decontamination. We cannot guarantee that our technologies or products do not
and will not infringe the patents or proprietary rights of third
parties.





Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
technology or proposed products or to obtain and use information that we
consider proprietary. The available means of protecting our proprietary rights
may not be adequate and our competitors may independently develop similar
technology, duplicate our products or design around patents issued to us or our
other intellectual property.  We cannot guarantee our intellectual
property will provide us meaningful protection or any commercial
advantage.





D.
 Risks of
Ownership of Our Common Stock





We may
issue additional shares of authorized common stock and future preferred
stock.Our
Articles of Incorporation authorize up to 31,000,000 shares of stock, par value
of $0.02 per share, of which 30,000,000 shares are designated common stock and
1,000,000 shares are designated preferred stock. The Board of Directors has the
power without prior stockholder approval to issue additional shares of
previously authorized and unissued common stock and one or more series of
preferred stock with such rates of dividends, redemption provisions, liquidation
preferences, voting rights, conversion privileges and any other characteristics
as the Board may deem necessary. This power would include the right to issue
preferred stock with rights to receive dividends, liquidating distributions and
other benefits that may be superior to the rights of holders of common stock. If
any subsequent issuance of preferred stock is approved, such preferred stock
could adversely affect the holders of outstanding common stock. In addition, the
authority to issue additional shares of common stock and preferred stock could
discourage, delay or prevent a takeover of us and could have a depressive effect
on the market price for our securities.





There is
a very limited public market for our common stock.There is a very
limited public market for our common stock as trading has been sporadic and of
low volume. There is no assurance that there will be any market liquidity or
that we can maintain a trading market in the future.





ITEM
1B. UNRESOLVED STAFF COMMENTS





Not
applicable.





ITEM
2. PROPERTIES





Our
principal executive offices are located at 980 American Pacific Drive, Suite
#111, Henderson, Nevada 89014, which is the principal business office of our
President, Jerry E. Polis, who has other business operations at this location.
We share approximately 2,600 square feet with other businesses affiliated with
Mr. Polis. We pay a company affiliated with Mr. Jerry Polis, our President and a
director, a month-to-month fee for office rent and accounting and administrative
services. Since July 2002 the rate has been an aggregate of $1,000 per month. We
believe these terms are no less favorable than what could be obtained from
outside providers.




15





Effective
in June 2007, our Subsidiary subleased and occupied approximately 3,750 square
feet of office space at 9121 W. Russell Rd., Suite 110, Las Vegas, Nevada within
space leased by our president and an unrelated individual. The rate paid
pursuant to the sublease is the same monthly rate for the same term as charged
under the original lease by the unrelated primary landlord. We received a gross
cash leasehold improvement incentive as a pass-through from the primary landlord
of $136,224 of which $32,800 related to space not subleased or improved by the
Subsidiary. The $32,800 excess was repaid in May 2008. The current monthly
payment of $8,144 is subject to future cost of living and operating expense
adjustments, through March 2012.





ITEM
3. LEGAL PROCEEDINGS





We are
not involved in any threatened or pending legal proceedings.





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





No matter
was submitted to a vote of security holders during the last quarter of the
fiscal period covered by this report.





PART
II





ITEM 5.MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES





Market
Information





On April
4, 2002, our shares of common stock commenced quotation on the OTC Electronic
Bulletin Board (OTCBB) under the symbol ASIT. Prior to that date there had been
no public trading market for our securities since 1982. The market for our
common stock has been sporadic and very limited.





The
following table sets forth the high and low bid quotations for our common stock
for the years ended September 30, 2008 and 2007:




Bid
      QuotationsHigh
              
              
              LowYear
      Ended September 30, 2008First
      Quarter
              
              $
              0.45
              
              
              $
              0.35Second
      Quarter
              
              $
              0.45
              
              
              $
              0.35Third
      Quarter
              
              $
              0.60
              
              
              $
              0.40Fourth
      Quarter
              
              $
              0.60
              
              
              $
              0.45Year
      Ended September 30, 2007First
      Quarter
              
              $
              0.35
              
              
              $
              0.20Second
      Quarter
              
              $
              0.59
              
              
              $
              0.30Third
      Quarter
              
              $
              0.59
              
              
              $
              0.35Fourth
      Quarter
              
              $
              0.45
              
              
              $
              0.35






These
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not represent actual transactions.





We had
1,077 holders of record of our 17,136,723 shares of common stock issued at
September 30, 2008, which we believe approximates the number of beneficial
owners. We have never paid a cash dividend on our common stock and do not expect
to pay cash dividends in the foreseeable future. At September 30, 2008, we had
an accumulated deficit of approximately $3.6 million and until this deficit is
eliminated, we will be prohibited from paying dividends except out of net
profits. We have not paid a cash dividend and do not anticipate payment of
dividends in the foreseeable future.





Recent
Sales of Unregistered Securities





No
securities were sold within the past three years that were not registered under
the Securities Act that were not previously reported in prior quarterly, annual
or 8-K filings.





Issuer
Purchases of Equity Securities





None.





16





ITEM
6. SELECTED FINANCIAL DATA





Not
applicable.





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





Except
for the historical information, the following discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results may differ substantially from those referred to herein due to a number
of factors, including but not limited to risks described in the section entitled
Risk Factors and elsewhere in this Annual Report.





Overview





We are a
specialty finance and investment company that provides financing for commercial,
residential and venture capital loans. Our other activity has not been
significant recently and has been focused on the development of plasma
technology for sterilization and decontamination.





The
objective of our specialty finance activities is to generate current income and
cash flow from high-interest notes to commercial, residential and corporate
borrowers. Our strategy is to grow our business from internally generated funds
and, from time to time, sales of equity or debt securities. To date we have not
employed participating investor note financing or other institutional financing.
Our operating income depends largely upon net interest income, which is the
difference between interest income from notes and investments and interest
expense on notes payable. Our net interest income is affected by the performance
of our note portfolio and may be affected by general economic conditions,
policies of regulatory authorities, competition and other factors many beyond
our control.





The
mortgage banking environment has been experiencing considerable strain from
rising delinquencies and liquidity pressures. The current environment appears to
be affecting real estate values and the volume of real estate activities.
Merchant builders are the typical purchasers of raw land zoned and likely
intended for residential development near existing infrastructure and similar
parcels under development like those that collateralize some of our notes
receivable. Many merchant builders are not currently in the market for such land
parcels or are willing to pay only prices significantly reduced from prior
years.  Sellers have not been willing to accept significantly reduced
prices, and management expects this trend to continue until there is a balance
in the supply and demand for single-family new and resale homes.   We
believe this imbalance to be a temporary condition that will continue for
approximately another 12 to 18 months. If circumstances require us to foreclose
on any of our residential raw land collateral in the near future, it is
estimated that a holding period of up to approximately 24 months is possible
before certain such collateral could be liquidated on terms acceptable to
us.





As a
consequence of recent economic conditions and uncertainties, the collateral
values for our notes continued to decline in the fourth quarter. As certain
larger real estate notes approached maturity, based on an analysis of each note,
we classified $3,521,348 of such notes as impaired at September 30, 2008 and
previously wrote off notes receivable totaling $129,470 during the year.
Impairment was deemed probable for such notes as we do not believe we will be
able to collect all amounts due according to the contractual terms of the note
without collection, restructuring or foreclosure actions.  As a result
we provided a loan loss provision of $2,818,900 for such recently impaired notes
based on the fair value of collateral. We are taking actions to collect or
recover amounts due on the notes.





As a
result of the loan loss provision totaling $2,948,370 for the year, we reported
a net loss of $2,716,037 for the year ended September 30, 2008, compared to net
income of $53,261 for the comparable year prior. We have limited loan
diversification, and any provision or change in estimate regarding the
collateral for a single loan has a material impact on our financial position and
our results of operations. During fiscal 2009, we may elect to incur additional
costs to develop our plasma or other technologies. We expect to fund such costs,
if any, from working capital or operations.





Our
financial statements require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is generally to increase the value of underlying collateral for the
loans. Unlike typical industrial companies, nearly all our assets and
liabilities are monetary in nature. As a result, interest rates have over time a
more direct impact on our financial performance than the effects of inflation
may generally have on the typical industrial company.





17





Critical
Accounting Policies and Estimates




We have
identified the policies below as critical to our business operations and the
understandings of our results of operations. Our accounting policies are more
fully described in our financial statements located in Item 7 of Part II,
“Financial Statements.” The impact and any associated risks related to these
policies on our business operations is discussed throughout “Management’s
Discussion and Analysis or Plan of Operation” when such policies affect our
reported and expected financial results.






The
methods, estimates and judgments we use in applying our accounting policies, in
conformity with generally accepted accounting principles in the United States,
have a significant impact on the results we report in our financial statements.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. The estimates affect
the carrying values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions. We believe that the
following discussion addresses our most critical accounting policies, which are
those that are most important to the portrayal of our financial condition and
results of operations and require our most difficult, subjective, and complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.




Revenue recognition – Interest
income is recorded on an accrual basis to the extent that such amounts are
expected to be collected. Note origination fees received from borrowers are
deferred and amortized to income over the established life of the related note
under a method that approximates the effective interest rate method. Should a
note become past due or if the Company otherwise does not expect the debtor to
be able to service its debt, the Company will cease recognizing income until and
unless paid.





Consolidation policy - In
September 2008, we assigned our $1,000,000 undivided interest in a note
receivable and related deed of trust of an unaffiliated borrower to DavCap, LLC
(“DavCap”), an entity 50% owned by our president and director. We believe that
DavCap is a variable interest entity. We believe that, under FASB Interpretation
(“FIN”) No. 46R, Consolidation
of Variable Interest Entities (Revised) that ASI is its primary
beneficiary; accordingly, beginning in the year ended September 30, 2008, DavCap
is consolidated and intercompany accounts are eliminated. Subsequent to
September 30, 2008, we received payments of $119,500 on the unsecured
(effectively, intercompany) note.





Notes receivable and allowance for
loan losses - Notes receivable are stated as the unpaid principal balance
net of any deferred fees and any allowance for loan losses. The Company reviews
the need for an allowance for loan losses based on a specific review of each
note pursuant to either Statement of Financial Accounting Standards (“SFAS”) No.
5, Accounting for
Contingencies, or SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. In establishing an allowance we consider the
payment and extension history and credit worthiness of the borrower, the
estimated current value of our collateral, our ability to protect inferior
collateral positions, if any, among other factors. These judgments are highly
subjective and may change materially within a year and quarter to quarter based
upon evolving events.





Our notes
receivable are limited to a small number of borrowers. We manage credit risk by
evaluating the credit worthiness of the borrower and the value of collateral
prior to loan origination and by perfecting liens on the underlying real estate
or other assets as appropriate. As of September 30, 2008, our gross amount of
notes receivable of  $5,482,473 are comprised of nine notes advanced
to various entities including two notes ($1,268,000) from entities controlled by
one developer and three notes ($2,747,025) from another developer. We believe
our real estate related collateral has declined since loan origination due to
national and local economic conditions and in some cases may be less than the
outstanding balance. At September 30, 2008 we considered six notes aggregating
$3,521,348 as impaired and had an allowance for note losses of $2,818,900. We
expect we may be required to extend, restructure or foreclose on related
collateral on certain impaired notes. Due to the limited number of notes and the
concentrated amounts, non-payment of interest or a default on a note has a
material adverse impact on operations.





Income taxes - A valuation
allowance related to deferred tax assets is recorded when it is more likely than
not that some portion or all of the deferred tax assets will not be realized. We
evaluate the realizability of the deferred tax assets and assess the need for
valuation allowance quarterly.





Effective
October 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — An Interpretation of FASB Statement No. 109 (FIN 48). As a result
of the implementation of FIN 48, we recognized no adjustment for uncertain tax
provisions and the total amount of unrecognized tax benefits as of October 1,
2007 was $-0-.  Our adoption of FIN 48 did not have any effect on our
financial condition, results of operations, cash flows, deferred tax assets or
related valuation allowances.




18




We
recognize interest and penalties related to income tax obligations as part of
the provision for income taxes.





The tax
years 2003 through 2007 remain open under the statue of limitations to
examination by the major tax jurisdictions to which we are subject. However, due
to net operating loss carryforwards (NOL) from prior periods, the Internal
Revenue Service (IRS) could potentially review the losses related to
NOL-generating years back to 2001.





