**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-KSB**




**x
      ANNUAL REPORT PURSUANT
      SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE**




ACT
      OF
      1934. For the fiscal year ended December 31, 2007.




**o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES**




EXCHANGE
      ACT OF 1934. For the transition period from ____________ to
      ____________




*Commission
      file number 0-26604*




**Allied
      Security Innovations, Inc.**


**Formerly
      Digital Descriptor Systems, Inc.**




(Name
      of
      small business issuer in its charter)




Delaware
            23-2770048(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)1709
                Route 34, Suite 2, Farmingdale, New Jersey
            08750(Address
                of principal executive
                offices)
            (Zip
                Code)




Registrant's
      Telephone number, including area code: (732) 359-0260




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




Securities
      registered under Section 12(g) of the Act: Common Stock




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 o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation
      S-B 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-KSB or any amendment
      to
      this Form10-KSB.




The
      issuer had revenues of $4,367,941  for
      the
      fiscal year ended December 31, 2007.




As
      of
      February 29, 2008, 1,054,267,741 shares of the issuer's Common Stock were
      outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




None




**Transitional
      Small Business Disclosure Format Yes o  No x**









**PART
        I**


**General
      Business Development**




Digital
      Descriptor Systems, Inc. ("DDSI", the "Company", "us", "we", or "our"), a
      Delaware corporation incorporated in 1994, is the successor to Compu-Color,
      Inc., an Iowa corporation. The operations of DDSI were started as a division
      of
      ASI Computer Systems, Inc. of Waterloo, Iowa in 1986. Compu-Color, Inc. was
      formed in July 1989 and as of July 1, 1989 purchased the assets of the
      Compu-Color division of ASI Computer Systems, Inc.




On
      December 19, 2006 a special meeting of the shareholders was held and at the
      meeting the shareholders passed a resolution to change the name of the company
      from Digital Descriptor Systems, Inc. (“DDSI”) to Applied Security Innovations,
      Inc (“ASII”). The shareholders also passed a resolution to authorize a 1 for 500
      reverse stock split. Both of these actions were completed on February 5, 2007.
      In addition the 2006 Incentive Stock Option Plan adopted by The Board of
      Directors on October 12, 2006 was approved by the shareholders. On October
      9,
      2007 the companies stock began trading on the NASDAQ-over-the-counter market.
      Previously, the Company’s common stock traded on Pink Sheets.





On
      July
      1, 2007 the offices of Allied Security Innovations, Inc. and the Somerset office
      of CGM Applied Security Technologies, Inc., the Company’s wholly owned
      subsidiary, were combined into a new office located at 1709 Route 34,
      Farmingdale, NJ in a 6,000 square foot combination warehouse /office space.
      The
      reason for this was cost savings and improved operational
      efficiencies.




**ITEM
      1. Description of Business**




**Our
      Business**




During
      2005 the Company acquired CGM Security Solutions, Inc. as a wholly owned
      subsidiary and changed its name to CGM Applied Security Technologies, Inc.
      In
      conjunction with the acquisition the Company has changed its primary focus
      from
      the law enforcement market to the security market in general as it believes
      that
      the potential for revenue is much greater.




**Description
      of Business of CGM**




CGM-AST
      is a manufacturer and distributor of indicative and barrier security seals,
      security tapes and related packaging security systems, protective security
      products for palletized cargo, physical security systems for tractors, trailers
      and containers as well as a number of highly specialized authentication
      products. Focused primarily on “deterrent technologies”, CGM-AST designs and
      develops customized tamper evident devices which when integrated into a security
      protocol; provide chain of custody and/or proof of tampering for targeted
      assets.




**Products**




CGM-AST
      has Trade Secret protection on its Secure T.R.A.C. ® tape,
      Super Seals, Water Gum Tape, developed a Button Memory Seal and Sentry
      Sensor ® .
      It also
      has distribution rights on all NAVATECH products and seals, and owns the rights
      to the patented ToppClip ® pallet
      security device. In addition, CGM-AST provides authentication technology and
      products to clients to act as brand protection elements to finished goods.
      This
      brand protection technology can help manufacturers reduce the incidences of
      "knock-offs" that are common in the garment and accessory businesses. CGM-AST’s
      core products are: CGM-AST Tapes, Self-Wound Security Tape, Void Labels and
      Void
      Tape for Bag Closure, SUPERSEALS(R), Custom Coated Products, CGM-AST Conductive
      Inks and Membrane Switch Components, EMAPS(R), Locks, Sentry Sensor(R) and
      other
      representative items.




SUPERSEAL(R)
      and self-voiding carton sealing tape known as SECURE T.R.A.C.(R) show a
      customized signature if attempts are made at removing them. If cut and resealed,
      SUPERSEAL(R) further shows an "opened" legend on the seal's center surface.
      With
      self-wound void tape, any attempt at resealing is negated by the surface coating
      on the tape. An "opened" legend is also left on the tape if removed. Since
      the
      products are manufactured in-house, CGM-AST controls all features and has the
      ability to customize the products to the customer's needs. CGM-AST also offers
      converted labels, seals, and money bags. CGM-AST manufactures a variety of
      adhesives, graphics and die cut label configurations for companies whose logos
      always appear on the tape or label for security purposes. No generic product
      can
      be substituted for this product since no one makes an identical
      product.




Uses
      for
      this product and technology include such items as:




· Aircraft
        and truck seals







· Fiber
        and
        Steel drum seals




· Motor
        Vehicle inspection seals




· Pharmaceutical
        Packaging




· Box
        or container closure seals




· Cash
        bag
        components




· Computer
        seals




· Validation
        devices




· General
        security products
  · Law
          Enforcement Agencies


Once
      CGM-AST's products are applied to a particular surface, any attempt at removal
      will leave a sign in the form of an indelible word or legend on the tape and
      a
      removable or permanent legend on the enclosure. The EMAPS(R) or Electro-Magnetic
      Asset Protection System reflects entry by sending an electronic signals if
      cut.
      EMAPS(R) products function without the need to identify a cut visually. Both
      products, the labels and the scanners, are unique and only manufactured by
      CGM-AST.




**Production
      Process**




The
      CGM-AST manufacturing process can best be described as one of "converting".
      CGM-AST takes highly processed materials, which are manufactured elsewhere,
      and
      converts them into finished products. The
      Staten Island production facility has been designated as a secure facility
      for
      purposes of certain clientele.




CGM-AST
      purchases processed materials from 6 to 8 key suppliers, including DuPont,
      Luminite Corp, Adhesive Research, Sun Chemical, Houghton Chemical and Video
      Jet.
      For Video Jet, for OEM products, CGM-AST purchases from approximately 15
      different companies. CGM-AST has an exclusive distribution relationship in
      connection with some of these products, while for other products CGM-AST is
      one
      of few or many resellers.




**Markets
      & Customers**




The
      primary factors behind the need for CGM-AST’s products are: (i) the escalation
      of cargo theft and tampering, (ii) the need for enhanced cargo security because
      of the fear of terrorism, (iii) damage control of freight and cargo, (iv) the
      need for security products, (v) brand protection and authentication requirements
      and (vi) governmental and regulatory requirements.




CGM-AST
      products are certified by the Customs-Trade Partnership Against Terrorism
      ("C-TPAT"), a joint initiative between government and business designed to
      protect the security of cargo entering the United States while improving the
      flow of trade. C-TPAT requires importers to take steps to assess, evolve and
      communicate new practices that ensure tighter security of cargo and enhanced
      security throughout the entire supply chain. In return, their goods and
      conveyances will receive expedited processing into the United States. Many
      of
      our products are also ISO 17712 compliant, which is a standard for international
      shipping and container security.




**Principal
      Customers**




CGM-AST’s
      current client base includes over 2000 national and international companies,
      including producers of high value items such as perfumes, computers, silicon
      chips, jewelry, cash and negotiable documents. The market for tamper evidence
      includes flavors, fragrances, foodstuffs and components. CGM-AST’s products are
      used by U.S. Government agencies (e.g.: DOD, TSA, DHS, CBP) and Foreign National
      Governments, major airlines, pharmaceutical clients for packaging and clinical
      trials and multiple suppliers of high end electronics. CGM-AST’s products have
      also been recommended by major insurance companies. All elements of the supply
      chain, including growers, manufacturers, shippers and retailers are among our
      clientele.




**Sales**




CGM-AST
      has three direct salespeople, two independent representatives and 5 distributors
      for domestic sales. There are over 12 representative distributors for sales
      abroad managed by an in-house Director for International Channel Management.
      CGM-AST supplements its sales force with Internet advertising, trade shows,
      and
      PR benefits including participation and Chairing of educational programs and
      committees (e.g.: the International Cargo Security Council (ICSC)) and a variety
      of legislators and key accounts targeted by an Executive level PR
      campaign,




**Competition**




Several
      other companies manufacture products that are similar to CGM-AST’s self-voiding
      label stock. As far as we know those products are limited in scope and do not
      adequately address the issues of “needs based tampering by virtue of their
      inability to withstand the normal means of breaching adhesive products. However,
      new innovations and better sales/marketing by other companies with a
      product-solutions market approach could affect our ability to market our
      products.









As
      both a
      manufacturer and converter, CGM-AST delivers finished goods to users in response
      to client's individual needs. CGM-AST can modify its products through all phases
      of its development to make it user friendly and compatible with the needs of
      its
      desired application.




CMG-AST
      has a unique platform of products, designed and customizable to address client’s
      needs against individual threats. There are approximately 12 seal manufacturers
      that offer seals and compete with each other over price. CGM-AST sells through
      a
      "needs based- threat-specific" assessment and determines final product design
      on
      the basis of functionality.




**Industry
      Trends**




It
      is
      estimated that losses from cargo theft each year reach 30-50 billion dollars
      globally and 12 billion dollars in the US, and that these numbers will continue
      to rise. Firgures taken from L.H. Gray entitled Facing the Growing Problem
      of
      Loss and Theft.




**Employees**




ASII
      employs a total of 18 full time employees, of whom 13 are employed by
      CGM.




ASII
      develops, assembles, markets and installs computer systems which capture video,
      digitally captured images and scanned images, digitize the image, link the
      digitized images to text/data and store the image and text on a computer
      database which allows for transmitting the image and text by computer or
      telecommunication links to remote locations.




Imaging
      technology enables computers to record, store and retrieve both textual
      information and visual images. The common problem in imaging technology is
      how
      to record, store, process and retrieve information and images within the same
      system. ASII's software programs utilize technology to link the textual
      information with the images so that customers can record and retrieve related
      text and images. ASII originally developed the software to address the
      information retrieval problems of tax assessors. ASII subsequently adapted
      the
      software for use by law enforcement agencies and management of jail facilities.
      ASII's software also addresses different information retrieval needs such as
      reproducing line ups and producing housing badges (jails), bar coded wristbands
      for identification which facilitates movement within jails and courts and
      storing and retrieving hand written and computer generated document images
      within arrest records. Heightened sensitivity since 9/11 has caused an increase
      in awareness for software and hardware programs related to digital
      identification. This awareness is causing more resources to be allocated to
      the
      development of technologies in this field. ASII has a strong focus on
      developing, integrating or reselling products to its client base as well as
      new
      markets.




While
      the
      majority of ASII's sales are one time software based sales, ASII does offer
      maintenance and support for their products.




**Product
      and Services**




**Compu-Capture(R)**




ASII's
      principal product is the Compu-Capture(R) law enforcement program. This program
      combines digitized image and textual information. The system has been developed
      primarily for the criminal justice market, including law enforcement, jail
      and
      correctional facilities.




Information
      is entered into the Compu-Capture(R) system at the time a subject is booked
      or
      enters the facility, including a video image of the subject, a "mug shot".
      The
      Compu-Capture(R) system reduces the time needed to take and process mug shots
      and improves the quality of the mug shot. The booking officer can preview each
      mug shot image on the computer screen before processing and storing the image
      to
      ensure accuracy and clarity. Once an acceptable image is obtained, the booking
      officer can store the image through the computer application, along with the
      booking record, physical characteristics and other pertinent text
      material.




The
      information entered into the Compu-Capture(R) system can include names, aliases,
      physical characteristics, such as size, hair color, facial scars or physical
      deformities, and fingerprint codes.