Comparison
of Financial Condition at September 30, 2008 and September 30, 2007





Assets


Total
assets were approximately $3.2 million at September 30, 2008 and $6.5 million at
September 30, 2007. Our net note portfolio ($2,661,573 at September 30, 2008)
decreased  approximately $472,000 from collections exceeded
originations and another $2,948,370 as a result of our note loss provision. See
“Liquidity and Capital Resources.”





At
September 30, 2008, we had nine notes outstanding with aggregate stated
principal of $5,482,473 (including $1,000,000 assigned to a related party but
consolidated as a related party variable interest entity) compared to twelve
notes with aggregate stated principal of $6,084,225 at September 30, 2007. We
had an allowance for note losses of $2,818,900 at September 30,
2008.





Liabilities


Total
liabilities decreased approximately $1,182,000 from September 30, 2007 to
September 30, 2008. The decrease was primarily due to repaying $150,000 in
shareholder notes and retirement of $1,000,000 of subordinated notes at maturity
in July 2008.





Equity


Stockholders’
equity decreased  $2,076,946 from September 30, 2007 to September 30,
2008 primarily as a result of the net loss of $2,716,037 partially offset by
proceeds from warrants exercised and applied to subordinated note
retirement.





Comparison
of Operating Results –Fiscal 2008 vs. Fiscal 2007





We
reported a net loss of $2,716,037 for fiscal 2008 primarily as a result of the
operation of our specialty finance business. This compared to net income of
$53,261 for fiscal 2007. We increased our note portfolio following our $4
million equity financing completed in March 2007. However, we recorded a loan
loss provision in fiscal 2008 of $2,948,370 due to note impairment caused
primarily by declines in collateral values. However, we continue to believe we
can generate sufficient cash flow from our note portfolio to fund our operating
costs in fiscal 2009.





Income. Interest and
fee income from notes was $810,992 for the year ended September 30, 2008,
compared to $562,368 for the comparable period in 2007. The increase resulted
from higher average note balances during fiscal 2008 due to equity financing
completed during fiscal 2007.





Other
investment income for the year ended September 30, 2008, was $11,440 compared to
$62,273 for the prior year and consists primarily of earnings from cash balances
not invested in notes. The year-over-year decline in other investment income
resulted from placing additional funds in notes.





Interest Expense.
Interest expense was $98,664 for the year ended September 30, 2008 compared to
$139,187 for the comparable period in 2007. The 2008 total included interest on
shareholder notes, interest on our $1,000,000 of 7% subordinated notes and
$37,099 for non-cash interest from the amortization of the value of warrants
issued in 2005 in connection with the subordinated notes. The reduction resulted
from the retirement of shareholder notes in the first quarter and the retirement
of subordinated notes in July 2008. During the years ended September 30, 2008
and, 2007, we incurred interest expense of $29,750 and $37,472, respectively,
related to notes payable to officers and directors.





Loan Losses. During
fiscal 2008, we provided for loan losses of $2,948,370 and wrote off notes for
$129,470. There was no provision during fiscal 2007. We have limited loan
diversification, and any provision or change in estimate regarding the
collateral for a single note has a material impact on our note loss provision
and on our financial position and our results of operations.




19


Research and
Development. We expended $14,902 on research and development costs during
the year ended September 30, 2008 compared to $5,465, during the year ended
September 30, 2007. The fiscal 2008 costs consisted primarily of outside
research grant costs and the fiscal 2007 costs consisted of prototype and
consulting costs related to our technology. Research and development costs vary
depending on timing of elective development efforts and availability of
funds.





Collection, General and
Administrative. Collection, general and administrative costs were
$476,533 for the year ended September 30, 2008 compared to $426,728 for year
prior. Fiscal 2008 costs included $317,204 related to our specialty finance
subsidiary and $159,329 of corporate expenses not allocated to the finance
segment. Fiscal 2007 expenses included $286,856 related to our specialty finance
subsidiary operations and $139,872 of unallocated corporate expenses. Subsidiary
costs consisted primarily of salaries and occupancy costs related to specialty
finance operations. The $30,348 increase in specialty finance costs resulted
primarily from a full year of occupancy costs in fiscal 2008 compared to
approximately nine months in fiscal 2007. The $19,457 increase in unallocated
corporate costs resulted from increases in legal and audit costs and insurance
costs offset in part by reduced non-cash stock-based compensation
expense.





We
incurred $9,707 and  $27,979 of non-cash stock-based compensation
expense during the years ended September 30, 2008 and 2007, respectively,
related to options granted to officers, directors and consultants. We incurred
$24,000 for non-cash contributed services of our executive officers during each
year.





Income Taxes – Due to
losses prior to fiscal 2007 and the current year loss we have provided a 100%
valuation allowance for deferred tax assets (primarily tax loss carryforwards)
and accordingly, there was no tax provision for either year.





Liquidity
and Capital Resources





Net cash
provided by operating activities during fiscal 2008 was $121,181, primarily from
the net loss adjusted for net non-cash items including the provision for loan
losses of $2,948,370.





During
fiscal 2008, we originated $500,000 of new notes and collected $972,282. In
fiscal 2007 we originated $5,290,830 of notes and collected $1,309,700. We
exchanged one note for a new note of $1,000,000 in a non-cash exchange with a
related party with such note eliminated in consolidation of the entity as a
variable interest entity. The higher originations in 2007 resulted from the $4
million stock sale completed in March 2007. We purchased $249,490 of equipment
and leasehold improvements related to our specialty finance operations in fiscal
2007 of which $103,424 was refunded to us by the primary landlord as a lease
inducement, deferred rent that is being amortized over the sublease
term.





We
obtained net proceeds of $3,993,622 from the sale of common stock during the
year ended September 30, 2007 and $250,000 from shareholder notes of which
$100,000 was repaid in fiscal 2007 and the balance of $150,000 in fiscal 2008.
During fiscal 2008, we obtained $45,000 from warrant exercise and paid $430,714
to retire subordinated notes with $569,286 retired through the non-cash
application of warrant exercise.





Our
principal source of liquidity at September 30, 2008, consisted of cash and
equivalents of $256,171 and marketable securities of $103,861. We also have net
notes receivable aggregating $2,661,573 due within twelve months. We have no
other unused sources of liquidity at this time.





We have
no debt other than trade payables and accruals. Our current notes receivable are
expected to produce quarterly interest payments of approximately $150,000
supplemented by other investment income to be received on cash and equivalents
and marketable securities. A default on the interest or principal due us on any
note has a material adverse impact on our operations, liquidity and cash
flow.





Based on
current expectations and business conditions, we believe we will likely have
sufficient financial resources to meet our cash requirements for the next year.
Notwithstanding the foregoing, the United States has been experiencing a severe
economic downturn that has resulted in highly reduced availability of credit and
capital financing and, therefore, curtailed residential and other real estate
development, activity and profitability, and declining real estate values and
developers’ financial conditions, both nationwide and particularly in the
southern Nevada market. The effects and duration of these developments and
related uncertainties on the Company’s future operations and cash flows cannot
be estimated at this time but may likely be signficiant.




20




Recent
Accounting Pronouncements





In March
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133, to require enhanced disclosures about derivative instruments. SFAS
No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged but will not have an effect on our consolidated financial condition,
results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited. We
expect to adopt SFAS No. 160 in our fiscal year beginning October 1, 2009, if we
are then still required to consolidate DavCap, currently a VIE of the Company.
Accordingly, the effect of adopting SFAS No. 160 on our future financial
statements could be substantial.





In
September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value
Measurements. This standard defines fair value, establishes a framework
for measuring fair value in accounting principles generally accepted in the
United States of America, and expands disclosure about fair value measurements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115, which will permit the option of choosing to measure certain eligible
items at fair value at specified election dates and report unrealized gains and
losses in earnings. SFAS No, 157 and the options available under SFAS No. 159
will become effective for our fiscal year 2009, and interim periods within those
fiscal years. We are currently evaluating the requirements of SFAS Nos. 157 and
159, and have not yet determined the likely, if any, impact on our future
financial statements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 141(R), Business
Combinations (“SFAS No. 141R). SFAS No. 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008 (for any of our acquisitions closed on or after October 1, 2009). Early
application is not permitted. Since we are not contemplating any business
combinations after its effective date we do not presently expect any impact of
SFAS No. 141R on our consolidated financial statements.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable.





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Our
consolidated financial statements follow.




21


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 Board
of Directors
 ASI
Technology Corporation
 Las
Vegas, Nevada
  We
have audited the accompanying consolidated balance sheets of ASI Technology
Corporation and subsidiaries (the “Company”) as of September 30, 2008 and 2007,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended September 30, 2008 and 2007.
 These financial statements are the responsibility of the Company's
management.
  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 audits 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 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 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 ASI Technology
Corporation as of September 30, 2008 and 2007, and the results of its operations
and its cash flows for the years ended September 30, 2008 and 2007, in
accordance with accounting principles generally accepted in the United
States.
  As
discussed in Notes 1, 3, and 9 to the consolidated financial statements,
ultimate realization of the Company’s investments in notes receivable and its
future operations and cash flows are particularly dependent upon the continued
financial health of a relatively few borrowers and underlying loan collateral,
primarily interests in real estate, which are subject to rapidly changing
economic conditions and related uncertainties.
  /s/
PIERCY BOWLER TAYLOR & KERN
 Certified
Public Accountants
   Las
Vegas, Nevada
 December
12, 2008
  
 ASI TECHNOLOGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
  September
      30,2008
              
              
              2007ASSETSCash  and
      equivalents
              
              $
              256,171
              
              
              $
              280,311Marketable
      securities
              
              
              103,861
              
              
              
              13,503Notes
      receivable, net
              
              
              2,661,573
              
              
              
              5,907,472Interest
      receivable
              
              
              16,764
              
              
              
              48,885Property
      and equipment, net
              
              
              181,459
              
              
              
              232,345Prepaid
      expenses
              
              
              29,794
              
              
              
              24,859$
              3,249,622
              
              
              $
              6,507,375LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilitiesAccounts
      payable and accrued expenses
              
              $
              15,020
              
              
              $
              43,510Deferred
      rent
              
              
              74,893
              
              
              
              96,291Shareholder
      notes and accrued interest payable
              
              
              -
              
              
              
              150,518Subordinated
      notes and accrued interest payable, net of discount of
    $37,099
              
              
              -
              
              
              
              980,40189,913
              
              
              
              1,270,720Stockholders'
      equityPreferred
      stock, 1,000,000 shares authorized, none
      issued and outstandingCommon
      stock, $.02 par value; 30,000,000 shares authorized, 17,136,723
      and 15,908,152 shares issued
              
              
              342,742
              
              
              
              318,171Additional
      paid-in capital
              
              
              9,287,746
              
              
              
              8,664,532Treasury
      stock, 11,000  and 1,000 common shares at cost
              
              
              (4,994
              )
              
              
              (442
              )Deficit
              
              
              (6,460,146
              )
              
              
              (3,744,109
              )Accumulated
      other comprehensive loss
              
              
              (5,639
              )
              
              
              (1,497
              )3,159,709
              
              
              
              5,236,655$
              3,249,622
              
              
              $
              6,507,375
 See notes
to consolidated financial statements.