Once
      the
      data is entered into the Compu-Capture(R) system, the visual image and textual
      material can be utilized in a variety of ways. The officer conducting a search
      can assign priorities or values to physical characteristics for the computer's
      search of the database of existing subjects. Features that are difficult to
      disguise or alter, such as facial scars, can be assigned higher values than
      other characteristics such as hair color or facial hair. Mug shots can be
      retrieved on the computer screen or printed individually, with or without
      textual information, or as part of a computer-generated line-up. The digitized
      mug shot and information can be transmitted to remote locations by telephone
      line or radio frequency or through computer networks and can be retrieved
      rapidly from central and/or remote locations.









The
      Compu-Capture(R) system produces images that meet or exceed the suggested
      requirements of the Department of Justice National Crime Information Commission
      2000 ("NCIC2000"), the standard adopted by Federal Bureau of Investigation
      for
      the quality of mug shots and their transmission. NCIC2002 does not certify
      or
      otherwise approve any mug shot systems.




The
      Compu-Capture(R) system's technology can also be used in commercial applications
      that are unrelated to law enforcement, such as for security or access control,
      identification cards with photographs for employee identification, voter
      registration cards, and national welfare identification cards, drivers'
      licenses, all with or without the use of fingerprints and/or
      signatures.




The
      following versions of the Compu-Capture(R) offered are as follows:




**Compu-Capture(R)
      32SQL**




Compu-Capture(R)
      32 is ASII's stand alone application. This version of the Compu-Capture(R)
      product line contains its own database and can function on its own without
      integration into law enforcement existing records or a jail management system.
      The database allows for the capture of basic demographic information such as
      physical characteristics. This information can then be sorted for quick and
      easy
      retrieval of a particular record or various records with similar
      characteristics. The CPC32 can be used on a Personal Computer or networked
      together.








**Compu-Capture(R)
      ActiveX32SQL**




Compu-Capture(R)
      ActiveX32 is a fully functioning executable product that image-enables (the
      process by which a text-based system has images linked to its data records
      by
      some unique identifier, which eliminates the need to re-key data and/or maintain
      multiple databases) any host based records or jail management system without
      costly integration. The advantage to this product is it eliminates multiple
      databases and duplicate data entry from one system to another.




**Compu-Sketch(R)**




The
      Compu-Sketch(R) product is a composite sketching program that allows an
      individual with little to no artistic ability to draw a sketch of a persons
      face
      as described by the witness. The program contains an interactive witness module
      that asks the witness basic questions which are then used to create the
      composite face. The application consists of over 40,000 features, that when
      combined can create millions of different looking suspects. The user simply
      selects a description of each face part from a menu and the system will then
      assemble the parts to complete the composite. The user can manipulate each
      part
      and/or add accessories, such as hats, jewelry and facial hair.




**Compu-Scene**




The
      Compu-Scene program uses a computer aided drafting program to compose drawings
      with simple drag-n-drop technology, making accident and crime scene drawings
      easy. The user simply draws a room or intersection to scale with the CAD
      (Computer Assisted Design) program and then simply drops in the pre-drawn
      templates to complete the scene.




**Maintenance
      and Support**




In
      addition to the installation of ASII's systems, ASII trains the personnel of
      the
      system purchaser in the use and operation of the system. ASII provides
      maintenance and support for a limited period of time. ASII also offers its
      customers' ongoing maintenance and support plus updates of the software, for
      an
      annual fee.




**Marketing**




**Law
      Enforcement Applications**




ASII
      markets and sells its law enforcement product line through an internal sales
      force, an independent dealer network and vendors of compatible software
      applications.




ASII
      employs one (1) part-time employee in sales, marketing or sales management.
      Leads are generated and followed up by the salesmen, who sell directly to the
      end user. The employees also work with sales employees of other vendors in
      making sales calls and proposals.




Additionally,
      ASII markets its Law Enforcement products through vendors of compatible software
      applications.




**Customers**




ASII
      maintains a continuing relationship with its customers based upon support
      services and periodic upgrades of the Compu-Capture(R) line and Compu-Sketch(R)
      software. Although the major revenue-generating event is the initial
      installation and any significant expansion of that installation, the annual
      sales of maintenance support services, which ASII performs subsequent to the
      installation, generates approximately 41% of the installed software license
      fee.




ASII
      does
      not rely on any particular customers or business partners for the majority
      of
      their sales.




**Business
      Alliances**




Our
      business alliance relationships have changed over the years and we generate
      very
      little of our revenue through our relationships with records management and
      jail
      management vendors. Since these vendors have written the necessary integration
      to use ASII imaging solutions, when a customer is looking to include an imaging
      system in their program, the vendor will inform ASII of the customers need.
      ASII
      is responsible for all marketing and sales efforts of our imaging solution.
      ASII
      believes a very small portion of its revenue will come through these
      relationships. The imaging market has changed tremendously over the past 10
      years and is not in our opinion a viable avenue of growth for the
      Company.




ASII
      supplies to its business partners a SDK (software developers kit), which allows
      them to link our software to their software.








**Greater
      Penetration of Existing Customers**




In
      addition to seeking new customers, ASII has recently established a marketing
      program to focus on the existing customer, which includes over 1,000 agencies.
      ASII is hopeful that with addition of the CGM-AST subsidiary that it can now
      capitalize and generate increased revenues from its existing customers by
      offering them the products of CGM-AST, many of which can be used in the law
      enforcement environment.




**Seek
      Acquisitions and Alliances**




ASII
      management plans to execute an acquisition strategy. The make-up of the targeted
      acquisitions must include products and markets which complement and expand
      its
      present client base. Profitable, niche companies will be integrated into ASII's
      growth through acquisition strategy. ASII plans to use funding derived from
      external investors.




On
      March
      1, 2005, ASII and CGM Applied Security Technologies, Inc. ("CGM-AST Sub"),
      acquired substantially all of the assets of CGM Security Solutions, Inc., a
      Florida corporation ("CGM"), for (i) $1,500,000 in cash and (ii) a 2.86%
      promissory note (the "Note") in the principal amount of $3,500,000, subject
      to
      adjustment (the "Acquisition"). The assets of CGM-AST were acquired pursuant
      to
      an Asset Purchase Agreement among ASII, CGM-AST Sub and CGM Security Solutions
      dated as of February 25, 2005.




The
      principal amount of the three year Note is subject to adjustment based upon
      the
      average of (i) the gross revenues of CGM-AST Sub for the fiscal year ending
      December 31, 2007 and (ii) an independent valuation of CGM-AST Sub based upon
      the consolidated audited financial statements of the Company and CGM-AST Sub
      for
      the fiscal years ended December 31, 2007 and 2006. In addition, the Company
      has
      granted CGM-AST a secondary security interest in substantially all of its assets
      and intellectual property. If the Company is unable to fulfill its obligations
      pursuant to the Asset Purchase Agreement and the Note, there is a likelihood
      that CGM Security Solutions, Inc. can declare default and attempt to take back
      the asset.




In
      connection with the Acquisition, the Company entered into a letter agreement
      with certain of its investors (the "Investors") which extended the maturity
      date
      of debt instruments issued on November 30, 2004 until March 1, 2008, and amended
      the conversion price of the debt that is held by the Investors to the lower
      of
      (i) $0.0005 or (ii) 60% of the average of the three lowest intraday trading
      prices for the Company's common stock during the 20 trading days before, but
      not
      including, the conversion date. In addition, the exercise price of the warrants
      held by the Investors was amended to $.001 per share. As of April 2008, the
      Company is currently in negotiations with the Investors to extend the terms
      of
      the note.




**Sales
      by Geographic Area**




During
      the fiscal year ended December 31, 2007 the percentage of revenues that ASII
      received from domestic customers has been approximately 74.7%. Foreign sales
      for
      2007 were $1,104,302.




**Competition**




ASII
      has
      multiple solutions being sold to the Criminal Justice market with its
      competitive position varying by product.




ASII's
      Compu-Capture(R) system (video imaging mug shot solution) currently has several
      competitors, including ImageWare Systems of San Diego, California.




The
      Compu-Sketch(R) is a computerized, non-artistic, professional composite system.
      Though there is significant competition in this field, ASII believes that the
      Compu-Sketch(R) provides an easier system to use plus offers a larger database
      than its competitors.




ASII's
      Compu-Scene product is packaged with other ASII systems. ASII carries it in
      order to provide to its customers a more complete package of
      products.




**Suppliers**




ASII's
      hardware is compatible with the IBM AS400 and other mainframe and mini computer
      manufacturers. The peripheral equipment used in connection with ASII's system,
      such as video equipment, can be provided with a wide range of manufacturers.
      As
      a result ASII is not dependent on any particular supplier or raw
      material.




**Government
      Regulation or Government Approval**




Most
      law
      enforcement agencies purchasing new or upgraded or expanded systems require
      that
      the system meet the requirements of NCIC2000, ANSI-NIST standards and standards
      issued by the National Crime Information Commission and by the FBI. All ASII
      products and solutions were required to meet these requirements.




**Research
      and Development**




ASII
      spent $101,687 and $107,024, respectively for the years ended December 31,
      2007
      and 2006 on research and development. This amount includes amounts spent on
      outside sources for assistance with Research & Development projects. None of
      these costs have been borne directly by our customers.









**Product
      Liability Insurance**




Although
      ASII believes its products are safe, it may be subject to product liability
      claims from persons injured through the use of ASII's marketed products or
      services. ASII carries no direct product liability insurance, relying instead
      on
      the coverage maintained by its distributors and manufacturing sources from
      which
      it obtains product. There is no assurance that this insurance will adequately
      cover any liability claims brought against ASII. There also can be no assurance
      that ASII will be able to obtain its own liability insurance (should it seek
      to
      do so) on economically feasible terms. ASII's failure to maintain its own
      liability insurance could materially adversely affect its ability to sell its
      products in the future. Although no product liability claims have been brought
      against ASII to date, if there were any such claims brought against ASII, the
      cost of defending against such claims and any damages paid by ASII in connection
      with such claims could have a materially adverse impact upon ASII, including
      its
      financial position, results of operations and cash flows.




**Patents,
      Trademarks and Licenses**




ASII
      owns
      the proprietary rights to the software used in the Compu-Capture(R) programs.
      In
      addition, ASII owns the rights to the trademarks "Compu-Capture(R)",
      "Compu-Color(R)" and "Compu-Scan(R)", all trademarks have been registered with
      the United States Patent and Trademark Office.




**ITEM
      2. Description of Property**




The
      Company operates 1709 Route 34, Farmingdale, New Jersey. CGM Applied Security
      Technologies operates from two locations. The administrative offices are located
      in Farmingdale, NJ and the production facility is located in Staten Island,
      NY.




**ITEM
      3. Legal Proceedings**




On
      October 16, 2003, in the Court of Common Pleas of Bucks County, Pennsylvania,
      a
      judgment was entered against the Company by its landlord, BT Lincoln L.P. for
      breach of lease in the amount of $184,706. The liability, net of the security
      deposit, is included in accrued expenses at December 31, 2007.




**ITEM
      4. Submission of Matters to a Vote of Securities Holders**




None.




**PART
      II**




**ITEM
      5. Market for Common Equity and Related Shareholder
      Matters**




ASII's
      (formerly DDSI quoted under the symbol “DDSI”) common stock has been quoted on
      the OTC Bulletin Board since July 7, 1997 and under the symbol "ASVN" since
      February 2007. As of November 4, 1999 ASII's shares traded on the Pink sheets.
      ASII returned to trading on the OTC Bulletin Board effective February 23, 2001,
      but as of June30, 2003 began trading on the Pink sheets. Under the “ASVN”
symbol, ASII returned to the OTC Bulletin Board in October 2007. The following
      table sets forth, the high and low bid prices for the common stock for the
      quarters indicated. As of February 1, 2007 there were approximately 3,200
      shareholders of record.