23




ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS




Year
      Ended September 30,2008
              
              
              2007Income:Interest
      and fees
              
              $
              810,992
              
              
              $
              562,368Other
      investment income
              
              
              11,440
              
              
              
              62,273822,432
              
              
              
              624,641Expenses:Interest
              
              
              98,664
              
              
              
              139,187Loan
      losses
              
              
              2,948,370
              
              
              
              -Research
      and development
              
              
              14,902
              
              
              
              5,465Collection,
      general and administrative
              
              
              476,533
              
              
              
              426,7283,538,469
              
              
              
              571,380Income
      (loss) before income taxes
              
              
              (2,716,037
              )
              
              
              53,261Income
      taxes
              
              
              -
              
              
              
              -Net
      income (loss)
              
              $
              (2,716,037
              )
              
              $
              53,261Income
      (loss) per share (basic and diluted)
              
              $
              (0.17
              )
              
              $
              0.00Weighted
      average number of common shares outstanding:Basic
              
              
              16,106,812
              
              
              
              12,015,443Diluted
              
              
              16,106,812
              
              
              
              12,044,642


See
notes to consolidated financial statements.
  24
  ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND STOCKHOLDERS' EQUITY





For
the Years Ended September 30, 2008 and 2007


AccumulatedComprehensive
              
              
              
              
              
              
              
              
              Additional
              
              
              
              
              
              
              
              
              OtherIncome
              
              
              Common
      Stock
              
              
              Paid-In
              
              
              Treasury
              
              
              
              
              
              Comprehensive(Loss)
              
              
              Shares
              
              
              Dollars
              
              
              Capital
              
              
              Shares
              
              
              Deficit
              
              
              Income (Loss)
              
              
              TotalBalances,
      October 1, 2006
              
              
              
              
              
              7,019,664
              
              
              $
              140,393
              
              
              $
              4,796,709
              
              
              $
              (442
              )
              
              $
              (3,797,370
              )
              
              $
              -
              
              
              $
              1,139,290Contributed
      services
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              24,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              24,000Stock-based
      compensation
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              27,979
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              27,979Sale
      of stock at $.45 per share (net of offering costs of
      $6,378)
              
              
              
              
              
              8,888,888
              
              
              
              177,778
              
              
              
              3,815,844
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,993,622Comprehensive
      income:Net
      income
              
              $
              53,261
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              53,261
              
              
              
              -
              
              
              
              53,261Unrealized
      loss on marketable securities
              
              
              (1,497
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,497
              )
              
              
              (1,497
              )Total
      comprehensive income for the period
              
              $
              51,764Balances,
      September 30, 2007
              
              
              
              
              
              
              15,908,552
              
              
              
              318,171
              
              
              
              8,664,532
              
              
              
              (442
              )
              
              
              (3,744,109
              )
              
              
              (1,497
              )
              
              
              5,236,655Contributed
      services
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              24,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              24,000Stock-based
      compensation
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              9,707
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9,707Purchase and
      retirement of 400 treasury shares
              
              
              
              (400
              )
              
              
              -
              
              
              
              (208
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (208
              )Purchase
      of 10,000 treasury shares
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,552
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,552
              )Stock
      issued at $0.50 per share on exercise of warrants for
      cash
              
              
              
              
              
              
              90,000
              
              
              
              1,800
              
              
              
              43,200
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              45,000Stock
      issued at $0.50 per share on exercise of warrants applied to retire
      principal of 7% subordinated notes
              
              
              
              
              
              
              1,138,571
              
              
              
              22,771
              
              
              
              546,515
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              569,286Comprehensive
      income:Net
      loss
              
              $
              (2,716,037
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,716,037
              )
              
              
              -
              
              
              
              (2,716,037
              )Unrealized
      loss on marketable securities
              
              
              (4,142
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,142
              )
              
              
              (4,142
              )Total
      comprehensive loss for the period
              
              $
              (2,720,179
              )Balances,
      September 30, 2008
              
              
              
              
              
              
              17,136,723
              
              
              $
              342,742
              
              
              $
              9,287,746
              
              
              $
              (4,994
              )
              
              $
              (6,460,146
              )
              
              $
              (5,639
              )
              
              $
              3,159,709




See
notes to consolidated financial statements.




25




ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS




Year
      Ended September 30,2008
              
              
              2007Operating
      activitiesNet
      income (loss)
              
              $
              (2,716,037
              )
              
              $
              53,261Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization of property and equipment
              
              
              53,015
              
              
              
              17,145Amortization
      of loan fees and prepaid interest
              
              
              (194,253
              )
              
              
              (156,342
              )Provision
      for note losses
              
              
              2,948,370
              
              
              
              -Cash
      leasehold incentive received from sublessor's landlord
              
              
              -
              
              
              
              136,224Incentive
      applicable to non-subleased space, repayable   pursuant to
      sublease terms
              
              
              -
              
              
              
              (32,800
              )Amortization
      of deferred rent
              
              
              (21,398
              )
              
              
              (7,133
              )Contributed
      services
              
              
              24,000
              
              
              
              24,000Stock-based
      compensation
              
              
              9,707
              
              
              
              27,979Non-cash
      interest expense
              
              
              19,081
              
              
              
              44,914Decrease
      (increase) in interest receivable
              
              
              32,121
              
              
              
              (39,221
              )Decrease
      in prepaid expenses
              
              
              (4,935
              )
              
              
              (24,859
              )Increase
      (decrease) in accounts payable and accruals
              
              
              (28,490
              )
              
              
              38,510Net
      cash provided by operating activities
              
              
              121,181
              
              
              
              81,678Investing
      activitiesPurchase
      of marketable securities
              
              
              (75,000
              )
              
              
              -Purchase
      of equipment and improvements
              
              
              (2,629
              )
              
              
              (249,490
              )Proceeds
      from sale of equipment
              
              
              500
              
              
              
              -Notes
      originated
              
              
              (500,000
              )
              
              
              (4,565,030
              )Collections
      from borrowers
              
              
              972,282
              
              
              
              1,161,617Notes
      sold to related party
              
              
              -
              
              
              
              148,083Note
      purchased from related party
              
              
              -
              
              
              
              (725,800
              )Net
      cash provided (used) by investing activities
              
              
              395,153
              
              
              
              (4,230,620
              )Financing
      activitiesProceeds
      from exercise of warrants
              
              
              45,000
              
              
              
              3,993,622Proceeds
      from shareholder notes
              
              
              -
              
              
              
              250,000Repayment
      of subordinated notes
              
              
              (430,714
              )
              
              
              -Repayments
      of shareholder notes
              
              
              (150,000
              )
              
              
              (100,000
              )Proceeds
      from other related party borrowings
              
              
              -
              
              
              
              245,000Repayments
      of other related party borrowings
              
              
              -
              
              
              
              (245,000
              )Purchase
      of treasury shares
              
              
              (4,760
              )
              
              
              -Net
      cash provided (used) by financing activities
              
              
              (540,474
              )
              
              
              4,143,622Net
      decrease in cash and equivalents
              
              
              (24,140
              )
              
              
              (5,320
              )Cash
      and equivalents, beginning of year
              
              
              280,311
              
              
              
              285,631Cash
      and equivalents, end of year
              
              $
              256,171
              
              
              $
              280,311Supplemental
      cash flow informationCash
      paid during the period for interest
              
              $
              79,582
              
              
              $
              94,273Note
      origination fee received in investment securities
              
              $
              19,500
              
              
              $
              15,000Note
      exchanged for note from related party
              
              $
              1,000,000Subordinated
      note balances applied to exercise warrants
              
              $
              569,286




See
notes to consolidated financial statements.




26


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements




Note
      1.
            Nature
      of Operations




These
consolidated financial statements include the accounts of the Company,
collectively ASI Technology Corporation (“ASI”) and its wholly-owned subsidiary,
ASI Capital Corporation (the “Subsidiary”), primarily a specialty finance
company and DavCap LLC, a related party, which under FASB
Interpretation (“FIN”) No. 46R, Consolidation of Variable Interest Entities
(Revised),deemed to be a variable interest entity (“VIE”), after
elimination of intercompany transactions and balances. As substantially all of
the Company’s assets are its specialty finance business, the accompanying
consolidated balance sheet is presented on an unclassified basis as is customary
in the finance industry.




The
Company’s specialty lending activities include commercial, residential and
venture capital loans. As of September 30, 2008, the Company's gross amount of
notes receivable of  $5,482,473 are comprised of nine notes advanced
to various entities including two notes ($1,268,000) from entities controlled by
one developer and three notes ($2,747,025) from another developer. Recent
economic conditions and uncertainties have impacted collateral values for the
Company’s notes and at September 30, 2008 the Company considered $3,521,348 of
notes as impaired and has provided a note loss provision of $2,818,900 for such
notes. Management is taking actions to collect or recover amounts due on the
notes. Due to the limited number of notes and the concentrated amounts,
non-payment of interest or a default on a note not adequately provided for in
the loan loss allowance (Notes 2 and 3) would have a material adverse impact on
operations. The Company manages its credit risk by evaluating each borrower’s
credit worthiness and the value of collateral before loans are made and
aggressively pursues recovery on impaired notes. The Company’s limited other
activity has been focused on plasma technology for sterilization and
decontamination.




Note
      2.
            Summary
      of Significant Accounting Policies




Use
of estimates - Timely preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates that affect reported amounts, some of which may require revision in
future periods. The Company’s estimated allowance for loan losses could change
materially next year.




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




Marketable
securities - Marketable securities, all of which are classified as
available-for-sale, are stated at fair value based on market quotes. Unrealized
gains and losses, net of deferred taxes, are recorded as a component of other
comprehensive income.




Notes
receivable
and revenue recognition – The Company has no formal
policies for credit and collateral evaluation, collections or foreclosure,
timing of charging off uncollectible loans, and recovery and management makes
these decisions based on experience on a case-by-case basis. Notes receivable
are stated as the unpaid principal balance net of any deferred fees and any
allowance for loan losses. Notes delinquent more than 90 days are considered in
non-accrual status (non-performing) and collections on such notes, if any, are
recorded as collection of note principal, and no interest is recorded. The
Company reviews the need for an allowance for loan losses based on a specific
review of each note pursuant to either Statement of Financial Accounting
Standards (“SFAS”) No. 5, Accounting
for Contingencies, and SFAS No. 114, Accounting
by Creditors for Impairment of a Loan. Impairment occurs when it is
deemed probable the Company will not be able to collect all amounts due
according to the contractual terms of the loan. Impairment is then measured
based on the present value of expected future cash flows or the fair value of
the collateral, if the loan is collateral dependent. Upon measurement of
impairment, the Company will establish an allowance for loan losses and a
corresponding charge to earnings (loan losses). Write-off of a loan decreases
the allowance and changes in estimates of collateral values can increase or
decrease the allowance. Significant judgments are required in determining
impairment, which includes making assumptions regarding the value of the loan,
the current estimated value of the real estate or other collateral that secures
the loans, the Company’s ability to protect inferior collateral positions, if
any, and any other applicable provisions, including guarantees, if
any.




27


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements


Note
      2.
              Summary
      of Significant Accounting Policies
(continued)




Interest
income is recorded on an accrual basis to the extent that such amounts are
expected to be collected. Note origination fees received from borrowers are
deferred and amortized to income over the established life of the related note
under a method that approximates the effective interest rate method. Should a
note become past due or if the Company otherwise does not expect the debtor to
be able to service its debt, management will cease recognizing income until and
unless paid or consider taking action to foreclose on the
collateral.




Note
origination fees, points and prepaid interest from borrowers are deferred and
amortized to interest income over the estimated average life of the notes under
a method which approximates the effective interest rate method. Direct loan
origination fees and costs have been immaterial to date.




Segment
reporting – The Company’s operations are organized into two reportable
segments based upon their distinct operating characteristics (Note 11). The
specialty finance segment includes all lending activities and the technology
development segment includes all technology research and development activities.
The Company allocates identified collection, general and administrative costs
between the segments. All assets currently held are considered as employed in
specialty finance.




Property
and equipment – Leasehold improvements and equipment are stated at cost
and depreciated over the estimated useful lives of three to five years using the
straight-line method.




Research
and development costs –Research and development costs, including
patent costs related to acquired, licensed and developed technology, are
expensed as incurred because the technology being developed has not yet reached
technological feasibility and requires further development, refinement and
testing.




Employee
stock options -The Company adopted SFAS No. 123 (Revised 2004),
Share-Based
Payment, (SFAS 123R) effective October 1, 2006. The effect of adopting
SFAS 123R for the year ended September 30, 2007 was to reduce net income by
$25,546 ($nil per share). The Company has one stock plan, the 2000 Equity
Incentive Plan, as amended (the “Plan”) and is authorized to grant incentive and
nonstatutory stock options to acquire up to 950,000 shares of the Company’s
common stock to employees and consultants. At September 30, 2008, there were
options outstanding for 335,000 common shares (260,000 vested) exercisable at
prices ranging from $0.35 to $0.45 per share through
2013.




The
Company’s employee stock options have various restrictions that reduce option
value, including restrictions on transfer, among others, and may be exercised
prior to their contractual maturity. The Company plans to issue shares on each
option exercise and has no plans to repurchase option shares. The Company
recorded $9,707 and $27,979 of stock compensation expense in its Consolidated
Statement of Operations for the years ended September 30, 2008 and 2007,
respectively. The following table sets forth the weighted-average key
assumptions and fair value results for stock options granted during the years
ended September 30, 2008 and 2007 to employees and consultants using the
Black-Scholes option pricing model (annualized percentages):




Year Ended September 30,2008
              
              
              2007Volatility
              
              
              149.0%
              
              
              
              131.0%Risk-free
      interest rate
              
              
              2.2%
              
              
              
              3.9%Forfeiture
      rate
              
              
              0.0%
              
              
              
              0.0%Dividend
      yield
              
              
              0.0%
              
              
              
              0.0%Expected
      life in years
              
              
              3.5
              
              
              
              5.0Weighted-average
      fair value of options granted
              
              
              $0.29
              
              
              
              $0.24




28


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
  Note
      2.
                Summary
      of Significant Accounting Policies
(continued)


The
dividend yield of zero is based on the fact that management has no present
intention to pay dividends. Expected volatility is based on the historical
volatility of the common stock over the period commensurate with the expected
life of the options. The Company has a small number or option grants and limited
exercise history and accordingly has for all new option grants in fiscal 2008
applied the simplified method prescribed by SEC Staff Accounting Bulletin 110,
“Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected
Term,” to estimate expected life (computed as vesting term plus contractual term
divided by two).  The expected forfeiture rate was nil for each period
based on managements estimates considering vesting term and the limited number
and specific recipients of option grants.