Common
                  Stock
                  Bid
                    PriceCalendar
                  Year 2003
              
              Low
              
              HighFirst
                  Quarter
              
              $
              0.0003
              
              $
              0.0032Second
                  Quarter
              
              $
              0.0004
              
              $
              0.005Third
                  Quarter
              
              $
              0.001
              
              $
              0.0026Fourth
                  Quarter
              
              $
              0.0001
              
              $
              0.002Calendar
                  Year 2004First
                  Quarter
              
              $
              0.0010
              
              $
              0.0055Second
                  Quarter
              
              $
              0.0015
              
              $
              0.0085Third
                  Quarter
              
              $
              0.0004
              
              $
              0.0027Fourth
                  Quarter
              
              $
              0.0004
              
              $
              0.0009Calendar
                  Year 2006First
                  Quarter
              
              $
              0.0004
              
              $
              0.0026Second
                  Quarter
              
              $
              0.0011
              
              $
              0.0005Third
                  Quarter
              
              $
              0.0036
              
              $
              0.0001Fourth
                  Quarter
              
              $
              0.0009
              
              $
              0.0001Calendar
                  Year 2007First
                  Quarter
              
              $
              0.0001
              
              $
              0.0003Second
                  Quarter
              
              $
              0.0001
              
              $
              0.0002Third
                  Quarter
              
              $
              0.0001
              
              $
              0.0001Fourth
                  Quarter
              
              $
              0.0001
              
              $
              0.0001




As
      of
      February 1, 2008, 1,054,267,741 shares of the issuer's Common Stock were
      outstanding.




We
      have
      never declared nor paid cash dividends and do not expect to pay dividends in
      the
      foreseeable future.




**Recent
      Issuances of Unregistered Securities**




During
      February 2007, $331,449 of the convertible debentures issued in September 2001,
      were converted into 1,906,000 shares of common stock.




During
      March 2007, $10,674 of the convertible debentures issued in September 2001,
      were
      converted into 2,859,000 shares of common stock.




During
      March 2007, $15,041 of the convertible debentures issued in September 2001,
      were
      converted into 5,807,791 shares of common stock




During
      April 2007, $5,813 of the convertible debentures issued in September 2001,
      were
      converted into 2,859,000 shares of common stock.




During
      April 2007, $22,457 of the convertible debentures issued in September 2001,
      were
      converted into 10,380,310 shares of common stock.




During
      May 2007, $6,405 of the convertible debentures issued in September 2001 were
      converted into 6,671,000 of common stock.




During
      May 2007 $10,194 of the convertible debentures issued in September 2001 were
      converted in 9,526,792 shares of common stock.




During
      June 2007 $3,266 of the convertible debentures issued in September 2001 were
      converted into 6,342,040 shares of common stock




During
      June 2007 $3,143 of the convertible debentures issued in September 2001 were
      converted into 4,820,455 shares of common stock




During
      July 2007 $8,270 of the convertible debentures issued in September 2001 were
      converted into 19,897,904 shares of common stock




During
      July 2007 $915 of the convertible debentures issued in September 2001 were
      converted into 2,024,112 shares of common stock.




During
      August 2007 $5,838 of the convertible debentures issued in September 2001 were
      converted into 35,809,160 shares of common stock.




During
      August 2007 $1,510 of the convertible debentures issued in September 2001 were
      converted into 12,178,436 shares of common stock.




During
      September 2007 $3,347 of the convertible debentures issued in September 2001
      were converted into 48,961,300 shares of common stock.




During
      September 2007 $1,834 of the convertible debentures issued in September 2001
      were converted into 16,420,079 shares of common stock.




During
      October 2007 $4,325 of convertible debentures issued in September 2001 were
      converted into 71,183,728 shares of common stock.




During
      October 2007, $2,254 of convertible debentures issued in September 2001 were
      converted into 29,662,740 shares of common stock.









During
      November 2007, $7,489 of convertible debentures issued in September 2001 were
      converted into 79,632,642 shares of common stock




During
      November 2007 $3,406 of convertible debentures issued in September 2001 were
      converted into 44,815,403 shares of common stock.




During
      December 2007, $16,309 of convertible debentures issued in September 2001 were
      converted into 208,996,160 shares of common stock




During
      December 2007 $3,837 of convertible debentures issued in September 2001 were
      converted into 41,707,820 shares of common stock.




During
      January 2006, $2,500 of the convertible debentures issued in September 2001,
      were converted into 9,920,635 shares of common stock.




During
      January 2006, $1,400 of the convertible debentures issued in September 2001,
      were converted into 7,000,000 shares of common stock.




During
      February 2006, $3,100 of the convertible debentures issued in September 2001,
      were converted into 19,375,000 shares of common stock.




During
      February 2006, $2,520 of the convertible debentures issued in September 2001,
      were converted into 14,000,000 shares of common stock.




During
      March 2006, $3,400 of the convertible debentures issued in September 2001,
      were
      converted into 28,500,000 shares of common stock.




During
      March 2006, $3,000 of the convertible debentures issued in September 2001,
      were
      converted into 15,000,000 shares of common stock.




During
      April 2006, $1,000 of the convertible debentures issued in September 2001,
      were
      converted into 14,682,540 shares of common stock.




During
      April 2006, $1,000 of the convertible debentures issued in September 2001,
      were
      converted into 15,000,000 shares of common stock.




During
      May 2006, $1,000 of the convertible debentures issued in September 2001 were
      converted into 15,000,000 of common stock.




During
      May 2006, $3,560 of the convertible debentures issued in September 2001 were
      converted in 17,800,000 shares of common stock.




During
      June 2006 $4,600 of the convertible debentures issued in September 2001 were
      converted into 23,000,000 shares of common stock




During
      June 2006 $3,500 of the convertible debentures issued in September 2001 were
      converted into 17,500,000 shares of common stock.




During
      June 2006 the Company issued 50,000,000 shares of stock for services rendered
      by
      New Equities Publishing for Public Relations.




During
      July 2006 $10,163 of the convertible debentures issued in September 2001 were
      converted into 48,800,000 shares of common stock




During
      July 2006 $11,871 of the convertible debentures issued in September 2001 were
      converted into 53,039,211 shares of common stock.




During
      August 2006 $29,099.80 of the convertible debentures issued in September 2001
      were converted into 221,570,000 shares of common stock.




During
      August 2006 $23,106 of the convertible debentures issued in September 2001
      were
      converted into 178,782,781 shares of common stock.




During
      September 2006 $43,586.60 of the convertible debentures issued in September
      2001
      were converted into 323,760,000 shares of common stock.




During
      September 2006 $20, 254 of the convertible debentures issued in September 2001
      were converted into 299,410,794 shares of common stock.




During
      October 2006 $46,825 of convertible debentures issued in September 2001 were
      converted into 470,000,000 shares of common stock.




During
      October 2006, $13,172.28 of convertible debentures issued in September 2001
      were
      converted into 411,587,075 shares of common stock.




During
      November 2006, $14,260 of convertible debentures issued in September 2001 were
      converted into 401,500,000 shares of common stock




During
      November 2006 $16,388.33 of convertible debentures issued in September 2001
      were
      converted into 401,623,645 shares of common stock.









During
      February 2004, the Company issued two convertible debentures for an aggregate
      amount of $45,000 with simple interest at 12%. The debentures are due February
      2006. Interest shall be paid quarterly commencing March 2004. The holder shall
      have the right to convert the principal amount and interest due into common
      stock. The conversion price in effect on any Conversion Date shall be the lesser
      of (1) $.005 or (2) 40% of the average of the lowest three inter-day sales
      prices of the common stock during the twenty Trading Days immediately preceding
      the applicable Conversion Date.




On
      May 7,
      2004, we entered into a Securities Purchase Agreement, with four accredited
      investors that provides for the issuance of convertible notes payable up to
      an
      aggregate face value of $250,000 with simple interest accruing at the annual
      rate of 12% and warrants to acquire up to an aggregate 750,000 shares of our
      common stock. The convertible notes are due two years from the date of issuance.
      Interest payable on the convertible notes shall be paid quarterly commencing
      June 30, 2004. The holders shall have the right to convert the principal amount
      and interest due under the convertible notes into shares of DDS's common stock.
      The conversion price in effect on any conversion date shall be the lesser of
      (1)
      $.0045 or (2) 40% of the average of the lowest three inter-day sales prices
      of
      the common stock during the twenty trading days immediately preceding the
      applicable conversion date. The warrants have an exercise price of $0.0045
      and
      expire on May 7, 2009.




On
      November 30, 2004, we entered into a Securities Purchase Agreement, with four
      accredited investors that provides for the issuance of convertible notes payable
      up to an aggregate face value of $3,500,000 with simple interest accruing at
      the
      annual rate of 12% and warrants to acquire up to an aggregate 6,195,000 shares
      of our common stock. The convertible notes are due three years and three months
      from the date of issuance. Interest payable on the convertible notes shall
      be
      paid quarterly commencing December 31, 2004. The holders shall have the right
      to
      convert the principal amount and interest due under the convertible notes into
      shares of DDS's common stock. The conversion price in effect on any conversion
      date shall be the lesser of (1) $.0005 or (2) 60% of the average of the lowest
      three inter-day sales prices of the common stock during the twenty trading
      days
      immediately preceding the applicable conversion date. The warrants have an
      exercise price of $0.001 and expire on January 31, 2012.




**ITEM
      6. Management's Discussion and Analysis or Plan of
      Operations**




Except
      for historical matters contained herein, the matters discussed in this Form
      10-KSB are forward-looking and are made pursuant to the safe harbor provisions
      of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
      that these forward-looking statements reflect numerous assumptions, especially
      as regarding installation schedules and product mix, and involves risks and
      uncertainties which may affect the Company’s business and prospects and cause
      actual results to differ materially from these forward-looking statements,
      including sufficient funds to finance working capital and other financing
      requirements of the Company’s market acceptance of the Company’s products and
      competition in the computer industry.




**Critical
      Accounting Policies**




ASII's
      critical accounting policies, including the assumptions and judgments underlying
      them, are disclosed in the Notes to the Financial Statements. These policies
      have been consistently applied in all material respects and address such matters
      as revenue recognition and depreciation methods. The preparation of the
      financial statements in conformity with generally accepted accounting principles
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reported period. Actual results could differ
      from those estimates.




ASII
      derives revenue from the sale of hardware, software, post customer support
      (PCS), and other related services. PCS includes telephone support, bug fixes,
      and rights to upgrades on a when-and-if-available basis. Other related services
      include basic consulting and training. Included with the hardware is software
      that is not considered to be incidental. Revenue from transactions with
      customers where the software component is not considered to be incidental is
      allocated between the hardware and software components based on the relative
      fair value of the respective components.




ASII
      also
      derives revenue from the sale of software without a related hardware component.
      Revenue allocable to software components is further allocated to the individual
      deliverable elements of the software portion of the arrangement such as PCS
      and
      other services. In arrangements that include rights to PCS for the software
      and/or other services, the software component arrangement fee is allocated
      among
      each deliverable based on the relative fair value of each of the deliverables
      determined using vendor-specific objective evidence, which has been established
      by the separate sales of these deliverables.




**Plan
      of Operations**




The
      short-term objective of ASII is the following:




· 
The
      short-term objective of ASII is
      to increase the market penetration of the product line of its CGM-AST subsidiary
      as the Company believes this is the area where the greatest revenue growth
      exists.




· 
Additionally,
      ASII plans to execute
      an acquisition strategy based upon fund availability.




ASII's
      long-term objective is as follows:




· 
To
      seek additional products to sell
      into its basic business market - Criminal Justice - so that ASII can generate
      sales adequate enough to allow for profits.







ASII
        believes that it will not reach profitability in the foreseeable future.
        Over
        the next twelve months, management is of the opinion that sufficient working
        capital will be obtained from operations and external financing to meet ASII's
        liabilities and commitments as they become payable. ASII has in the past
        successfully relied on private placements of common stock securities, bank
        debt,
        loans from private investors and the exercise of common stock warrants in
        order
        to sustain operations. If ASII is unable to obtain additional funding in
        the
        future, it may be forced to curtail or terminate operations.
  ASII
        is
        doing the following in its effort to reach profitability:
  · Cut
        costs in areas that add the least value to
        ASII.
  · Concentrate
        on increasing the sales of the CGM product
        line.
  · Derive
        funds through investigating business alliances
        with other companies.
  · Acquire
        and effectively add management support to
        profitable companies complementary to its broadened target markets .
  **Results
        of Operations**
  **Year
        Ended December 31, 2007 Compared to Year Ended December 31,
        2006**
 
 Revenues
        for the year ended December 31, 2007 of $4,367,941 decreased $160,592 or
        3.55%
        from the year ended December 31, 2006. ASII generates its revenues through
        software licenses, hardware, post customer support arrangements and other
        services. CGM-AST generates its revenue through the manufacturer and distributor
        of indicative and barrier security seals, security tapes and related packaging
        security systems, protective security products for palletized cargo, physical
        security systems for tractors, trailers and containers as well as a number
        of
        highly specialized authentication products. The decrease revenue is attributed
        to the loss of a salesperson for part of the year 2007 and an increase in
        open
        orders at the end of the year that were scheduled for production in
        2008.
  Cost
        of
        revenue for the year ended December 31, 2007 was $1,185,313, a decrease of
        $113,657 or 8.75% from the prior year. Cost of revenue sold as a percentage
        of
        revenue for the year ended December 31, 2007 was 27% of total revenues, versus
        29% the year earlier.
  Operating
        expenses increased $208,943 or 7.6% during the year ended December 31, 2007
        versus the year ended December 31, 2006. This increase was primarily
        attributable moving the headquarters to Farmingdale New Jersey, an increased
        spending on Investor Relations and a one time write-down of obsolete inventory
        totaling $150,000.
  General
        and Administrative expenses for the year ended December 31, 2007 were $2,312,089
        versus $2,175,852 for the prior year for an increase of $136,237 or 6%. This
        increase was primarily attributable moving the headquarters to Farmingdale
        New
        Jersey an increased spending on Investor Relations and a one time write-down
        of
        obsolete inventory totaling $150,000.
 