Since
the Company has an unrecognized net operating loss carryforward as of September
30, 2008 and 2007 (Note 8), no excess tax benefit for the tax deductions related
to stock-based awards was recognized for the years ended September 30, 2008 or
2007. No options were exercised during the years ended September 30, 2008 or
2007.




As
of September 30, 2008, total estimated compensation cost of options granted but
not yet vested was $19,054 and is expected to be recognized over the weighted
average period of 1.3 years.




Income
(loss) per common share-Basic
income (loss) per share is calculated by dividing net income (loss) by the
weighted average number of shares of the Company’s common stock outstanding
during the period. Outstanding shares consist of issued shares less treasury
stock. Diluted income per share is calculated by dividing net income by the
weighted average common shares outstanding adjusted for the dilutive effect of
common stock equivalents related to stock options and warrants using the
treasury stock method. Outstanding stock options and warrants, with an exercise
price above market, are excluded from the diluted computation, which is not
presented in loss periods, as their effect would be anti-dilutive. The Company
has no dilutive securities other than stock options and warrants which had an
immaterial effect for the year ended September 30, 2007 or
2008.




Income
taxes- The Company recognizes interest and penalties related to
income taxes as part of the provision for income taxes. As of September 30,
2008, the Company had not recorded any provisions for accrued interest and
penalties related to uncertain tax
positions.




Comprehensive
income- Comprehensive income includes all changes in stockholders'
equity during a period, except those relating to investments by and
distributions to stockholders. The Company’s comprehensive income consists of
net earnings and unrealized gains and losses on investments available-for-sale.
Accumulated other comprehensive income is displayed as a separate component of
stockholders' equity.




Reclassifications–
Certain other minor reclassifications to previously reported amounts have been
made for consistency with the current period presentation. Such
reclassifications had no effect on net income or
loss.




29




Note
      3.
              Notes
      Receivable




The
Company’s note receivable portfolio consisted of the following types of
loans:




Range
      ofStated
                
                
                September
      30,Description
                
                Interest
      Rates
                
                
                2008
                
                
                2007Land
      acquisition and development notes:Secured
      by first trust deeds
                
                
                15%-18%
                
                
                $
                2,747,025
                
                
                $
                2,747,025Secured
      by second trust deeds
                
                
                15%-18%
                
                
                
                1,268,000
                
                
                
                1,389,400Secured
      by third trust deeds
                
                
                24%
                
                
                
                1,000,000
                
                
                
                1,000,000Residential
      real estate second trust deed
                
                
                24%
                
                
                
                54,648
                
                
                
                85,000Corporate
      notes secured by asset liens
                
                
                18%-24%
                
                
                
                400,000
                
                
                
                845,000Other
      notes
                
                
                24%
                
                
                
                12,800
                
                
                
                17,8005,482,473
                
                
                
                6,084,225Unearned
      fees and other
                
                
                
                
                
                
                (2,000
                )
                
                
                (176,753
                )Allowance
      for loan losses
                
                
                
                
                
                
                (2,818,900
                )
                
                
                -$
                2,661,573
                
                
                $
                5,907,472
 The
corporate note at September 30, 2008 of $400,000 is secured by substantially all
the assets of e.Digital Corporation, a public technology company with
intellectual property rights that are believed by management to have substantial
value. Subsequently to September 30, 2008 the Company’s Secretary and Treasurer
was appointed to the board of directors of e.Digital
Corporation.




At
September 30, 2008, all of the $5,482,473 of note maturities are within one
year. Management believes that the value of the Company’s real estate related
collateral has declined since loan origination due to national and local
economic conditions and in some cases is less than the outstanding balance. At
September 30, 2008, the Company considered six notes aggregating $3,521,348 as
impaired and had an allowance for note losses of $2,818,900. Management expects
it may be required to extend, restructure or foreclose on collateral relating to
certain impaired notes. Individual notes and the related allowances are detailed
as follows:




30


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
  Note
      3.
                Notes
      Receivable (continued)




NoteBalance
      at
              
              
              AllowanceInterest
              
              Maturity
              
              September
      30,
              
              
              for
      Note
              
              CommentCollateral
      Description
              
              Rate
              
              Date
              
              2008
              
              
              Losses
              
              ReferenceFirst
      deed of trust on 2.07 acres of residential land for development in North
      Las Vegas, NV
              
              
              15%
              
              December
      28, 2008
              
              $
              760,000First
      deed of trust on 2.14 acres of commercial land for development in Las
      Vegas, NV
              
              
              18%
              
              July
      30, 2009
              
              
              801,125Corporate
      note secured by asset liens of e.Digital Corporation in San Diego,
      CA
              
              
              18%
              
              December
      23, 2008
              
              
              400,000Subtotal
              
              
              
              
              
              
              
              1,961,125Impaired
      Notes*:First
      deed of trust on 2.60 acres of residential land being rezoned for
      commercial development in North Las Vegas, NV
              
              
              15%
              
              November
      30, 2008
              
              
              1,185,900
              
              
              $
              (535,900
              )
              (A)2nd
      deed of trust on 10 acres of residential zoned land for development and
      possible rezoning in Las Vegas, NV
              
              
              15%
              
              November
      2, 2008
              
              
              500,000
              
              
              
              (500,000
              )
              (B)2nd
      deed of trust on 6 acres of residential zoned land for development in
      Henderson, NV
              
              
              15%
              
              April
      12, 2009
              
              
              768,000
              
              
              
              (768,000
              )
              (B)3rd
      deed of trust on commercial land for development in St. George,
      Utah
              
              
              24%
              
              August
      1, 2008
              
              
              1,000,000
              
              
              
              (1,000,000
              )
              (C)2nd
      deed of trust on residence in Las Vegas, NV
              
              
              24%
              
              July
      18, 2008
              
              
              54,648
              
              
              
              (15,000
              )
              (D)Note
      secured by other non-real estate assets in Las Vegas, NV
              
              
              24%
              
              February
      13, 2008
              
              
              12,800
              
              
              
              -
              
              (E)Subtotal
      impaired notes
              
              
              
              
              3,521,348
              
              
              
              (2,818,900
              )$
              5,482,473
              
              
              $
              (2,818,900
              )


_________




*
The Company classifies a loan as impaired when it determines that it is probable
that it will not be able to collect all amounts due according to the contractual
terms of the loan. Impairment is measured based on the present value of expected
future cash flows or the Company’s estimate of fair value of the collateral, if
the loan is collateral dependent.




31


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
  Note
      3.
                  Notes
      Receivable
(continued)




(A)
            The
      Company has estimated the fair value of the collateral at $250,000 per
      acre. This property is currently in the rezoning process and successful
      rezoning could result in a future reevaluation of such fair value.
      Although the note was current in payment status at September 30, 2008 the
      note was not paid at the due date and the Company is negotiating various
      actions including the possibility of taking title and holding this
      property until market conditions
improve.




(B)
            The
      issuer of this note has ceased homebuilding operations and because of the
      size of senior obligations and the deterioration of market values since
      the last appraisal the Company estimates there is no current net
      collateral position. The Company is negotiating with the borrower and
      senior and subordinate lien holders to improve its collateral position and
      if successful will re-evaluate the fair value of collateral at that
      time.




(C)
            This
      note is past due and because of the size of senior obligations the Company
      estimates there is no net collateral position. Effective on September 29,
      2008 ASI assigned this note to a consolidated related party (DavCap LLC)
      in return for an unsecured note as more fully described in Note 7. The
      Company will realize income only when and as payments are made by an
      unrelated obligor on such unsecured
note.




(D)
            The
      net collateral is computed based on the purchase price without appraisal.
      Due to deterioration of residential real estate values, the Company
      believes the real estate has no current net collateral value. The Company
      however has obtained additional collateral valued by the Company at an
      estimated $40,000 related to this
note.




(E)
            A
      principal reduction of $5,000 was made after September 30, 2008 and the
      Company estimates the fair value of collateral at September 2008 is
      sufficient to recover the balance on this note if not paid by the
      holder.




Allowance
for loan loss activity is summarized below:




Year
      endedSeptember
      30,2008
              
              
              2007Allowance,
      beginning of year
              
              $
              -
              
              
              $
              -Provision
              
              
              2,948,370
              
              
              
              -Charge-offs
              
              
              (129,470
              )
              
              
              -Allowance,
      end of year
              
              $
              2,818,900
              
              
              $
              -




Three
customers accounted for 52%, 24% and 13% of interest and fee income on notes for
fiscal 2008 and three customers accounted for 39%, 27% and 15% of interest and
fee income on notes for fiscal 2007. A single customer for purposes of this
disclosure includes affiliated entities under common control.




The
following table summarizes finance activity related to notes receivable for the
periods presented:




Year
      endedSeptember
      30,2008
              
              
              2007Balance,
      beginning of year
              
              $
              5,907,472
              
              
              $
              1,785,000Originations
              
              
              500,000
              
              
              
              4,848,925Note
      purchased from related party
              
              
              -
              
              
              
              760,000Notes
      sold or assigned to related party
              
              
              -
              
              
              
              (148,083
              )Deferred
      finance charges, net
              
              
              174,753
              
              
              
              (176,753
              )Loan
      loss provision
              
              
              (2,948,370
              )
              
              
              -Principal
      collected
              
              
              (972,282
              )
              
              
              (1,161,617
              )Balance,
      end of year
              
              $
              2,661,573
              
              
              $
              5,907,472




32




ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
  Note
      4.
                Property
      and Equipment


Property
and equipment are as follows:




September
      30,2008
              
              
              2007Leasehold
      improvements
              
              $
              229,955
              
              
              $
              229,955Furniture
      and equipment
              
              
              20,877
              
              
              
              19,535250,832
              
              
              
              249,490Less
      accumulated depreciation and amortization
              
              
              69,373
              
              
              
              17,145Property
      and equipment, net
              
              $
              181,459
              
              
              $
              232,345




In
June 2007, the Company recorded a net cash leasehold improvement incentive
received of $103,424 as deferred rent that is being amortized over the term of
the sublease (see Note 10). The Company amortized $21,398 and $7,133 of deferred
rent as a reduction of rent expense for the years ended September 30, 2008 and
2007, respectively.




Note
      5.
            Subordinated
      Notes Payable and Related Warrants




In
August and September 2005, the Company issued $1,000,000 of 7% subordinated
notes (the “Subordinated Notes”) due July 31, 2008, interest payable quarterly,
as a unit with $1,000,000 (2,857,142 shares) of common stock at $0.35 per share
with warrants to purchase 1,428,571 shares of common stock at $0.50 per share
exercisable until July 31, 2008 (the “Warrants”). Of these amounts $422,500 of
the Subordinated Notes, 1,207,142 shares of the common stock and 603,571 of the
Warrants were issued to two officers/directors.




A
debt discount of $128,300 related to the Warrants was amortized as additional
non-cash interest over the term of the Subordinated Notes. Non-cash interest
amortized for the years ended September 30, 2008 and 2007 was $37,099
and  $44,396, respectively.




In
July 2008, the Company retired the $1,000,000 of Subordinated Notes for cash of
$430,714 and the balance was applied by holders to exercise warrants to purchase
1,138,571 shares of the Company’s common stock. Of the $430,714 four directors
were paid $178,214 to retire the principal of Subordinated Notes held by them,
and they applied $331,786 to the exercise of warrants to purchase 663,571 shares
of ASI’s common stock. Additional warrants for 90,000 shares of common stock
were also exercised by an officer/director for cash proceeds of $45,000 and
warrants on 200,000 shares expired unexercised.