 Sales
        and
        Marketing expenses for the year ended December 31, 2007 were $541,587 versus
        $463,544 for the prior year for an increase of $78,043 or 17%. This increase
        was
        primarily attributable to the company increasing its advertising budget,
        increase in presence at trade events which in turn increased travel expenses,
        and instituting a commission program for sales personal and the reclassification
        of some expense from general and administrative.
  Research
        and development for the year ended December 31, 2007 was $101,687 compared
        to
        $107,024 for the same period prior year for a decrease of $5,337 or 5%. This
        decrease is attributable to controls on spending.
  The
        net
        (loss) for ASII increased 274% or $(11,915,663) for the year ended December
        31,
        2007 to $(16,265,544) from $(4,349,881) for the year ended December 31, 2006.
        This was due to the items discussed above.
 
 Net
        cash
        provided by operating activities for the year ended December 31, 2007 and
        2006
        was $74,963 and $129,511 respectively. The decrease in cash provided by
        operating activities in the year ended December 31, 2007 of $(54,548) was
        due in
        part to expenditures for infrastructure necessary to move the headquarters
        to
        Farmingdale, New Jersey.
 
 Net
        cash
        used in investing activities was $(73,054) and $(20,603) for the years ended
        December 31, 2007 and 2006, respectively. The increase in cash used in investing
        activities in the year ended December 31, 2007 of $(52,451) was due in part
        to
        purchase equipment for the new headquarters in Farmingdale, New
        Jersey.
  Net
        cash
        (used in) financing activities was $(8,000) and $(12,000) for the years ended
        December 31, 2007 and 2006, respectively.










**Liquidity
      and Capital Resources**




ASII's
      revenues have been insufficient to cover the cost of revenues and operating
      expenses. Therefore, ASII has been dependent on private placements of its common
      stock and issuance of convertible notes in order to sustain operations. In
      addition, there can be no assurances that the proceeds from private or other
      capital will continue to be available, or that revenues will increase to meet
      ASII's cash needs, or that a sufficient amount of ASII's common stock or other
      securities can or will be sold or that any common stock purchase
      options/warrants will be exercised to fund the operating needs of
      ASII.




Over
      the
      next twelve months, management is of the opinion that sufficient working capital
      will be obtained from operations and external financing to meet ASII's
      liabilities and commitments as they become payable. ASII has in the past relied
      on private placements of common stock securities, and loans from private
      investors to sustain operations. However, if ASII is unable to obtain additional
      funding in the future, it may be forced to curtail or terminate
      operations.




At
      December 31, 2007, ASII had assets of $5,995,957 compared $6,033,224 on December
      31, 2006 a decrease of $37,267 and shareholder deficit of $(28,213,749) on
      December 31, 2007 compared to shareholder deficit of $(12,779,283) on December
      31, 2006, an increase of ($15,434,466). This increase in shareholder deficit
      for
      the year ended December 31, 2007 resulted from the net loss for the year ended
      December 31, 2007.




As
      of
      December 31, 2007, ASII negative working capital was $(32,087,467), a change
      from negative working capital of $(11,855,140) at December 31, 2006. The
      decrease in negative working capital was primarily a result of an increase
      in
      the fair market value of the derivative liabilities and an increase in
      convertible debentures and note payable reclassified to current
      liabilities.




**Recent
      Developments**




On
      March
      1, 2005, ASII and its wholly-owned subsidiary, CGM-AST acquired substantially
      all of the assets of CGM Security Solutions, Inc., a Florida corporation
      ("CGM"), for (i) $1,500,000 in cash and (ii) a 2.86% promissory note (the
      "Note") in the principal amount of $3,500,000, subject to adjustment (the
      "Acquisition"). The assets of CGM were acquired pursuant to an Asset Purchase
      Agreement among ASII, CGM-AST Sub and CGM Security Solutions dated as of
      February 25, 2006.




The
      principal amount of the three year Note is subject to adjustment based upon
      the
      average of (i) the gross revenues of CGM-AST Sub for the fiscal year ended
      December 31, 2007 and (ii) an independent valuation of CGM-AST based upon the
      consolidated audited financial statements of the Company and CGM-AST for the
      fiscal years ended December 31, 2007 and 2006. In addition, the Company has
      granted CGM Security Solutions, Inc. a secondary security interest in
      substantially all of its assets and intellectual property. If the Company is
      unable to fulfill its obligations pursuant to the Asset Purchase Agreement
      and
      the Note, there is a likelihood that CGM Security Solutions, Inc. can declare
      default and attempt to take back the asset.




In
      connection with the Acquisition, the Company entered into a letter agreement
      with certain of its investors (the "Investors") which extended the maturity
      date
      of debt instruments issued on November 30, 2004 until March 1, 2008, and amended
      the conversion price of the debt that is held by the Investors to the lower
      of
      (i) $0.0005 or (ii) 60% of the average of the three lowest intraday trading
      prices for the Company's common stock during the 20 trading days before, but
      not
      including, the conversion date. In addition, the exercise price of the warrants
      held by the Investors was amended to $.001 per share.




On
      December 19, 2006 a special meeting of the shareholders was held and at the
      meeting the shareholders passed a resolution to change the name of the Company
      from Digital Descriptor Systems, Inc. to Applied Security Innovations, Inc.
      The
      shareholders also passed a resolution to authorize a 1 for 500 reverse stock
      split. Both of these events took place on February 5, 2007. In addition the
      2006
      Incentive Stock Option Plan adopted by The Board of Directors on October 12,
      2006 was approved by the shareholders.




**ITEM
      7. Financial Statements**




The
      report of the independent registered public accounting firm and financial
      statements are set forth in this report beginning on Page F-1.





**ITEM
      8A (T). CONTROLS AND PROCEDURES**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





Management
      of the Company has evaluated, with the participation of the Chief Executive
      Officer and Chief Financial Officer of the Company, the effectiveness of the
      Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
      and
      15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act")) as of the end of the fiscal year covered by this Annual Report on Form
      10-KSB. Based on that evaluation, the Chief Executive Officer and Chief
      Financial Officer of the Company have concluded that the Company's disclosure
      controls and procedures as of the end of the fiscal year covered by this Annual
      Report on Form 10-KSB are effective to provide reasonable assurance that
      information required to be disclosed by the Company in the reports that it
      files
      or submits under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the rules and forms of the
      Securities and Exchange Commission and that the information required to be
      disclosed in the reports is accumulated and communicated to management,
      including our Chief Executive Officer and Chief Financial Officer, to allow
      timely decisions regarding required disclosure.









**MANAGEMENT'S
      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rule
      13a-15(f). Under the supervision and with the participation of our management,
      including our Chief Executive Officer and Chief Financial Officer, we conducted
      an evaluation of the effectiveness of our internal control over financial
      reporting as of December 31, 2007 based on the criteria set forth in Internal
      Control -- Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission. Based on our evaluation under the
      criteria set forth in Internal Control -- Integrated Framework, our management
      concluded that our internal control over financial reporting was effective
      as of
      December 31, 2007.





This
      Annual Report does not include an attestation report of our registered public
      accounting firm regarding internal control over financial reporting.
      Management's report was not subject to attestation by our 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. Our registered public accounting firm will be required to attest to
      our
      management's assessment of internal control over financial reporting beginning
      with our Annual Report for the year ended December 31, 2008.





**CHANGES
      IN INTERNAL CONTROLS**





Management
      of the Company has also evaluated, with the participation of the Chief Executive
      Officer and Chief Financial Officer of the Company, any change in the Company's
      internal control over financial reporting (as defined in Rules 13a-15(f) and
      15d-15(f) under the Exchange Act) that occurred during the fiscal year covered
      by this Annual Report on Form 10-KSB. There was no change in the Company's
      internal control over financial reporting identified in that evaluation that
      occurred during the fiscal year covered by this Annual Report on Form 10-KSB
      that has materially affected, or is reasonably likely to materially affect,
      the
      Company's internal control over financial reporting.




**PART
      III**




**ITEM
      9. Directors, Executive Officers, Promoters and Control Persons; Compliance
      with
      Section 16(a) of the Exchange Act**




Set
      forth
      below is certain information regarding our directors and executive officers.
      Our
      Board of Directors is comprised of five directors. There are no family
      relationships between any of our directors or executive officers. Each of our
      directors is elected to serve until our next annual meeting of our stockholders
      and until his successor is elected and qualified or until such director's
      earlier death, removal or termination.




Name
              
              Age
              
              Position
                  with CompanyAnthony
                  Shupin
              
              53
              
              Director,
                  Chief Executive Officer, PresidentMichael
                  Pellegrino
              
              57
              
              Senior
                  Vice President, CFO and DirectorRobert
                  Gowell
              
              38
              
              DirectorVincent
                  Moreno
              
              63
              
              DirectorErik
                  Hoffer
              
              62
              
              Executive
                  Vice President and Director


Anthony
      Shupin became CEO and President of ASII in October 2003. In November of 2004,
      he
      also assumed the position of Chairman of the Board of ASII. His affiliation
      with
      ASII began as a member of the Board of Directors in January 2002. His experience
      includes over 20 years of executive management, sales and marketing management
      and project and program management with technology computing, aerospace and
      professional services companies. Prior to ASII, Mr. Shupin served in several
      capacities in the Technology and Management Consulting field. He founded T
      Shupin and Associates, a management consulting firm focused on assisting clients
      in the areas of Sales and Marketing, New Business Start-Up, Operational Analysis
      and Business/Technology Synchronization. At Deloitte Consulting, he directed
      activities as a Business Development Executive in the Communications and Media
      practice. Mr. Shupin's background also includes a role as Director of
      International Business Development at the world's first commercial satellite
      aerospace Company. A
      graduate of Colby College, Waterville, Maine, Mr. Shupin has extended his
      education at Rutgers University, Cook College in Geographic Information Systems
      and Remote Sensing training.




Michael
      Pellegrino became Senior Vice President & CFO in February 2006. He
      originally joined ASII in 1995 as Vice President & Chief Financial Officer.
      In March 2002, he was appointed President, Chief Executive Officer and Chief
      Financial Officer, Secretary and a Director of ASII. From 1984 to 1995, Mr.
      Pellegrino was Vice President and CFO of Software Shop Systems, Inc. From 1979
      to 1984, he was a regional controller for Capital Cities/ABS and from 1972
      to
      1979 as Director of Financial Systems for ADP. Mr. Pellegrino has a Bachelors
      degree in accounting from MSU and a Masters in Finance from Rutgers
      University.




Robert
      Gowell has been a director of the Company since 2001. He was the Company's
      Co-Chairman and Chief Executive Officer from January 2002 until June 2002.
      He is
      a retired Deputy U.S. Marshal who has worked out of the New York and
      Pennsylvania offices from 1991 to 2001. He earned his B.S. in Management and
      Finance from the City University of New York. He is currently working on his
      MBA
      at Kutztown University.









Vincent
      Moreno has been a director of the Company since January 2002. Mr. Moreno
      provides ASII with over 30 years of experience from a technical and business
      environment, with the past 23 years at the executive management level. Since
      2002, Mr. Moreno has been doing consulting work for various software development
      firms. From 1998- 2002, he was President and General Manager of PayPlus
      Software, Inc., a provider of payroll software to the Professional Employer
      Organization marketplace. He served as Vice President of Operations at ASII
      from
      1996 to 1998. From 1989 to 1995, he served as President and CEO of Mainstem
      Corporation, a national provider of software services.




Erik
      Hoffer was appointed as Executive Vice President and a director of the Company
      and President of CGM-AST in March 2006. Prior to joining the Company, Mr. Hoffer
      has been the president and chief executive officer of CGM Security Solutions,
      which he created in 1977. Prior to starting CGM Security Solutions, Mr. Hoffer
      was the national sales manager of Lamart Corporation from 1972-1977. For the
      past 37 years, Mr. Hoffer has designed and patented a number of theft control,
      authentication, barrier and theft detection products. He holds many patents
      and
      a considerable amount on corporate trade secrets in manufacturing these
      products. He is considered an expert in the areas of adhesive coating,
      conductive inks and cargo security science. For the past four 4 years, Mr.
      Hoffer has been the chairman of educational events for the National Cargo
      Security Council and previously the co-chairman of the NCSC GMATS program.
      Mr.
      Hoffer received a B.S. in industrial psychology from Northeastern University.
      He
      also holds an associates degree in transportation and traffic
      management.




**Code
      of Ethics**




The
      Company has not formally adopted a written code of ethics that governs all
      of
      our officers, directors and finance and accounting employees. The draft code
      of
      ethics is filed herewith as Exhibit 14.1




Section
      16 Beneficial Ownership Compliance




Section
      16(a) of the Securities Exchange Act of 1934 requires ASII's directors and
      executive officers, and persons who own more than 10% of a registered class
      of
      ASII's equity securities to file with the Securities and Exchange Commission
      initial reports of ownership and reports of changes in ownership of Common
      Stock
      and other equity securities of ASII. Officers, directors and greater than 10%
      shareholders are required by SEC regulations to furnish ASII with copies of
      all




Section
      16(a) forms they file.




To
      ASII's
      knowledge, based solely on its review of the copies of such reports furnished
      to
      ASII and written representations that no other reports were required during
      the
      fiscal year ended December 31, 2002, all Section 16(a) filing requirements
      applicable to its officers, directors and greater than 10% beneficial owners
      were complied with, except that the following individuals have filed their
      Form
      3s late: Anthony Shupin, Vincent Moreno and Erik Hoffer and the following
      individuals have filed their Form 4s late: Michael Pellegrino and Robert
      Gowell.










**ITEM
      10. Executive Compensation**




The
      following table sets forth information concerning the total compensation that
      we
      have paid or that has accrued on behalf of our Chief Executive Officer and
      other
      executive officers with annual compensation exceeding $100,000 during fiscal
      2007and 2006.




Long
                  Term CompensationAnnual
                  Compensation
              
              Awards
              
              PayoutsOther
              
              
              
              SecuritiesName
                  and
              
              
              
              
              
              
              
              Annual
              
              Restricted
              
              Underlying
              
              
              
              OtherPrincipal
              
              
              
              
              
              
              
              Compen-
              
              Stock
              
              Options/
              
              LTIP
              
              Compen-Position
              
              Year
              
              Salary
              
              Bonus
              
              sation($)
              
              Award($)
              
              Sar
                  (#)
              
              Payouts($)
              
              sation
                  ($)Anthony
                  Shupin
              
              
              2007
              
              $
              215,000
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0President
                  & CEO
              
              
              2006
              
              $
              198,539
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Michael
                  J
              
              
              2007
              
              $
              174,022
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Pellegrino*
              
              
              2006
              
              $
              148,077
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0




Appointment
      of Principal Officers; Compensatory Arrangements of Certain
      Officers.




Effective
      November 13, 2006 the Company granted to each of Anthony Shupin, its President
      and Chief Executive Officer and Michael Pellegrino, its Chief Financial Officer,
      10,000 shares of newly created Series A Preferred Stock ("A Preferred") as
      recognition for services.




The
      shares will vest in five equal monthly installments and will be issued at the
      discretion of Mr. Shupin and Mr. Pellegrino. The shares have not been issued
      as
      of December 31, 2007. Each share of A Preferred is convertible into 240,000
      shares of common stock of the Company starting three years from the date of
      issuance, provided that the closing bid price of the Company's common stock
      is
      then $2.00 per share. The shares of A Preferred may be voted with the Company's
      common stock on an as converted basis on any matters that the common stock
      is
      entitled to vote on as a class.




Unconverted
      shares of A Preferred will automatically cease to exist, and all rights
      associated therewith will be terminated upon the earlier of (i) that person's
      termination of employment with the Company for any reason, or (ii) five years
      from the date of issuance.




On
      November 13, 2006, the Company filed with the Secretary of State of Delaware
      a
      Certificate of Designation of Preferences, Rights and Limitations of Series
      A
      Preferred Stock.




**Options/SAR
      Grants in Last Fiscal Year**





Name
              
              Number
                  of
                Securities
                Underlying
                  Options/SARS
                  Granted
              
              %
                  of Total
                Options/SARS
                Granted
                  to Employees
                in
                  Fiscal
                  Year
              
              Exercise
                    or Base
                    Price
                      ($/Sh)
              
              Expiration
                    DateMichael
                  J. Pellegrino, CFO
              
              
              0
              
              
              N/A
              
              
              N/A
              
              
              N/AAnthony
                  Shupin, President & CEO
              
              
              0
              
              
              N/A
              
              
              N/A
              
              
              N/A




**Aggregated
      Option/SAR Exercises**




None
      exercised




**Employment
      Agreements**




Anthony
      R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin was
      re-appointed as Chairman, President and Chief Executive Officer effective
      February, 2005. On February 25, 2005, ASII entered into a five-year employment
      agreement with Mr. Shupin, which entitled him to a base salary of $215,000
      per
      year, which may at the Board of Directors discretion adjust his base salary
      (but
      not below $215,000 per year). Mr. Shupin is also entitled to participate in
      the
      Annual Management Bonus Plan. As a participant in the Annual Management Bonus
      Plan, Mr. Shupin will be eligible to receive bonuses, based on performance,
      in
      any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall
      participate in the Management Equity Incentive Plan. As a participant in the
      Management Equity Plan, Mr. Shupin will be eligible to receive options, which
      vest over a period of time from the date of the option's issue, to purchase
      common shares of ASII. The Company may grant Mr. Shupin, following the first
      anniversary of the date hereof and at the sole discretion of the Board of
      Directors, options to purchase common shares of the Company (subject to the
      vesting and the satisfaction of the other terms and conditions of such options).
      Mr. Shupin will be entitled to 25 vacations days per year at such times as
      may
      be mutually agreed with the Board of Directors. ASII will provide Mr. Shupin
      a
      monthly car allowance of Six Hundred Dollars ($600.00) along with related car
      expenses.




Michael
      J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr. Pellegrino
      was appointed as Senior Vice President and Chief Financial Officer effective
      February 25, 2005. On February 25, 2005, ASII entered into a five-year
      employment agreement with Mr. Pellegrino, which entitled him to a base salary
      of
      $175,000 per year which may at the Board of Directors discretion adjust his
      base
      salary (but not below $175,000 per year). Mr. Pellegrino is also entitled to
      participate in the Annual Management Bonus Plan. As a participant in the Annual
      Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses,
      based
      on performance, in any amount from 10% to 200% of the Base Salary. In addition,
      Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As
      a
      participant in the Management Equity Incentive Plan, Mr. Pellegrino will be
      eligible to receive options, which vest over a period of time from the date
      of
      the option's issue, to purchase common shares of ASII. ASII may also grant
      to
      the Employee, following the first anniversary of the date of the Agreement
      and
      at the sole discretion of the Board of Directors, options to purchase common
      shares of the Company (subject to the vesting and the satisfaction of the other
      terms and conditions of such options). Mr. Pellegrino will be entitled to 25
      vacation days per year at such times as may be mutually agreed with the Board
      of
      Directors. ASII shall also furnish Mr. Pellegrino with monthly car allowance
      of
      Six Hundred Dollars ($600.00) and related car expenses.









ASII
      has
      an employment agreement with Erik Hoffer, pursuant to which Mr. Hoffer will
      be
      employed as Executive Vice President of the Company for an initial term of
      three
      years, which may be extended, and President of CGM-AST Sub for an initial term
      of one year, which may be renewed for successive one-year terms. Pursuant to
      the
      Employment Agreement, Mr. Hoffer will receive a base salary of $200,000, a
      bonus
      of 5% of the gross margin sales increase over the prior year's gross margin
      sales of CGM-AST products and customary benefits and
      reimbursements.




**Employee
      and Director Stock Option Plans**




ASII
      adopted the 2006 Stock Incentive Plan, (the "Plan") in order to attract and
      retain qualified personnel. This plan was adopted by the Board of Directors
      on
      October 12, 2006 and approved by the shareholders on December 19, 2006. The
      Board of Directors has initially reserved 2,500,000 shares of Common Stock
      for
      issuance under the 2006 Incentive Plan. Under the Plan, options may be granted
      which are intended to qualify as Incentive Stock Options, (ISO’s) under Section
      422 of the Internal Revenue Code of 1986 (the “Code”) or which are not
      (Non_ISO’s) intended to qualify as Incentive Stock Options there
      under.




The
      2006
      Incentive Plan and the right of participants to make purchases there under
      are
      intended to qualify as an “employee stock purchase plan” under Section 423 of
      the internal Revenue Code of 1986, as amended (the “Code”). The 2006Incentive
      Plan is not a qualified deferred compensation plan under Sections 401(a) of
      the
      Internal Revenue Code and is not subject to the provisions of the Employee
      Retirement Income Security Act of 1974 (”ERISA”)




The
      number of shares reversed for issuance under the 2006 Incentive Plan accounts
      for the 1 for 500 reverse stock split.




**Compensation
      of Directors**




Outside
      Directors receive compensation of $500 for each meeting attended for their
      services as members of the Board of Directors. Directors will receive
      reimbursement for expenses in attending directors meetings where
      applicable.




**ITEM
      11. Security Ownership of Certain Beneficial Owners and
      Management**




The
      following table lists stock ownership of our common stock as of December 31,
      2007. The information includes beneficial ownership by (i) holders of more
      than
      5% of our common stock, (ii) each of our current directors and executive
      officers and (iii) all of our directors and executive officers as a group.
      The
      information is determined in accordance with Rule 13d-3 promulgated under the
      Exchange Act based upon information furnished by the persons listed or contained
      in filings made by them with the Commission. Except as noted below, to our
      knowledge, each person named in the table has sole voting and investment power
      with respect to all shares of our common stock beneficially owned by
      them.




Percentage
      of beneficial ownership is based upon 681,599,825 shares of common stock
      outstanding at December 31, 2007, together with securities exercisable or
      convertible into shares of common stock within 60 days of December 31, 2007
      for
      each stockholder. Beneficial ownership is determined in accordance with the
      rules of the Securities and Exchange Commission and generally includes voting
      or
      investment power with respect to securities. Shares of common stock that are
      currently exercisable or exercisable within 60 days of December 31, 2007 are
      deemed to be beneficially owned by the person holding such securities for the
      purpose of computing the percentage of ownership of such person, but are not
      treated as outstanding for the purpose of computing the percentage ownership
      of
      any other person.










Name
                    and Address
                  of
                    Beneficial Owner
              
              Title
              
              Beneficial
                      Ownership
                    of
                      Common Stock
                    No.
                      of Shares
              
              Percent
                  of ClassAnthony
                  R. Shupin
              
              
              Chairman,
                  CEO and
              
              
              15,000,000
              
              
              *1709
                  Route 34 Suite 2
              
              
              PresidentFarmingdale,
                  NJ 07727Michael
                  Pellegrino
                  1709
                    Route 34 Suite 2
                    Farmingdale,
                      NJ 07727
              
              
              Senior
                  Vice President,
                  Chief
                    Financial Officer
                    &
                      Director
              
              
              15,000,000
              
              
              *Robert
                  Gowell
              
              
              Director
              
              
              96,300
              
              
              *1709
                  Route 34 Suite 2Farmingdale,
                  NJ 07727Vincent
                  Moreno
              
              
              Director
              
              
              0
              
              
              *1709
                  Route 34 Suite 2Farmingdale,
                  NJ 07727Erik
                  Hoffer
                  1709
                    Route 34 Suite 2
                    Farmingdale,
                      NJ 07727
              
              
              Executive
                  Vice
                  President
                    and Director
              
              
              0
              
              
              *All
                  Officers & DirectorsAs
                  a Group
              
              
              
              
              
              30,096,300
              
              
              *




*
      less
      than 1%




There
      are
      no arrangements known to ASII that at a later date may result in a change in
      control of ASII.