Note
      6.
            Stockholders’
      Equity




Common
Stock


During
2007, the Company sold 8,888,888 shares of common stock for cash at $0.45 per
share for gross proceeds of $4,000,000. Three directors, directly or through
affiliated entities, purchased 4,143,888 of these shares for cash of $1,864,750.
Two other stockholders, each owning more than 5% of the Company’s common stock
at the time of purchase, purchased an aggregate of 200,000 shares for cash of
$90,000.




During
the years ended September 30, 2008 and 2007, officers contributed part-time
services to the Company without compensation. These services, valued at $24,000
each year, have been expensed and treated as capital contributions.




33


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements 
  Note
      6.
                      Stockholders’
      Equity
(continued)




Stock
Option Plan


Under
the 2000 Equity Incentive Plan, as amended (the "Plan") the Company is
authorized to grant incentive and nonstatutory stock options to acquire up to
950,000 shares of the Company's common stock to employees and consultants. The
term of the Plan is ten years and the term of options granted may not exceed ten
years from the date of grant. Options may be granted at a price no less than
100% of the fair market value on the grant date.




The
following table summarizes option activity for the years ended September 30,
2008 and 2007:




2008
              
              
              2007Shares
              
              
              Weighted-Average
      Exercise Price
              
              
              Aggregate
      Intrinsic Value
              
              
              Shares
              
              
              Weighted-Average
      Exercise Price
              
              
              Aggregate
      Intrinsic ValueOutstanding
      at beginning of year
              
              
              285,000
              
              
              $
              0.41
              
              
              
              
              
              
              240,000
              
              
              $
              0.41Granted
              
              
              100,000
              
              
              
              0.45
              
              
              $
              -
              
              
              
              115,000
              
              
              
              0.45
              
              
              $
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Cancelled
              
              
              (50,000
              )
              
              
              0.45
              
              
              $
              -
              
              
              
              (70,000
              )
              
              
              0.50
              
              
              $
              -Outstanding
      at end of year *
              
              
              335,000
              
              
              
              0.42
              
              
              $
              11,000
              
              
              
              285,000
              
              
              
              0.41
              
              
              $
              12,500Options
      exercisable at year-end
              
              
              260,000
              
              
              
              0.41
              
              
              $
              11,000
              
              
              
              285,000
              
              
              
              0.41
              
              
              $
              12,500




*
            Options
      outstanding at September 30, 2008 are exercisable at prices ranging from
      $0.35 to $0.45 and expire over the period from 2009 to
    2013.




At
September 30, 2008, the weighted average life of options outstanding was 2.9
years, and 615,000 shares were available for option grants under the Plan.
Intrinsic value is computed based on closing bid prices.




Note
      7.
            Related
      Party Transactions




The
Company pays a company owned by its President an aggregate of $1,000 per month
for office rent, bookkeeping and administrative services. Accordingly, such
payments aggregated $12,000 for each year ended September 30, 2008 and 2007.
Also, in 2007, the Company reimbursed such company $32,397 for direct
out-of-pocket costs associated with the formation and startup of the Subsidiary.
During the same period, the Company received a broker loan referral fee of
$1,950 from such company for referring a loan not meeting the Company’s credit
standards.




During
the years ended September 30, 2008 and, 2007, the Company incurred interest
expense of $29,750 and $37,472, respectively, related to notes held by officers
and directors and their affiliated entities.




During
2007, through the Subsidiary, the Company purchased from an entity owned by its
President a 15% note secured by a deed of trust payable by an unaffiliated
borrower with a stated principal of $760,000, an original issue date of December
28, 2006, and a due date of December 28, 2007. The net cash price for the note
was $725,800 representing the discounted value of the note computed at the
stated annual rate of 15% and the pro rata share of an initial 3% finance
charge. Interest on the note was prepaid by the borrower through June 28, 2007,
when monthly interest payments commenced at 15%. The purchase price paid
represented the cash advanced under the note adjusted only for the pro rata
interest and finance charges retained for the term from the issue date to March
28, 2007.




During
2007, the Subsidiary sold two 24% Term Notes payable by an unaffiliated borrower
with aggregate outstanding principal of $148,083 to an entity owned by the
Company’s President and Chairman. The cash price received for the notes was
$155,362 representing the outstanding principal and accrued interest at the
stated annual rate of 24% through September 21, 2007. The Subsidiary waived late
fees of $2,809 owing by the unaffiliated borrower.




34


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements 
  Note
      7.
                        Related
      Party Transactions
(continued)




In
September 2008, ASI assigned its $1,000,000 undivided interest in a note
receivable and related deed of trust of an unaffiliated borrower to DavCap, LLC
(“DavCap”), an entity formed at that time for that purpose and 50% owned by the
Company’s president and director. The note was due in July 2008 and the Company
elected to dispose of the note in this fashion in lieu of pursuing collection,
foreclosure or other alternatives. The assignment was made without recourse or
participation. The Company received in exchange an unsecured 12% note payable
for the principal amount of $1,000,000 due September 29, 2009, with interest
payable monthly.




The
Company’s management believes that, under FIN 46R, DavCap is a VIE and that ASI
is its primary beneficiary, thus requiring it to be consolidated in the
accompanying financial statements. The $1,000,000 note receivable held by DavCap
is included in notes receivable and has a full allowance for note loss due to
improbability of collection (see Note 3). The nominal noncontrolling interest of
$1,000 in DavCap is not separately presented at September 30, 2008. We expect to
consolidate DavCap as long as it continues to qualify for consolidation as a
VIE. Subsequent to September 30, 2008, we received payments of $119,500 on the
unsecured (effectively, intercompany) note.




See
Notes 3, 5, 6 and 11 for additional related party disclosures.




Note
      8.
            Income
      Taxes




Effective
October 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109
(FIN 48). As a result of the implementation of FIN 48, the Company recognized no
adjustment for uncertain tax provisions and there was no total amount of
unrecognized tax benefits as of October 1, 2007.  The Company’s
adoption of FIN 48 did not have any effect on its financial condition, results
of operations, cash flows, deferred tax assets or related valuation
allowances.




The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years ended
September 30, 2008 and 2007 as follows:




2008
              
              
              %
              
              
              2007
              
              
              %Computed
      "expected" tax provision (benefit)
              
              $
              (922,000
              )
              
              
              (34%)
              
              
              $
              18,000
              
              
              
              34%Increase
      (decrease) in income taxes resulting from:Increase
      (decrease) in valuation allowance
              
              
              915,000
              
              
              
              34%
              
              
              
              (39,000
              )
              
              
              (100%)Nondeductible
      compensation and other
              
              
              7,000
              
              
              
              -%
              
              
              
              21,000
              
              
              
              66%$
              -
              
              
              
              -
              
              
              $
              -
              
              
              
              -




The
types of temporary differences between the tax basis of assets and liabilities
and their approximate tax effects that give rise to such net deferred tax assets
are as follows:




September
      30,2008
              
              
              2007Deferred
      income tax assets:Federal
      net operating loss carryforwards
              
              $
              27,000
              
              
              $
              52,000Federal
      capital loss carryforwards
              
              
              188,000
              
              
              
              189,000Note
      loss allowance
              
              
              958,000
              
              
              
              -Stock
      compensation
              
              
              15,000
              
              
              
              12,000Deferred
      rent
              
              
              25,000
              
              
              
              33,0001,213,000
              
              
              
              286,000Deferred
      income tax liabilities:Depreciation
      and amortization
              
              
              (23,000
              )
              
              
              (11,000
              )1,190,000
              
              
              
              275,000Valuation
      allowance
              
              
              (1,190,000
              )
              
              
              (275,000
              )Net
      deferred income taxes
              
              $
              -
              
              
              $
              -




35


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements 
  Note
      8.
                          Income
      Taxes
(continued)




A
valuation allowance has been provided for those deferred tax assets that
management believes are not likely to be realized. Realization is dependent upon
future earnings during the period loss carryforwards are expected to be
available. Management believes it is more likely than not that its net deferred
tax assets will not be realized due to substantial economic uncertainties (Note
9). A valuation allowance is also maintained against a deferred tax asset
related to capital loss carryforwards due to improbability of the occurrence of
future capital gains necessary to realize the loss carryforward.




The
Company has net operating and capital loss carryforwards available to reduce
future tax income, if any, of approximately $79,000 and $552,000, respectively,
as of September 30, 2008, that expire between December 31, 2021, and September
30, 2025.




The
tax years 2003 through 2007 remain open under the statue of limitations to
examination by the major tax jurisdictions to which we are subject. However, due
to net operating loss carryforwards (NOL) from prior periods, the Internal
Revenue Service (IRS) could potentially review the losses related to
NOL-generating years back to 2001.




Note
      9.
            Other
      Concentrations and Financial
Instruments




The
United States is experiencing a widespread decline in residential and other real
estate sales, construction, mortgage and other lending activity, together with a
reduction in general credit availability and instability in the commercial and
investment bankng systems, and is engaged in war, all of which are likely to
have far-reaching effects on economic activity in the country for an
indeterminate period. The near- and long-term impact of these factors on the
southern Nevada economy and the Company's operations cannot be predicted at this
time but may be substantial.




From
time-to-time, the Company carries cash and securities balances on deposit with
financial institutions that are substantially in excess of federally insured
limits, and the risk of losses related to such concentrations may be increasing
as a result of recent economic developments discussed in the foregoing
paragraph. The extent of a future loss to be sustained as a result of uninsured
deposits in the event of a future failure of a bank or other financial
institution, if any, however, is not subject to estimation at this
time.




The
carrying values of financial instruments including cash, notes receivable,
accounts payable and accrued liabilities and notes payable approximated fair
market value because of the short-term maturity of these
instruments.




Note
      10.
            Commitments




Operating
Lease


Effective
in June 2007, the Company subleased and occupied approximately 3,750 square feet
of office space within space leased by the Company’s President and an unrelated
individual. The rate paid pursuant to the sublease is the same rate as charged
by the unrelated primary landlord. The Company received a gross cash leasehold
improvement incentive as a pass-through from the primary landlord of $136,224 of
which $32,800 related to space not subleased or improved by the Company. The
$32,800 was included in accrued liabilities at September 30, 2007 and
subsequently repaid in May 2008. The current monthly payment of $8,144 is
subject to future cost of living and operating expense adjustments, through
March 2012. Aggregate lease expense, net of deferred rent amortization, for the
years ended September 30, 2008 and 2007, was $74,862 and $24,343, respectively.
The minimum obligation for future rent payments under this operating sublease is
as follows:




Year
      ending September 30:2009
                
                $
                99,4432010
                
                
                102,9242011
                
                
                106,5262012
                
                
                54,179




36


ASI
TECHNOLOGY CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements 
  Note
      10.
                            Commitments
      (continued)




Technology


Prior
to 2007, the Company entered into a license agreement with a minimum term of 15
years subject to certain commercialization performance requirements after the
third year that management believes the Company has satisfied. This agreement
granted the Company worldwide exclusive rights to one patent and related
technology for a certain plasma sterilization and decontamination
method.




The
agreement provides for future royalty payments to the licensor based on product
sales or sublicense fees with no minimum royalties.




Prior
to 2007, the Company also acquired sound reduction technology for jet engines.
The Company is obligated to pay certain royalties on product revenues or license
revenues, if any, to be received by the Company and a fee on sale proceeds due
in the event of any further sale of the technology.  There are no minimum
royalties. The Company is not presently developing this technology.




Note
      11.
            Segment
      Reporting




The
Company has two reportable segments, specialty finance and technology
development. The Company allocates collection, general and administrative costs
between segments.