**ITEM
      12. Certain Relationships and Related Transaction**




None




**ITEM
      13. Exhibits**




31.1
              Certification
                  by Chief Executive Officer pursuant to Sarbanes-OxleySection
                  30231.2
              Certification
                  by Chief Financial Officer pursuant to Sarbanes-OxleySection
                  30232.1
              Certification
                  by Chief Executive Officer pursuant to 18 U.S.C.Section
                  135032.2
              Certification
                  by Chief Financial Officer pursuant to 18 U.S.C.Section
                  1350




**ITEM
      14. Principal Accountant Fees and Services**




Audit
      Fees. The aggregate fees billed by Bagell Joseph and Levine, our independent
      registered public accounting firm, for professional services rendered for the
      audit of the Company's annual financial statements for the last two fiscal
      years
      and for the reviews of the financial statements included in the Company's
      Quarterly reports on Form 10-QSB during the last two fiscal years 2007 and
      2006
      were $111,475 and $79,858, respectively.




Audit-Related
      Fees. The Company did not engage its principal accountants to provide assurance
      or related services during the last two fiscal years.




Tax
      Fees.
      The aggregate fees billed by the Company's principal accountants for tax
      compliance, tax advice and tax planning services rendered to the Company during
      the last two fiscal years 2007 and 2006 were 7,000 and $5,000,
      respectively.




All
      Other
      Fees. The Company did not engage its principal accountants to render services
      to
      the Company during the last two fiscal years, other than as reported
      above.









**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.




**Allied
                Security Innovations Inc.**By:
            /s/
              Anthony ShupinAnthony
                Shupin, Chairman, President, and
              Chief
                Executive OfficerDated:
                April 14, 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.




**Signature
      Title Date**






By: 
                  /s/ Anthony Shupin
                
                Anthony
                  Shupin
              Chairman,
                  President, and Chief,
                  Executive
                    OfficerBy:
                  /s/ Michael Pellegrino
                Michael
                    Pellegrino
              Senior
                  Vice President and Chief
                Financial
                    Officer, DirectorBy:
                
                Erik
                    Hoffer
              Executive
                  Vice President and
                DirectorBy:
                  /s/ Vincent Moreno
                Vincent
                    Moreno
              DirectorBy:
                
                Robert
                    Gowell
              Director







**Allied
        Security Innovations, Inc. and Subsidiary**
 **Formerly
        Digital Descriptor Systems, Inc.**
 **Table
        of Contents**


Page(s)December
                  31, 2007Report
                  of Independent Registered Public Accounting Firm
              
              1Audited
                  Consolidated Financial Statements:Balance
                  Sheets as of December 31, 2007 and 2006
              
              2Statements
                  of Operations for the Years Ended December 31, 2007 and December
                  31,
                  2006
              
              3Statement
                  of Stockholders' Deficit for the Years Ended December 31, 2007
                  and
                  December 31,2006
              
              4Statements
                  of Cash Flows for the Years Ended December 31, 2007 and December
                  31,
                  2006
              
              5-6Notes
                  to Consolidated Financial Statements
              
              7-22







**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Board
        of
        Directors and Stockholders
 Allied
        Security Innovations, Inc. and Subsidiary
 Formerly
        Digital Descriptor Systems, Inc.
 1709
        Route 34 South
 Farmingdale,
        New Jersey 07727
 
 We
        have
        audited the accompanying consolidated balance sheets of Allied Security
        Innovations, Inc. and Subsidiary (the “Company”) as of December 31, 2007 and
        2006, and the related consolidated statements of operations, changes in
        stockholders’ deficit and cash flows for each of the years in the two-year
        period ended December 31, 2007. These consolidated financial statements are
        the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these consolidated financial statements based on our
        audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        Company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audits included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our 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 Allied Security Innovations,
        Inc., as of December 31, 2007 and 2006, and the results of its operations
        and
        its cash flows for each of the years in the two-year period ended December
        31,
        2007 in conformity with accounting principles generally accepted in the United
        States of America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As discussed in Note 12 to the
        consolidated financial statements, the Company did not generate sufficient
        cash
        flows from revenues during the year ended December 31, 2007, to fund its
        operations. Also at December 31, 2007, the Company had negative net working
        capital of $32,087,467. These matters raise substantial doubt about the
        Company’s ability to continue as a going concern. Management’s plan in regard to
        these matters is also described in Note 12. The consolidated financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
  
 /s/
        BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
 Bagell,
        Josephs, Levine & Company, L.L.C.
 Marlton,
        NJ 08053
 
 April
        14,
        2008
 
 1
  **ALLIED
                    SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                    DIGITAL DESCRIPTOR SYSTEMS, INC.****CONSOLIDATED
                    BALANCE SHEETS****DECEMBER
                    31, 2007 AND 2006**
  2007
                
                2006**ASSETS****Current
                    Assets:**Cash
                    and cash equivalents
                
                $
                386,628
                
                $
                392,719Accounts
                    receivable, net of allowance
                
                
                406,655
                
                
                559,151Inventory
                
                
                665,435
                
                
                538,365Other
                    Current Assets
                
                
                8,241
                
                
                -**Total
                    Current Assets**
                
                
                1,466,959
                
                
                1,490,235Property
                    and equipment, net ofaccumulated
                    depreciation
                
                
                306,237
                
                
                317,956**Other
                    Assets:**Deposits
                
                
                14,626
                
                
                1,730Goodwill
                
                
                4,054,998
                
                
                4,054,998Intangible
                    assets, net ofaccumulated
                    amortization
                
                
                153,137
                
                
                168,305**Total
                    Other Assets**
                
                
                4,222,761
                
                
                4,225,033**Total
                    Assets**
                
                $
                5,995,957
                
                $
                6,033,224**LIABILITIES
                    AND STOCKHOLDERS' DEFICIT****Current
                    Liabilities:**Accounts
                    payable
                
                $
                133,113
                
                $
                115,560Accrued
                    expenses
                
                
                297,934
                
                
                356,570Accrued
                    payroll expenses
                
                
                93,856
                
                
                32,174Accrued
                    interest
                
                
                1,447,753
                
                
                1,441,438Deferred
                    income
                
                
                60,577
                
                
                134,395Convertible
                    debentures current
                
                
                5,122,832
                
                
                3,500,000Note
                    payable
                
                
                3,500,000
                
                
                -Derivative
                    liabilities
                
                
                22,898,360
                
                
                7,765,238**Total
                    Current Liabilities**
                
                
                33,554,425
                
                
                13,345,375Note
                    payable
                
                
                -
                
                
                3,500,000Convertible
                    debentures
                
                
                655,281
                
                
                1,967,132**Total
                    Liabilities**
                
                
                34,209,706
                
                
                18,812,507**Stockholders'
                    deficit:**Preferred
                    stock, $.001 par value; 1,000,000 sharesauthorized,
                    -0- issued and outstanding
                
                
                -
                
                
                -Common
                    stock, par value $.001; authorized 9,999,000,000 shares;681,599,825
                    and 19,137,612 issued and outstanding at December 31,2007
                    and 2006, respectively.
                
                
                681,600
                
                
                19,138Additional
                    paid-in capital
                
                
                18,864,882
                
                
                18,696,266Accumulated
                    deficit
                
                
                (47,760,231
                )
                
                (31,494,687
                )**Total
                    Stockholders' Deficit**
                
                
                (28,213,749
                )
                
                (12,779,283
                )**Total
                    Liabilities and Stockholders' Deficit**
                
                $
                5,995,957
                
                $
                6,033,224
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
 
 2
 
 **ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****FOR
                  THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 
 2007
              
              2006**INCOME**Net
                  Sales
              
              $
              4,367,941
              
              $
              4,528,533Cost
                  of Revenue
              
              
              1,185,313
              
              
              1,298,970**Gross
                  Profit**
              
              
              3,182,628
              
              
              3,229,563**OPERATING
                  EXPENSES**General
                  and administrative
              
              
              2,312,089
              
              
              2,175,852Sales
                  and marketing
              
              
              541,587
              
              
              463,544Research
              
              
              101,687
              
              
              107,024**Total
                  Operating Expenses**
              
              
              2,955,363
              
              
              2,746,420**INCOME
                  BEFORE OTHER EXPENSE**
              
              
              227,265
              
              
              483,143**OTHER
                  EXPENSE**Interest
              
              
              (1,121,707
              )
              
              (2,374,253
              )Amortization
                  of deferred financing cost
              
              
              -
              
              
              (264,438
              )Amortization
                  of debt discount
              
              
              (135,840
              )
              
              (1,187,147
              )Change
                  in fair market value of derivative liability
              
              
              (15,133,122
              )
              
              (896,046
              )Depreciation
                  and amortization
              
              
              (102,140
              )
              
              (99,866
              )Other
                  income and expenses
              
              
              -
              
              
              (11,274
              )**Total
                  Other Expense**
              
              
              (16,492,809
              )
              
              (4,833,024
              )**LOSS
                  BEFORE PROVISION FOR INCOME TAXES**
              
              
              (16,265,544
              )
              
              (4,349,881
              )**Provision
                  for income taxes**
              
              
              -
              
              
              -**NET
                  LOSS APPLICABLE TO COMMON SHARES**
              
              $
              (16,265,544
              )
              $
              (4,349,881
              )**NET
                  LOSS PER BASIC AND DILUTED SHARES**
              
              $
              (0.00
              )
              $
              (0.00
              )Weighted
                  average shares of common stockoutstanding,
                  basic and diluted
              
              
              147,082,908
              
              
              15,446,559
 
 The
                  accompanying notes are an integral part of these consolidated financial
                  statements.
  3
 
 **ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' DEFICIT****FOR
                  THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 
 TotalCommon
                  Stock
              
              
              
              Additional
                  Paid
              
              Accumulated
              
              Stockholders'Shares
              
              Amount
              
              in
                  Capital
              
              Deficit
              
              DeficitBalance
                  at December 31, 2005
              
              
              3,267,568,040
              
              $
              3,267,568
              
              $
              13,530,761
              
              $
              (27,144,806
              )
              $
              (10,346,477
              )Conversion
                  of accrued interest related toconvertible
                  debentures to common stock
              
              
              6,301,237,973
              
              
              6,301,238
              
              
              (4,384,163
              )
              
              -
              
              
              1,917,075Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,349,881
              )
              
              (4,349,881
              )Retroactive
                  common stock reverse split, 1/500
              
              
              (9,549,668,401
              )
              
              (9,549,668
              )
              
              9,549,668
              
              
              -
              
              
              -Balance
                  at December 31, 2006
              
              
              19,137,612
              
              
              19,138
              
              
              18,696,266
              
              
              (31,494,687
              )
              
              (12,779,283
              )Common
                  stock issued in conversion ofconvertible
                  debentures
              
              
              662,462,213
              
              
              662,462
              
              
              (520,120
              )
              
              -
              
              
              142,342Debt
                  Discount in conjunction with issuanceof
                  convertible debentures
              
              
              -
              
              
              -
              
              
              243,246
              
              
              -
              
              
              243,246Beneficial
                  interest in conjunction withissuance
                  of convertible debentures
              
              
              -
              
              
              -
              
              
              445,490
              
              
              -
              
              
              445,490Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,265,544
              )
              
              (16,265,544
              )Balance
                  at December 31, 2007
              
              
              681,599,825
              
              $
              681,600
              
              $
              18,864,882
              
              $
              (47,760,231
              )
              $
              (28,213,749
              )
 
 The
                  accompanying notes are an integral part of these consolidated financial
                  statements.
  4
 
 **ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****FOR
                  THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 
 2007
              
              2006**Cash
                  Flows from Operating Activities:**Net
                  loss
              
              $
              (16,265,544
              )
              $
              (4,349,881
              )**Adjustments
                  to reconcile net loss to net cash****provided
                  by operating activities:**Depreciation
                  and amortization
              