Specialty
              
              
              TechnologyFinance
              
              
              Development
              
              
              Unallocated
              
              
              TotalYear ended September
      30, 2008Interest,
      fee and investment income
              
              $
              822,432
              
              
              
              
              
              
              
              
              $
              822,432Interest
      expense
              
              
              (98,664
              )
              
              
              
              
              
              
              
              
              (98,664
              )Loan
      losses
              
              
              (2,948,370
              )
              
              
              
              
              
              
              
              
              (2,948,370
              )Research
      and development
              
              
              -
              
              
              $
              (14,902
              )
              
              
              
              
              
              (14,902
              )Collection,
      general and administrative
              
              
              (317,204
              )
              
              
              
              
              
              $
              (159,329
              )
              
              
              (476,533
              )Segment
      loss, pre tax
              
              $
              (2,541,806
              )
              
              $
              (14,902
              )
              
              $
              (159,329
              )
              
              $
              (2,716,037
              )Assets
              
              $
              3,249,622
              
              
              
              
              
              
              
              
              
              
              $
              3,249,622Year ended September
      30, 2007Interest,
      fee and investment income
              
              $
              624,641
              
              
              
              
              
              
              
              
              
              
              $
              624,641Interest
      expense
              
              
              (139,187
              )
              
              
              
              
              
              
              
              
              
              
              (139,187
              )Loan
      losses
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              -Research
      and development
              
              
              -
              
              
              $
              (5,465
              )
              
              
              
              
              
              
              (5,465
              )Collection,
      general and administrative
              
              
              (286,856
              )
              
              
              
              
              
              $
              (139,872
              )
              
              
              (426,728
              )Segment
      profit (loss), pre tax
              
              $
              198,598
              
              
              $
              (5,465
              )
              
              $
              (139,872
              )
              
              $
              53,261Assets
              
              $
              6,507,375
              
              
              
              
              
              
              
              
              
              
              $
              6,507,375
 37
  ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE





None





ITEM
9A(T).  CONTROLS & PROCEDURES





Attached
as exhibits to this Form 10-K are certifications of our Chief Executive Officer
and Chief Financial Officer that are required in accordance with Rule 13a-14 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
“Controls and Procedures” section includes information concerning the controls
and controls evaluation referred to in the certifications.





Evaluation
of Disclosure Controls and Procedures


We
maintain disclosure controls (as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934 as amended (the“Exchange Act”)) and procedures that are
designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures, which, by their nature,
can provide only reasonable assurance regarding management’s control
objectives.





At the
conclusion of the period ended September 30, 2008, we carried out an evaluation,
under the supervision and with the participation of our management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures, as defined in Rule
13a-15(e) of the Exchange Act, were not effective due to the existence of a
material weakness in our internal control over financial reporting at September
30, 2008.





Management’s
Report on Internal Control Over Financial Reporting


Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for our company. We maintain internal control over financial
reporting designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States of America. Internal control over financial reposting includes
those policies and procedures that (i) pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of ASI; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with authorizations of management and directors of ASI;
and (iii) provide reasonable assurance regarding prevention and timely detection
of unauthorized acquisition, use, or disposition of ASI’s assets that could have
a material effect on the financial statements.





Management
conducted an assessment of the effectiveness of our internal control over
financial reporting as of September 30, 2008 using criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). This assessment included
evaluation of elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting policies, and
our overall control environment. Management’s assessment is supported by testing
and monitoring performed by certain of our finance and accounting personnel of
the operational effectiveness of our internal control.





Based on
this assessment, management identified the lack of sufficient industry specific
internal accounting expertise to provide reasonable assurance that our financial
statements and notes thereto, are prepared in accordance with generally accepted
accounting principles (GAAP) as a material weakness in our internal control over
financial reporting at September 30, 2008. Our independent registered public
accountants identified the need for additional allowances for note losses at
September 30, 2008 that led to a material adjustment to our financial
statements. We also initially failed to identify and classify a newly formed
related party as a variable interest entity for disclosure and reporting. In
light of this material weakness management concluded that our internal control
over financial reporting needs improvement and was not effective. As defined by
the Public Company Accounting Oversight Board Auditing Standard No. 5, a
material weakness is a deficiency or a combination of deficiencies, such that
there is a reasonable possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected. In order to
ensure the effectiveness of our disclosure controls in the future we continue to
train our internal financial personnel on industry specific accounting
requirements including the loan loss methodology of SEC Staff Accounting
Bulletin No. 102 – “Selected Loan Loss Allowance Methodology and Documentation
Issues” as well as the impact of both new and industry specific accounting
pronouncements on major transactions.




38


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





Inherent
Limitations on Effectiveness of Controls


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





Changes
In Internal Control Over Financial Reporting


No change
in our internal controls over financial reporting occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM
9B. OTHER INFORMATION





None.





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Directors and
Officers





The
following table sets forth information with respect to each director and
executive officer of ASI as of October 31, 2008:




Name
              Age
              PositionJerry
      E. Polis
              76
              President
      and Director since 1973Eric
      M. Polis
              38
              Secretary,
      Treasurer and Director since August 2000Gerald
      L. Ehrens
              69
              Director
      since September 2005Richard
      A. Fait
              70
              Director
      since January 2006





There is
no arrangement between any of the directors or executive officers and any other
person or persons, pursuant to which he was or is to be selected as a director
or executive officer. Jerry E. Polis is the father of Eric M. Polis. There is no
other blood relationship between or among the directors or executive
officers.





Each
director serves until the next annual meeting or until their successor is
elected or appointed.





Jerry E. Polis has been
President and a director since 1973. Since 1963 he has been self-employed
primarily in real estate investment, from 1964 to 2002 he owned and operated
Polis Realty and since 1973 has been President and Director of Davric
Corporation, a private investment company. From 1968 to the sale of his
ownership in January 1997, he was active as a co-owner of the Taco Bell
franchises for the State of Nevada (operated under privately owned Las Cal
Corporation). In 1994, he co-founded Commercial Bank of Nevada, an unlisted
publicly owned bank located in Las Vegas, Nevada, which was sold through a
merger to a NYSE bank group in June 1998. He was a director of Commercial Bank
from 1994 and Chairman from May 1996 until its sale. He also served as a
director of SouthwestUSA Bank and its parent SouthwestUSA Corporation from March
2004 to February 2006. Mr. Polis graduated from Penn State University with a
B.A. Degree in Commerce in 1953.




39




Eric M. Polis has been
Secretary and Treasurer of the Company since July 2000. From 1993 to 2002 he was
a licensed real estate agent with Polis Realty with property management and
leasing responsibilities. He has been employed as an asset manager for privately
held Davric Corporation since 1997. Mr. Polis is also a private investor and
serves on the board of several Las Vegas non-profit organizations. In October
2008 he was appointed as a director of publicly traded e.Digital Corporation. He
obtained a B.S. in Business Administration from the University of Arizona in
1993.





Gerald L. Ehrens has been a
self-employed private investor since 1994. From 1992 to 1994 he was Chief
Operating Officer of Inamed Corp., a Nasdaq medical device company. Previously
he held senior executive positions at E.I. Dupont and Union Carbide with his
last position at Union Carbide in 1992 being Vice President of New Business
Development. In 1996, he was appointed as a director of unlisted publicly owned
Commercial  Bank of Nevada and served until its sale through merger to
a NYSE bank group in June 1998. He also served as a director of SouthwestUSA
Bank and its parent SouthwestUSA Corporation from June 2003 to February 2006.
Mr. Ehrens received a BS in Chemical Engineering from Princeton University in
1961 and a MS in Industrial Administration from George Washington University in
1965.





Richard A. Faithas been a
self-employed investor since 2001. From 1966 to January 2001 he served as
President of the Peoples Bank of Aberdeen, South Dakota and Chairman and
President of its holding company, Investment Corporation of America. From the
mid-1960's to 2001 he was an owner, officer and director of ten community banks
in the Midwest. From 1972 to 2000 he was a practicing certified public
accountant in South Dakota and Minnesota. Mr. Fait received a degree in
Accounting from Nettleton College in 1958.





Conflicts of
Interest





Certain
conflicts of interest now exist and will continue to exist between us and
certain of our officers, directors and consultants due to the fact that they
have other employment or business interests to which they devote some attention
and they are expected to continue to do so. We have not established policies or
procedures for the resolution of current or potential conflicts of interest
between us and management, consultants or affiliated entities. There can be no
assurance that members of management will resolve all conflicts of interest in
our favor. Our officers and directors are accountable to us as fiduciaries and
are required to adhere to our Code of Business Conduct and Ethics, which means
that they are legally obligated to exercise good faith and integrity in handling
our affairs. Failure by them to conduct our business in our best interests may
result in liability to them.





Our
president and certain other directors and officers, in addition to being
part-time and having other business interests, also invest in real estate loans
through other entities. There is a risk that management may select a real estate
loan that has different returns or risk profile than loans not so selected and
funded through other entities. There are no restrictions or guidelines on how
management will determine which loans are appropriate for us and which are
appropriate for other entities in which management may have an interest.
Management has no obligation to provide us with any particular
opportunities.





It is
conceivable then that our areas of interest could overlap or conflict with other
business interests of our management, shareholders or our consultants. Any such
conflicts, should they arise, will be addressed at the appropriate
time.





Code of
Ethics





We have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer and principal accounting officer or persons
performing similar functions (as well as its other employees and directors). A
copy of the Code Ethics for Senior Officers is posted on our Internet site at
www.asiplasma.com. In addition, a copy will be provided without charge to any
person upon request. Requests for copies of our Code of Ethics should be sent by
mail to Corporate Secretary at ASI Technology Corporation, 980 American Pacific
Drive, Suite #111, Henderson, Nevada 89014. Requests may also be made by calling
the Company at (702) 734-1888. In the event we make any amendments to, or grant
any waivers of, a provision of the Code Ethics for Senior Officers that applies
to the principal executive officer, principal financial officer, or principal
accounting officer that requires disclosure under applicable SEC rules, we
intend to disclose such amendment or waiver and the reasons therefore on a Form
8-K or on our next periodic report.




40




Section 16(a) Beneficial
Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 (the “Act”) requires the Company’s
officers, directors and persons who own more than 10% of a class of the
Company’s securities registered under Section 12(g) of the Act to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (“SEC”).  Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.




Based
solely on a review of copies of such reports furnished to the Company and
written representations that no other reports were required during the year
ended September 30, 2008, the Company believes that all persons subject to the
reporting requirements pursuant to Section 16(a) filed the required reports on a
timely basis with the SEC except as follows:




·
              In
      connection with stock option grants to four directors with a grant date of
      January 28, 2008 each director (Jerry E. Polis, Eric M. Polis, Gerald L.
      Ehrens and Richard A. Fait) filed one Form 4 late on February 13, 2008
      with each form reporting one
transaction.




Committees





The
Company has no formal or separate nominating or compensation committee with the
board of directors as a whole serving in such capacities due to the size of the
Company. On September 17, 2007, the Board of Directors established an Audit
Committee consisting of two members, Richard A. Fait and Gerald L. Ehrens. The
Board determined that Mr. Fait and Mr. Ehrens are “independent directors” as
that term is defined in NASDAQ National Stock Market rules and Rule 10A-3 of the
Securities Exchange Act of 1934 and that Mr. Fait is an “audit committee
financial expert” as that term is defined in Item 407 of Regulation S-B
promulgated by the SEC. Mr. Fait was appointed as the chair of the Audit
Committee. The Board also adopted an audit committee charter.




We have
not adopted any procedures by which security holders may recommend nominees to
our Board of Directors and accordingly there have been no material changes to
this policy.




ITEM
11. EXECUTIVE COMPENSATION





Overview





We have a
limited number of employees and currently only two executive
officers.





The Board
of Directors has not established a base salary for our current two executive
officers (Jerry E. Polis, our PEO (Principal Executive Officer) and Eric M.
Polis, our PFO (Principal Financial Officer)) who only provide part-time
services to our company. Other than a $2,500 cash bonus paid to Eric M. Polis in
December 2007 our two executive officers  received no cash
compensation for their services as executive officers.  There were no
cash bonuses paid or accrued during the year pursuant to our Executive Bonus
Plan (“Bonus Plan”).





Our two
executive officers received compensation during fiscal 2008 for attendance at
Board of Director and Loan Committee meetings. The rate paid during fiscal 2008
was $200 per meeting ($400 per meeting for the Chairman) for directors (employee
and non-employee) and $100 for each audit committee meeting and $50 for each
loan committee meeting.





Our
long-term incentive program consists of the Bonus Plan and a stock option plan
pursuant to which the PEO and other executive officers (as well as other
employees and consultants) are periodically granted stock options at the then
fair market value (or higher prices) of our common stock and are eligible for
bonus participation. Options are granted pursuant to the 2000 Equity Incentive
Plan and are designed to provide such persons with compensation based on overall
company performance as reflected in the stock price and to help align employees’
and shareholders’ interests.





Under the
2000 Equity Incentive Plan, we are authorized to grant incentive and
nonstatutory stock options to acquire up to 950,000 shares of the Company's
common stock to employees and consultants. The term of the Plan is ten years and
the term of options granted may not exceed ten years from the date of grant.
Options may be granted at a price no less than 100% of the fair market value on
the grant date. Stock options are typically granted periodically to a group of
existing employees, consultants and executive officers.