              
              102,140
              
              
              99,866Gain
                  on sale of equipment
              
              
              (2,200
              )
              
              264,438Amortization
                  of debt discount
              
              
              135,840
              
              
              1,187,147Beneficial
                  interest
              
              
              445,490
              
              
              1,917,074Change
                  in fair market value of derivative liability
              
              
              15,133,122
              
              
              896,046Bad
                  debt expense
              
              
              76,333
              
              
              65,795**Changes
                  in operating assets and liabilities:**Accounts
                  receivable
              
              
              76,163
              
              
              (13,523
              )Inventory
              
              
              (127,070
              )
              
              (124,214
              )Prepaid
                  expenses, deposits and other assets
              
              
              (21,137
              )
              
              4,266Accounts
                  payable
              
              
              17,553
              
              
              (109,437
              )Accrued
                  expenses
              
              
              3,046
              
              
              7,550Accrued
                  interest
              
              
              575,045
              
              
              355,452Deferred
                  Income
              
              
              (73,818
              )
              
              (71,068
              )**Net
                  Cash Provided by Operating Activities**
              
              
              74,963
              
              
              129,511**Cash
                  Flows from Investing Activities:**Purchase
                  of equipment
              
              
              (75,254
              )
              
              (20,603
              )Proceeds
                  from sale of equipment
              
              
              2,200
              
              
              -**Net
                  Cash Used in Investing Activities**
              
              
              (73,054
              )
              
              (20,603
              )**Cash
                  Flows from Financing Activities:**Payment
                  of convertible debentures
              
              
              (8,000
              )
              
              (12,000
              )**Net
                  Cash used in Financing Activities**
              
              
              (8,000
              )
              
              (12,000
              )**Net
                  Increase (Decrease) in Cash**
              
              
              (6,091
              )
              
              96,908**Cash
                  at Beginning of Year**
              
              
              392,719
              
              
              295,811**Cash
                  at End of Year**
              
              $
              386,628
              
              $
              392,719
 
 The
                  accompanying notes are an integral part of these consolidated financial
                  statements.




5
 
 **ALLIED
                  SECURITY INNOVATIONS, INC AND SUBSIDIARY****FORMERLY
                  DIGITAL DESCRIPTOR SYSTEMS, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****FOR
                  THE YEARS ENDED DECEMBER 31, 2007 AND 2006****(CONTINUED)**


2007
                
                2006**Supplemental
                    Disclosure of Cash Flow Information:**Cash
                    Paid For:Interest
                    Expense
                
                $
                -
                
                $
                -Income
                    Taxes
                
                $
                -
                
                $
                -**Supplemental
                    Disclosure of Non-Cash Investing****and
                    Financing Activities:**Common
                    stock issued in conversion ofconvertible
                    debentures
                
                $
                142,342
                
                $
                310,124Debt
                    Discount in conjunction with issuanceof
                    convertible debentures
                
                $
                243,246
                
                $
                6,301,238Beneficial
                    interest in conjunction withissuance
                    of convertible debentures
                
                $
                445,490
                
                $
                6,301,238Convertible
                    debentures issued in conversion ofaccrued
                    interest
                
                $
                568,730
                
                $
                536,546
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
 6
  **Allied
        Security Innovations, Inc. and Subsidiary**
 **Formerly
        Digital Descriptor Systems, Inc.**
 **Notes
        to the Consolidated Financial Statements**
 **For
        the Years Ended December 31, 2007 and December 31, 2006**
 
 **Note
        1 - Description of Business**
 
 On
        December 19, 2006 a special meeting of the shareholders was held and at the
        meeting the shareholders passed a resolution to change the name of the company
        from Digital Descriptor Systems, Inc. (“ASII”) to Allied Security Innovations,
        Inc. The shareholders also passed a resolution to authorize a 1 for 500 reverse
        stock split. Both of these actions were completed on February 5, 2007. In
        addition the 2006 Incentive Stock Option Plan adopted by The Board of Directors
        on October 12, 2006 was approved by the shareholders. On October 9, 2007
        the
        companies stock began trading on the NADAQ-over-the-counter market. Previously,
        the Company’s common stock traded on Pink Sheets.
 
 On
        July
        1, 2007 the offices of Allied Security Innovations, Inc. and the Somerset
        office
        of CGM Applied Security Technologies, Inc., the Company’s wholly owned
        subsidiary, were combined into a new office located at 1709 Route 34,
        Farmingdale, NJ in a 6,000 square foot combination warehouse /office space.
        The
        reason for this was cost savings and improved operational
        efficiencies.
 
 Allied
        Security Innovations, Inc., incorporated in Delaware in 1994, develops,
        assembles and markets computer installations consisting of hardware and
        software, which capture video and scanned images, link the digitized images
        to
        test and store the images and text on a computer database and transmit this
        information to remote locations. The principal product of the Company is
        the
        Compu-Capture ® Law Enforcement Program, which is marketed to law enforcement
        agencies and prison facilities and generates the majority of the Company's
        revenues. Substantially all of the Company's revenues are derived from
        governmental agencies in the United States.
 
 CGM-AST
        is a manufacturer and distributor of indicative and barrier security seals,
        security tapes and related packaging security systems, protective security
        products for palletized cargo, physical security systems for tractors, trailers
        and containers as well as a number of highly specialized authentication
        products.
  **Note
        2 - Summary of Significant Accounting Policies**
 
 Significant
        accounting policies followed by the Company in the preparation of the
        accompanying consolidated financial statements are summarized
        below:
 
 **Use
        of Estimates**
  The
        preparation of the consolidated financial statements in conformity with
        generally accepted accounting principles requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the d
        consolidated financial statements and the reported amounts of revenues and
        expenses during the reported period. Actual results could differ from those
        estimates.
 
 **Revenue
        Recognition**
  The
        Company derives revenue from the sale of hardware, software, post customer
        support, and other related services. Post customer support includes telephone
        support, bug fixes, and rights to upgrades. Other related services include
        basic
        training. The CGM-AST subsidiary derives its’ revenue from the sale of its tape,
        labels and other security devices.
 
 The
        Company recognizes revenue upon delivery of the product to the end-user,
        when
        the fee is determinable and collectability is probable. Revenue allocable
        to
        post customer support is recognized on a straight-line basis over the period
        which the service is to be provided. Revenue collected for future services
        is
        recorded as deferred income and totaled $60,577 for the year ended December
        31,
        2007. Revenue allocable to other services is recognized as the services are
        provided. The CGM-AST subsidiary recognizes it revenue upon shipment of the
        product to the customer.
 
 **Software
        Development Costs**
  All
        costs
        incurred in the research and development of new software products and costs
        incurred prior to the establishment of a technologically feasible product
        are
        expensed as incurred. Research and development of software costs were $101,687
        and $107,024, respectively, for the years ended December 31, 2007 and
        2006.
  7
 
 **Cash
        and Cash Equivalents**
  For
        the
        purpose of the statement of cash flows, cash and cash equivalents include
        time
        deposits, certificates of deposits, restricted cash, and all highly liquid
        debt
        instruments with original maturities or three months or less.
 
 **Accounts
        Receivable**
  Accounts
        receivable are uncollateralized customer obligations due under normal trade
        terms requiring payment within 30 days from the invoice date. No interest
        is
        charged on any past due accounts. Accounts receivable are stated at the amount
        billed to the customer. Accounts receivable, net of allowance was $406,655
        and
        $559,151  at
        December 31, 2007 and 2006.
 
 The
        carrying amount of accounts receivable is reduced by a valuation allowance
        that
        reflects management's best estimate of the amount that will not be collected.
        Management reviews all accounts receivable balances that exceed 90 days from
        invoice date and based on assessment of current creditworthiness, estimates
        the
        portion, if any that will not be collected. The allowance for doubtful accounts
        is $89,062 and $118,055 at December 31, 2007 and 2006.
 
 **Fixed
        Assets**
  Fixed
        assets are stated at cost. Depreciation is computed primarily using the
        straight-line method over the estimated useful life of the assets.
 Machinery
                    and equipment
                7
                    yearsFurniture
                    and fixtures
                7
                    yearsComputers
                3
                    yearsLeasehold
                    improvements
                39
                    years
 
 8
  **Income
        Taxes**
  The
        Company provides for income taxes under the liability method. Deferred income
        taxes reflect the net tax effects of temporary differences between carrying
        amounts of assets and liabilities for financial reporting purposes and the
        amounts used for income tax purposes. Such differences result from differences
        in the timing of recognition by the Company of net operating loss carry
        forwards, certain expenses, and differences in the depreciable lives and
        depreciation methods for certain assets.
 
 **Accounting
        for Stock Options**
  The
        Company determines stock-based compensation expense under Financial Accounting
        Standards Board issued Statement No. 123R (SFAS 123R), "Accounting for
        Stock-Based Compensation". The effect of applying SFAS 123R to the Company's
        stock-based awards results in net loss and net loss per common share that
        are
        disclosed in Note 8.
  **Net
        Loss Per Common Share**
  Basic
        loss per share is calculated by dividing the net loss by the weighted average
        common shares outstanding for the period. Diluted loss per share is calculated
        by dividing the net loss by the weighted average common shares outstanding
        of
        the period plus the dilutive effect of common stock equivalents. Common stock
        equivalents were not included in the computation of diluted earnings per
        share
        when the Company reported a loss because to do so would be antidilutive for
        the
        periods presented.
 
 **Concentration
        of Credit Risk**
  Financial
        instruments which potentially subject the Company to a concentration of credit
        risk principally consist of cash and accounts receivable. Concentration of
        credit risk, with respect to accounts receivable, is limited due to the
        Company's credit evaluation process. The Company does not require collateral
        from its customers. The Company sells its principal products to end users
        and
        distributors principally in the United States.
 
 The
        Company maintains cash and cash equivalents in various financial institutions
        that, in the aggregate, exceed the limit insured by the Federal Deposit
        Insurance Corporation (FDIC). The FDIC insures cash deposits up to $100,000
        per
        bank. Any amounts over $100,000 represent an uninsured risk to the
        Company.
  **Principles
        of Consolidation and Basis of Presentation**
  The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary CGM Security Solutions, Inc.  All inter-company
        accounts have been eliminated.
  **Inventory**
  Inventories
        consist principally of inks, adhesives, film and finished goods held in the
        Company’s warehouse. Inventory is stated at the lower of cost or market,
        utilizing the first-in, first-out method. The cost of finished goods includes
        the cost of raw materials, packaging supplies, direct and indirect labor
        and
        other indirect manufacturing costs. On a quarterly basis, management reviews
        inventory for unsalable or obsolete inventory. Obsolete or unsalable inventory
        write-offs have been immaterial to the financial statements.
  **Advertising**
  The
        Company’s policy is to expense the costs of advertising as incurred. The Company
        had $32,324 and $35,588 for the years ended December 31, 2007 and 2006
        respectively.
 ****
 **Fair
        Value of Financial Instruments**
  The
        carrying amount reported in the consolidated balance sheet for cash and cash
        equivalents, accounts payable and accrued expenses approximates fair value
        because of the immediate or short-term maturity of these financial instruments.
        The carrying amount reported for the convertible debentures and notes
        payable approximates fair value because, in general, the interest on the
        underlying instruments fluctuates with market rates.
  **Goodwill
        and Other Intangible Assets**
  In
        June
        2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 142
“Goodwill and Other Intangible Assets”. This statement addresses financial
        accounting and reporting for acquired goodwill and other intangible assets
        and
        supersedes APB Opinion No. 17, “Intangible Assets”. It addresses how intangible
        assets that are acquired individually or with a group of other assets (but
        not
        those acquired in a business combination) should be accounted for in financial
        statements upon their acquisition. This Statement also addresses how goodwill
        and other intangible assets should be accounted for after they have been
        initially recognized in the financial statements. Goodwill was acquired upon
        the
        purchase of its wholly-owned subsidiary of CGM Security Solutions, Inc. totaling
        $4,054,998 (see footnote 11).
  9
  In
        addition, the Company has acquired licenses, which are included as other
        intangible assets. The licenses are being amortized over a period of 15 years
        based on the expected benefits to be consumed or otherwise used up. Goodwill
        and
        other intangible assets are tested annually for impairment in the fourth
        quarter, and are tested for impairment more frequently if events and
        circumstances indicate that the asset might be impaired. An impairment loss
        is
        recognized to the extent that the carrying amount exceeds the asset’s fair
        value. The Company assesses the recoverability of its goodwill and other
        intangible assets by comparing the projected undiscounted net cash flows
        associated with the related asset, over their remaining lives, in comparison
        to
        their respective carrying amounts. Impairment, if any, is based on the excess
        of
        the carrying amount over the fair value of those assets.
  **Derivative
        Instruments**
  The
        Company has an outstanding convertible debt instrument that contains
        free-standing and embedded derivative features. The Company accounts for
        these
        derivatives in accordance with SFAS No. 133, *“Accounting
        for Derivative Instruments and Hedging Activities”* ,
        and
        EITF Issue No. 00-19, *“Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company's Own Stock”* .
        In
        accordance with the provisions of SFAS No. 133 and EITF Issue No. 00-19,
        the
        embedded derivatives are required to be bifurcated from the debt instrument
        and
        recorded as a liability at fair value on the consolidated balance sheet.
        Changes
        in the fair value of the derivatives are recorded at each reporting period
        and
        recorded in net gain (loss) on derivative, a separate component of the other
        income (expense). As of December 31, 2007, the fair value of derivatives
        was
        $22,898,360, an increase of $15,133,122 from December 31, 2006. The Company
        had
        a net loss on all derivatives of $15,133,122 for the year ended December
        31,
        2007.
  **Earnings
        (Loss) Per Share of Common Stock**
  Historical
        net income (loss) per common share is computed using the weighted average
        number
        of common shares outstanding. Diluted earnings per share (EPS) include
        additional dilution from common stock equivalents, such as stock issuable
        pursuant to the exercise of stock options and warrants. Common stock equivalents
        were not included in the computation of diluted earnings per share at December
        31, 2007 and 2006 when the Company reported a loss because to do so would
        be
        anti-dilutive for periods presented. The Company has incurred losses since
        inception as a result of funding its research and development, including
        the
        development of its intellectual property portfolio, which is key to its core
        products.
 