41


On March
13, 2007, the Board of Directors (“Board”) approved an Executive Bonus Plan. The
Bonus Plan is designed to align the interests of our executive officers and
eligible employees with the interests of stockholders by linking bonus amounts
directly to Company performance. Executive officers and eligible employees (so
designated from time to time by the Board) (the “Participants”) are eligible to
receive cash bonuses under the Plan based on the Company’s consolidated net
income before tax plus any depreciation, amortization and non-cash interest or
non-cash derivative expenses (“Adjusted Pre-Tax Income”). The bonus pool
available for all executive officers and key employees shall be equal to 10% of
Adjusted Pre-Tax Income of $500,000 to a maximum $5,000,000 for each fiscal year
commencing with fiscal 2007 until the Plan is terminated or amended by the
Board. No bonus pool shall be allocated if Adjusted Pre-Tax Income is less than
$500,000 in a fiscal year.





To be
eligible for participation in the Plan’s bonus pool Participants must be
employed at fiscal year end. The Board has discretion to allocate the bonus pool
among Participants and may designate in advance for individual Participants the
minimum portion of the bonus pool that may be allocated to them based on their
performance in such fiscal year(s). Actual bonus payments, if any, will
therefore vary based on the Company’s financial performance and individual
Participant bonuses will vary on allocation of the bonus pool among Participants
each year. In addition the Board has the discretion to award cash bonuses
outside the Plan or otherwise increase, reduce or eliminate cash bonuses that
would otherwise be payable under the Plan in its sole discretion. Even if the
financial performance is not achieved, the Board may award certain Participants
cash performance bonuses outside the Plan and may award other performance-based
compensation based on fees generated from brokered loans or as the result of
other fees.





Our Board
of Directors serves as the compensation committee and has not adopted a formal
charter. The Board currently performs the following functions regarding
compensation for the named executive officers (“ NEOs”):


·
              Sets
      Board of Director and committee compensation to which NEOs are
      eligible.


·
            Evaluates
      NEO performance in light of goals and determines equity
      awards.


·
            Annually
      reviews the status of the Bonus Plan and any NEO special
      benefits.





In the
future the Board of Directors in their role as compensation committee
may:


·
              Establish
      base salaries to existing or future executive
  officers.


·
            Authorize
      bonus participation within or outside the Bonus Plan or modify the plan or
      plan parameters.


·
            Establish
      employee benefits.





PEO Compensation. During
fiscal 2008, no base salary was paid or accrued to our PEO, Jerry E. Polis. The
Board believes this is a level below the range of base salaries for Principal
Executive Officers at similarly situated companies, even for part-time services.
The non-payment of salaries reflects an effort to contain costs during the
development and growth of our business. The Board believes Mr. Jerry E. Polis
has long-term stock incentives through his significant personal stock ownership,
equity incentives and eligibility to participate in the Bonus Plan. Mr. Polis is
an employee at will.





SUMMARY
COMPENSATION TABLE





The
following table shows for the year ended September 30, 2008 certain compensation
information for our PEO, PFO and Subsidiary President (each a “Named Executive
Officer” and collectively, the “Named Executive Officers”). We had no other
reportable executive officers for fiscal 2008 and 2007. Certain columns have
been omitted as they were not applicable for the Named Executive Officers for
the period presented.




Option
              
              
              All
      OtherSalary
      (1)
              
              
              Bonus(1)
              
              
              Awards
      (2)
              
              
              Compensation
      (3)
              
              
              TotalName
      and Principal Position
              Year
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)Jerry
      E. Polis, President and Chairman (PEO)
              2008
              
              $
              -
              
              
              $
              -
              
              
              $
              1,941
              
              
              $
              850
              
              
              $
              2,7912007
              
              $
              -
              
              
              $
              -
              
              
              $
              4,866
              
              
              $
              1,200
              
              
              $
              6,066Eric
      M. Polis,  Director, Secretary and Treasurer
    (PFO)
              2008
              
              $
              -
              
              
              $
              2,500
              
              
              $
              1,941
              
              
              $
              450
              
              
              $
              4,8912007
              
              $
              -
              
              
              $
              -
              
              
              $
              4,866
              
              
              $
              600
              
              
              $
              5,466


(1)
              Represents
      actual cash compensation.


(2)
            Represents
      the amount of compensation cost recognized by us in fiscal 2008 and 2007
      related to stock option awards vested during fiscal 2008 and 2007, as
      described in Statement of Financial Accounting Standards No. 123R (SFAS
      123R). For a discussion of valuation assumptions, see Note 1 to our 2008
      Consolidated Financial Statements included in our Annual Report on Form
      10-K for the year ended September 30,
  2008.


(3)
            Represents
      director and loan committee fees paid for attendance at
      meetings.





42




OUTSTANDING
EQUITY AWARDS AT YEAR END





The
following table shows the number of shares covered by exercisable and
unexercisable options held by the Named Executive Officers on September 30,
2008. There were no other outstanding equity awards as of September 30,
2008.




Number
      of Securities Underlying Unexercised Options
                                
                                
                                Number
      of Securities Underlying Unexercised Options
                                
                                
                                
                                
                                
                                Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned
                                
                                
                                Option
      Exercise
                                
                                Option(#)
                                
                                
                                (#)
                                
                                
                                
                                
                                
                                Options
                                
                                
                                Price
                                
                                ExpirationName
                                
                                Exercisable
                                
                                
                                Unexercisable
                                
                                
                                
                                
                                
                                (#)
                                
                                
                                ($)
                                
                                DateJerry
      E. Polis
                                
                                
                                10,000
                                
                                
                                
                                -
                                
                                
                                
                                (1)
                                
                                
                                
                                -
                                
                                
                                $
                                0.35
                                
                                12/6/200910,000
                                
                                
                                
                                -
                                
                                
                                
                                (1)
                                
                                
                                
                                -
                                
                                
                                $
                                0.40
                                
                                1/8/201120,000
                                
                                
                                
                                -
                                
                                
                                
                                (1)
                                
                                
                                
                                -
                                
                                
                                $
                                0.45
                                
                                12/11/20115,000
                                
                                
                                
                                15,000
                                
                                
                                
                                (2)
                                
                                
                                
                                -
                                
                                
                                $
                                0.45
                                
                                1/15/2013Eric
      M. Polis
                                
                                
                                10,000
                                
                                
                                
                                -
                                
                                
                                
                                (1)
                                
                                
                                
                                -
                                
                                
                                $
                                0.35
                                
                                12/6/200910,000
                                
                                
                                
                                -
                                
                                
                                
                                (1)
                                
                                
                                
                                -
                                
                                
                                $
                                0.40
                                
                                1/8/201120,000
                                
                                
                                
                                -
                                
                                
                                
                                (1)
                                
                                
                                
                                -
                                
                                
                                $
                                0.45
                                
                                12/11/20115,000
                                
                                
                                
                                15,000
                                
                                
                                
                                (2)
                                
                                
                                
                                -
                                
                                
                                $
                                0.45
                                
                                1/15/2013




(1)
              These
      options were fully vested at September 30,
2008.


(2)
              These
      options vest at the rate of 2,500 every three months. An additional 2,500
      shares vested and became exercisable on October 28, 2008 and an additional
      2,500 shares vest and become exercisable each three months
      thereafter  until fully vested subject to continued service and
      other conditions of each option
grant.





There
were no options exercised by the Named Executive Officers during fiscal 2008.
There are no pension benefits for any Named Executive Officer. No named
executive officer has any employment agreement, termination of employment or
change in control arrangement.





Director
Compensation





Our
directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors and committee meetings. Members of
the board of directors receive equity compensation grants as consideration for
board and committee service from time to time. There is no established policy as
to frequency or amount of equity compensation grants for non directors. The
following meeting payment rates were in effect for fiscal 2008: $200 for each
director meeting ($400 for the Chairman, an executive officer) and $100 for each
audit committee meeting (Mssrs. Fait and Ehrens are the members) and $50 for the
loan committee of the Subsidiary (current members are executive officers Jerry
E. Polis and Eric M. Polis). Meeting fees apply to both employee and
non-employee directors.








43


The
following table sets forth the compensation paid to our non-employee directors
in 2008. Employee director compensation is described above.


FeesEarnedor
      Paid
                
                
                Option
                
                
                All
      Otherin
      Cash
                
                
                Awards
      (1) (2)
                
                
                Compensation
                
                
                TotalName
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)Gerald
      L. Ehrens
                
                $
                800
                
                
                $
                971
                
                
                
                -
                
                
                $
                1,771Richard
      A. Fait
                
                $
                800
                
                
                $
                971
                
                
                
                -
                
                
                $
                1,771


(1)
                Represents
      the amount of compensation cost recognized by us in fiscal 2008 related to
      stock option awards on 10,000 shares granted and partially vested for each
      listed non-employee director as described in Statement of Financial
      Accounting Standards No. 123R (SFAS 123R). For a discussion of valuation
      assumptions, see Note 1 to our 2008 Consolidated Financial Statements
      included in our Annual Report on Form 10-K for the year ended September
      30, 2008.


(2)
                The
      following are the aggregate number of option awards outstanding for each
      of our non-employee directors at September 30, 2008 – Ehrens: 40,000 and
      Fait: 30,000.





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





Common Stock
Ownership





The
following table sets forth, as of November 30, 2008, the Common Stock ownership
of each of our directors and officers, all of our executive officers and
directors as a group, and each person known by us to be a beneficial owner of 5%
or more of our outstanding shares of Common Stock. Except as otherwise noted,
each person listed below is the sole beneficial owner of the shares and has sole
investment and voting power as to such shares.





Name
      and Address of Beneficial Owner
              
              Amount
      & Nature of Beneficial Ownership
              
              
              
              Percent
      of ClassJerry
      E. Polis
              
              
              7,127,612
              
              (1)
              
              
              41.5%President
      and Director980
      American Pacific Drive, #111Henderson,
      Nevada 89014Eric
      M. Polis
              
              
              453,750
              
              (2)
              
              
              2.6%Secretary,
      Treasurer and Director980
      American Pacific Drive, #111Henderson,
      Nevada 89014Gerald
      L. Ehrens
              
              
              183,750
              
              (3)
              
              
              1.1%Director980
      American Pacific Drive, #111Henderson,
      Nevada 89014Richard
      A. Fait
              
              
              123,750
              
              (4)
              
              
              0.7%Director980
      American Pacific Drive, #111Henderson,
      Nevada 89014All
      directors and officers as a group
              
              
              7,708,612
              
              (5)
              
              
              44.6%(4
      persons)


____________________________




44




(1)
              Includes
      3,412,927 shares held by the Polis Family Trust, 100,000 shares held by
      Polis Family LLC and 3,436,888 shares held by Davric Corporation, a
      company controlled by Mr. Polis. Mr. Polis shares investment and voting
      power over the shares held by Polis Family LLC with Eric M. Polis and
      other family members. Also includes currently exercisable options on
      47,500 shares of common
stock.


(2)
            Includes
      226,000 shares held by family trust and 100,000 shares held by the Polis
      Family LLC. Mr. Polis shares investment and voting power over the shares
      held by Polis Family LLC with Jerry E. Polis and other family members.
      Also includes currently exercisable options on 47,500 shares of common
      stock.


(3)
            Consists
      of 150,000 shares held by family limited partnership. Also includes
      currently exercisable options on 33,750 shares of common
      stock.


(4)
            Consists
      of 100,000 shares held by family trust. Also includes currently
      exercisable options on 23,750 shares of common
  stock.


(5)
            Includes
      currently exercisable options on 152,500 shares of common
      stock.





Equity
Compensation Plan Information





At
September 30, 2008, we had one equity incentive plan under which equity
securities are or have been authorized for issuance to our employees,
consultants or directors: the 2000 Equity Incentive Plan approved by our
stockholders. On May 1, 2006 our stockholders approved an increase in the
authorized shares pursuant to the 2000 Equity Incentive Plan from 250,000 common
shares to 950,000 common shares. The following table gives information as of
September 30, 2008:




Number
      of securities to be issued upon exercise of outstanding options, warrants
      and 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 in column
      (a))Plan Category
            
            (a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved by security holders
            
            
            335,000
            
            
            $
            0.42
            
            
            
            615,000Equity
      compensation plans not approved by security holders
            
            
            --
            
            
            
            --
            
            
            
            --Total
            
            
            335,000
            
            
            $
            0.42
            
            
            
            615,000





Other
than the 2000 Equity Incentive Plan, we do not have any stock appreciation
rights plans in effect, outstanding warrants or rights and have no long-term
incentive plans, as those terms are defined in Securities and Exchange
Commission regulations.





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





We
currently share office space with Davric Corporation ("Davric"), an entity
controlled by our President and Chairman Jerry E. Polis. We are paying Davric
Corporation $1,000 per month for use of this space and associated administrative
costs. We paid $12,000 in 2008 in such costs.





During
the year ended September 30, 2008, we incurred interest expense of $29,750
related to $510,000 of 7% subordinated notes due July 31, 2008 held by our
officers and directors and their affiliated entities. In July 2008 four
directors were paid $178,214 to retire the principal of Subordinated Notes held
by them, and they applied $331,786 to the exercise of warrants to purchase
663,571 shares of our common stock all on the same terms as unrelated persons.
Additional warrants for 90,000 shares of common stock were also exercised by an
entity controlled by Mr. Jerry E. Polis, our director and president, for cash of
$45,000.





In
September 2008, we assigned our $1,000,000 undivided interest in a note and
related deed of trust payable by an unaffiliated borrower to an entity 50% owned
by our president and director, Jerry E. Polis. The note was due in July 2008,
and we elected to dispose of the note in lieu of pursuing collection,
foreclosure or other alternatives. The assignment was made without recourse or
participation. We received in exchange an unsecured 12% note payable for the
principal amount of $1,000,000 due September 29, 2009 with interest payable
monthly. Subsequent to September 30, 2008 we received payments of $119,500 on
the new note.





At
September 30, 2008, we had a note receivable from e.Digital Corporation
(“e.Digital”) in the amount of $400,000. Our Chairman and President and greater
than 10% shareholder, Jerry E. Polis, is a 4.9% shareholder of e.Digital and is
also a debtor, through an entity controlled by him,  of e.Digital
pursuant to an unrelated convertible term note in the principal of amount of
$626,943 at September 30, 2008. Mr. Polis is not an officer or director of
e.Digital and the financing was negotiated in the normal course of both
companies business. On October 10, 2008 Mr. Eric Polis was appointed as a
director of e.Digital. Since Mr. Jerry E. Polis and Mr. Eric Polis own
collectively less than 10% of the ownership of e.Digital they are not considered
to have a reportable indirect material interest.




45


Effective
in June 2007, our Subsidiary subleased and occupied approximately 3,750 square
feet of office space at 9121 W. Russell Rd., Suite 110, Las Vegas, Nevada within
space leased by our President, Jerry E. Polis, and an unrelated individual. The
rate paid pursuant to the sublease is a pass-through of the same monthly rate as
charged by the unrelated primary landlord. The current monthly payment of $8,144
is subject to future cost of living and operating expense adjustments, through
March 2012. Aggregate lease expense paid to the primary landlord, net of
deferred rent amortization, was $74,862 and $24,343 for the year ended September
30, 2008 and 2007, respectively.





We
recorded $24,000 in 2008 and 2007 as contributed services for officers including
Jerry E. Polis. No common stock or other value is due for these contributed
services.





Director
Independence





Our
common stock is quoted on the OTC Bulletin Board inter-dealer quotation system,
which does not have director independence requirements. Our Board of Directors
is comprised of four individuals, two of whom (Messrs. Ehrens and Fait) we have
determined are independent under NASDAQ National Stock Market rules. We consider
Mr. Jerry E. Polis as our PEO (principal executive officer).





ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.





The Audit
Committee (and previously the entire Board of Directors) pre-approved all audit,
audit-related and non-audit services performed by our independent registered
public accounting firm and subsequently reviewed the actual fees and expenses
paid to Piercy Bowler Taylor & Kern. The Audit Committee has determined that
the fees paid to Piercy Bowler Taylor & Kern for non-audit services are
compatible with maintaining Piercy Bowler Taylor & Kern’s independence
as our independent registered public accounting firm.





AUDIT
FEES. The aggregate fees billed by Piercy Bowler Taylor & Kern to the date
of this report for professional services for the audit of the financial
statements of the Company and the reviews of the financial statements included
in the Company's quarterly reports for 2008 and 2007 were $59,020 and $48,370
including expenses, respectively.





AUDIT-RELATED
FEES. There were no other fees billed by the Company’s principal accountants
during the fiscal years ended September 30, 2008 or 2007 for assurance and
related services that were reasonably related to the performance of the audit or
review of the Company’s financial statements and not reported under “Audit Fees”
above.





TAX FEES.
There were no fees billed by the Company’s principal accountant during the last
two fiscal periods for professional services rendered for tax compliance, tax
advice and tax planning.





ALL OTHER
FEES FOR PRODUCTS AND SERVICES. There were no other fees billed or billable by
the Company’s principal accountants during the fiscal years ended September 30,
2008 or 2007 for professional services rendered for other products or
services.





PART
IV





ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





The
following documents are filed as part of this Annual Report on Form
10-K:




Number
            Description of
      Exhibit3.1
            Restated
      Articles of Incorporation of ASI Technology Corporation as filed with the
      Secretary of State of Nevada on September 1, 2000. Incorporated by
      reference to Exhibit 3.1 on Form 10-KSB for the year ended December 31,
      2000, dated March 23, 2001.3.1.1
            Amendment
      to the Restated Articles of Incorporation of ASI Technology Corporation as
      filed with the Secretary of State of Nevada on May 3, 2006. Incorporated
      by reference to Exhibit 3.1.1 on Form 10-QSB/A dated November 2,
      2006.3.2
            Bylaws
      of the Company. Incorporated by reference to Exhibit 3.2 on Form 10-KSB
      for the year ended December 31, 2000, dated March 23,
  2001.




46




4.1
            Form
      of Certificate evidencing common stock of the Company. Incorporated by
      reference to Exhibit 4.1 on Form 10-KSB for the year ended December 31,
      2000, dated March 23, 2001.4.2
            Form
      of Securities Purchase Agreement between the Company and private placees.
      Incorporated by reference to Exhibit 10.6 on Form 8-K dated August 31,
      2005.4.3
            Form
      of 7% Subordinated Promissory Note issued by the Company to noteholders.
      Incorporated by reference to Exhibit 10.7 on Form 8-K dated August 31,
      2005.4.4
            Form
      of Stock Purchase Warrant for Common Stock Exercisable at $0.50 per share
      until July 31, 2008. Incorporated by reference to Exhibit 10.8 on Form 8-K
      dated August 31, 2005.4.5
            Form
      of Securities Purchase Agreement dated January 26, 2007 (each individual
      agreement differs as to investor, amount and shares purchased).
      Incorporated by reference to Exhibit 99.1 on Form 8-K dated January 29,
      2007.10.1
            2000
      Equity Incentive Plan ratified by the shareholders on August 1, 2000.
      Incorporated by reference to Exhibit 10.1 on Form 10-KSB for the year
      ended December 31, 2000, dated March 23, 2001.10.1.1
            Standard
      form of stock option agreement under the 2000 Equity Incentive Plan.
      Incorporated by reference to Exhibit 10.1.1 on Form 10-KSB for the year
      ended December 31, 2000, dated March 23, 2001.10.2
            Purchase
      Agreement dated August 20, 1999 between the Company and Patriot Scientific
      Corporation. Incorporated by reference to Exhibit 10.2 on Form 10-KSB for
      the year ended December 31, 2000, dated March 23, 2001.10.3
            Purchase
      Agreement dated December 29, 2000 between the Company and American
      Technology Corporation. Incorporated by reference to Exhibit 10.3 on Form
      10-KSB for the year ended December 31, 2000, dated March 23,
      2001.10.4
            Patent
      License Agreement effective January 1, 2003 between the Company and Igor
      Alexeff. Portions of this exhibit (indicated by asterisks) have been
      omitted pursuant to a request for confidential treatment pursuant to Rule
      24b-2 of the Securities Exchange Act of 1934. Incorporated by reference to
      Exhibit 10.4 on Form 8-K dated February 11, 2003.10.5
            Technology
      Purchase Agreement dated March 19, 2003 between the Company and Markland
      Technologies, Inc. Incorporated by reference to the Exhibit 2.1 on Form
      8-K dated March 25, 2003.10.6
            Promissory
      Note between the Company and Concordia Homes for $755,000 dated August 10,
      2005. Incorporated by reference to Exhibit 99.1 on Form 8-K dated August
      16, 2005.10.7
            Promissory
      Note between the Company and Concordia Land, LLC dated October 12, 2005.
      Incorporated by reference to Exhibit 99.1 on Form 8-K dated October 14,
      2005.10.7.1
            Promissory
      Note Extension between the Company and Concordia Land, LLC dated October
      12, 2006. Incorporated by reference to Exhibit 10.7.1 to Form 10-KSB dated
      December 19, 2006.10.7.2
            Payment
      Guarantee by Concordia Homes of Nevada, Inc. to the Company dated as of
      October 12, 2005. Incorporated by reference to Exhibit 10.7.2 to Form
      10-KSB dated December 19, 2006.10.8
            Promissory
      Note between the Company and Aviano, LLC dated April 25, 2006.
      Incorporated by reference to Exhibit 99.1 on Form 8-K dated May 1,
      2006.10.8.1
            Payment
      Guarantee by Concordia Homes of Nevada, Inc. to the Company dated as of
      April 25, 2006. Incorporated by reference to Exhibit 10.8.1 to Form 10-KSB
      dated December 19, 2006.10.9
            Promissory
      Note payable to Davric Corporation dated October 31, 2006. Incorporated by
      reference to Exhibit 99.1 on Form 8-K dated November 3,
    2006.10.10
            Promissory
      Note payable to Sunrise Management, Inc. Profit Sharing Plan dated March
      23, 2007. Incorporated by reference to Exhibit 99.2 on Form 8-K dated
      March 29, 2007.10.11
            Purchase
      Agreement By and Between Davric Corporation and ASI Capital Corporation
      dated effective March 28, 2007. Incorporated by reference to Exhibit 99.3
      on Form 8-K dated March 29, 2007.10.11.1
            Note
      Endorsement to ASI Capital Corporation by Davric Corporation dated March
      27, 2007. Incorporated by reference to Exhibit 99.4 on Form 8-K dated
      March 29, 2007.10.11.2
            Assignment
      of Deed of Trust to ASI Capital Corporation by Davric Corporation dated
      March 27, 2007. Incorporated by reference to Exhibit 99.5 on Form 8-K
      dated March 29, 2007.10.12
            Purchase
      Agreements By and Between ASI Capital Corporation and Davric Corporation
      and related Note Endorsements dated effective September 21, 2007.
      Incorporated by reference to Exhibit 99.1 on Form 8-K dated September 21,
      2007.10.13
            Audit
      Committee Charter adopted September 17, 2007. Incorporated by reference to
      Exhibit 99.2 on Form 8-K dated September 21,
2007.




47




10.14
            Sublease
      dated as of October 11, 2007 between ASI Capital Corporation and Joseph L.
      Lamarca and Jerry E. Polis. Incorporated by reference to Exhibit 99.1 on
      Form 8-K dated November 9, 2007.10.15
            Promissory
      Note payable by DAVCAP, LLC to ASI Capital Corporation dated September 29,
      2008. Incorporated by reference to Exhibit 99.1 on Form 8-K dated October
      3, 2008.10.16
            Assignment
      of Note Secured by Deed of Trust to DAVCAP, LLC by ASI Capital Corporation
      dated September 29, 2008. Incorporated by reference to Exhibit 99.2 on
      Form 8-K dated October 3, 2008.21
            Subsidiaries
      of the Registrant31.1*
            Certification
      of Principal Executive Officer, Pursuant to Exchange Act Rule 13a-14(a),
      as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2*
            Certification
      of Principal Financial Officer, Pursuant to Exchange Act Rule 13a-14(a),
      as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1*
            Certification
      of Principal Executive Officer and Principal Financial Officer, Pursuant
      to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




* Filed
herewith,





SIGNATURES





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





ASI TECHNOLOGY
      CORPORATIONBy:
              /s/
      JERRY E. POLISJerry
      E. PolisPresidentDate:
      December 17, 2008




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.




Name
            
            Position
            Date/s/
      JERRY E. POLIS
            
            President
      and Chairman
            December
      17, 2008Jerry
      E. Polis
            
            (principal
      executive officer)/s/ ERIC M. POLIS
            
            Secretary,
      Treasurer and Director
            December
      17, 2008Eric
      M. Polis
            
            (principal
      financial and accounting officer)/s/ GERALD L. EHRENS
            
            Director
            December
      17, 2008Gerald
      L. Ehrens/s/
      RICHARD A. FAIT
            
            Director
            December
      17, 2008Richard
      A. Fait