 The
        following is a reconciliation of the computation for basic and diluted EPS:
 
 December
                  31, 2007
              
              December
                  31, 2006Net
                  Loss
              
              $
              (16,265,544
              )
              $
              (4,349,881
              )Weighted-average
                  common shares outstanding (Basic)
              
              
              147,082,908
              
              
              15,446,559Weighted-average
                  common stock Equivalents:Stock
                  options
              
              
              -
              
              
              -Warrants
              
              
              -
              
              
              -Weighted-average
                  common shares outstanding (Diluted)
              
              
              147,082,908
              
              
              15,446,559
  **Limitations**
  Fair
        value estimates are made at a specific point in time, based on relevant market
        information and information about the financial statement. These estimates
        are
        subjective in nature and involve uncertainties and matters of significant
        judgment and therefore cannot be determined with precision. Changes in
        assumptions could significantly affect the estimates.
  **Reclassifications**
  Certain
        amounts for the years ended December 31, 2006 have been reclassified to conform
        to the presentation of the December 31, 2007 amounts. The reclassifications
        had
        no effect on net income for the years ended December 31, 2006.
 
 **Note
        3 - Impact of Recent Accounting Pronouncements**
 
 In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
        Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and
        140.” SFAS No. 155 resolves issues addressed in SFAS No. 133
        Implementation Issue No. D1, “Application of Statement 133 to Beneficial
        Interests in Securitized Financial Assets,” and permits fair value remeasurement
        for any hybrid financial instrument that contains an embedded derivative
        that
        otherwise would require bifurcation, clarifies which interest-only strips
        and
        principal-only strips are not subject to the requirements of SFAS No. 133,
        establishes a requirement to evaluate interests in securitized financial
        assets
        to identify interests that are freestanding derivatives or that are hybrid
        financial instruments that contain an embedded derivative requiring bifurcation,
        clarifies that concentrations of credit risk in the form of subordination
        are
        not embedded derivatives and amends SFAS No. 140 to eliminate the
        prohibition on a qualifying special-purpose entity from holding a derivative
        financial instrument that pertains to a beneficial interest other than another
        derivative financial instrument. SFAS No. 155 is effective for all
        financial instruments acquired or issued after the beginning of the first
        fiscal
        year that begins after September 15, 2006. The adoption of SFAS
        No. 155 did not have a material impact on the Company’s financial position,
        results of operations, or cash flows.
  10
 
 In
        March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
        Financial Assets, an amendment of FASB Statement No. 140.” SFAS
        No. 156 requires an entity to recognize a servicing asset or liability each
        time it undertakes an obligation to service a financial asset by entering
        into a
        servicing contract under a transfer of the servicer’s financial assets that
        meets the requirements for sale accounting, a transfer of the servicer’s
        financial assets to a qualified special-purpose entity in a guaranteed mortgage
        securitization in which the transferor retains all of the resulting securities
        and classifies them as either available-for-sale or trading securities in
        accordance with SFAS No. 115, “Accounting for Certain Investments in Debt
        and Equity Securities” and an acquisition or assumption of an obligation to
        service a financial asset that does not relate to financial assets of the
        servicer or its consolidated affiliates. Additionally, SFAS No. 156
        requires all separately recognized servicing assets and servicing liabilities
        to
        be initially measured at fair value, permits an entity to choose either the
        use
        of an amortization or fair value method for subsequent measurements, permits
        at
        initial adoption a one-time reclassification of available-for-sale securities
        to
        trading securities by entities with recognized servicing rights and requires
        separate presentation of servicing assets and liabilities subsequently measured
        at fair value and additional disclosures for all separately recognized servicing
        assets and liabilities. SFAS No. 156 is effective for transactions entered
        into after the beginning of the first fiscal year that begins after
        September 15, 2006. The adoption of SFAS No. 156 did not have a
        material impact on the Company’s financial position, results of operations, or
        cash flows.
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for
        Uncertainty in Income Taxes” which defines the threshold for recognizing the
        benefits of tax return positions in the financial statement as
“more-likely-than-not” to be sustained by the taxing authority. FIN 48 also
        prescribes a method for computing the tax benefit positions to be recognized
        in
        the financial statements. In addition, FIN 48 provides guidance on
        derecognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. The
        adoption of FIN 48 did not have a material impact on the Company’s financial
        position, results of operations, or cash flows.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No. 157, *Fair
        Value Measurements* ,(“FAS
        157”). This Standard defines fair value, establishes a framework for measuring
        fair value in generally accepted accounting principles and expands disclosures
        about fair value measurements. FAS 157 is effective for financial statements
        issued for fiscal years beginning after November 15, 2007 and interim
        periods within those fiscal years. The adoption of FAS 157 is not expected
        to
        have a material impact on the Company’s financial position, results of
        operations or cash flows.
 
 The
        FASB
        also issued in September 2006 Statement of Financial Accounting Standards
        No. 158, *Employers’
        Accounting for Defined Benefit Pension and Other Postretirement Plans — an
        amendment of FASB Statement No. 87, 88, 106 and 132(R),* (“FAS
        158”) *.* This
        Standard requires recognition of the funded status of a benefit plan in the
        statement of financial position. The Standard also requires recognition in
        other
        comprehensive income certain gains and losses that arise during the period
        but
        are deferred under pension accounting rules, as well as modifies the timing
        of
        reporting and adds certain disclosures. FAS 158 provides recognition and
        disclosure elements to be effective as of the end of the fiscal year after
        December 15, 2006 and measurement elements to be effective for fiscal years
        ending after December 15, 2008. The adoption of FAS 158 is not expected to
        have a material impact on the Company’s financial position, results of
        operations or cash flows.
 
 Also
        in
        September 2006, the Securities and Exchange Commission (SEC) issued Staff
        Accounting Bulletin (SAB) No. 108, Quantifying Financial Misstatements (SAB
        108), which expresses the Staff’s views regarding the process of quantifying
        financial statement misstatements. Registrants are required to quantify the
        impact of correcting all misstatements, including both the carryover and
        reversing effects of prior year misstatements, on the current year financial
        statements. The financial statements would require adjustment when either
        approach results in quantifying a misstatement that is material, after
        considering all relevant quantitative and qualitative factors. SAB 108 is
        effective for financial statements covering the first fiscal year ending
        after
        November 15, 2006. The
        adoption of SAB 108 did not have a material impact on the Company’s financial
        position, results of operations or cash flows.
 
 In
        February 2007, the FASB issued SFAS No. 159, *“The
        Fair Value Option for Financial Assets and Liabilities, including an amendment
        of FASB Statement No. 115”.* SFAS
        No.
        159 permits entities to choose, at specified election dates, to measure many
        financial instruments and certain other items at fair value that are not
        currently required to be measured at fair value. Unrealized gains and losses
        shall be reported on items for which the fair value option has been elected
        in
        earnings at each subsequent reporting date. SFAS No. 159 is effective for
        fiscal
        years beginning after November 15, 2007. Early adoption is permitted as of
        the
        beginning of a fiscal year that begins on or before November 15, 2007, provided
        the entity also elects to apply the provisions of SFAS No. 157 *“Fair
        Value Measurements.”* The
        Company is currently assessing the impact that SFAS 159 will have on its
        financial statements.
  In
        December 2007, the FASB issued SFAS No. 141R, *“Business
        Combinations”* and
        SFAS
        No. 160, *“Non
        controlling Interests in Consolidated Financial Statements - an amendment
        to ARB
        No. 51.”* SFAS
        Nos.
        141R and 160 require most identifiable assets, liabilities, non controlling
        interests, and goodwill acquired in a business combination to be recorded
        at
“full fair value” and require non controlling interests (previously referred to
        as minority interests) to be reported as a component of equity, which changes
        the accounting for transactions with non controlling interest holders. Both
        statements are effective for periods beginning on or after December 15,
        2008, and early adoption is prohibited. Accordingly, SFAS No. 141R will be
        applied by the Company to business combinations occurring on or after
        January 1, 2009. SFAS No. 160 will be applied prospectively to all non
        controlling interests, including any that arose before the effective date.
        The
        adoption of SFAS No. 160 is not expected to have any impact on the
        Company’s consolidated financial position and results of operations.
  11
  **Note
        4 - Intangible Assets**
 
 Intangible
        assets consist of the following at December 31, 2007 and 2006:
 **2007**
                
                **2006**Licenses
                
                $
                222,076
                
                $
                222,076Accumulated
                    amortization
                
                
                68,939
                
                
                53,771Total
                
                $
                153,137
                
                $
                168,305
 
 Licenses
        are being amortized over its estimated useful life of 15 years. Amortization
        expense for the years ended December 31, 2007 and 2006 was $15,168
        respectively.
 The
        Licenses are amortized using the straight-line method over the useful life
        of 15
        years. Amortization expense for the years ended December 31, 2007 and 2006
        is
        15,168 and 15,168, respectively
 
 The
        following is a listing of the estimated amortization expense for the next
        five
        years:
 Year
                    ended December 31,2008
                
                $
                15,1682009
                
                
                15,1682010
                
                
                15,1682011
                
                
                15,1682012
                
                
                15,168
 
 Based
        on
        the results of its most recent annual impairment tests, the Company determined
        that no impairment of the licenses existed as of December 31, 2007 or 2006.
        However, future impairment tests could result in a charge to
        earnings
 
 **Note
        5- Property and Equipment**
 
 Fixed
        assets consist of the following at December 31, 2007 and 2006:
 **2007**
                
                **2006**Furniture
                    and Fixtures
                
                $
                71,367
                
                $
                48,522Leasehold
                    Improvements
                
                
                159,607
                
                
                136,257Computers
                
                
                209,179
                
                
                185,119Machinery
                    and Equipment
                
                
                753,209
                
                
                810,0511,193,362
                
                
                1,179,949Less:
                    Accumulated depreciation
                
                
                (887,125
                )
                
                (861,993
                )Net
                
                
                306,237
                
                
                317,955
  Depreciation
        expense for the years ended December 31, 2007 and 2006 was $86,972 and $84,698,
        respectively.
 
 **Note
        6 - Convertible Debentures**
 
 **Based
        on the guidance in SFAS133 and EITF00-19, the Company concluded that the
        conversion features of its convertible debentures were required to be accounted
        for as derivatives. The imbedded derivative feature was bi-furcated and the
        fair
        market value was determined using a convertible bond valuation model. The
        derivative instruments are recorded at fair market value with changes in
        value
        recognized during the period of change.**
  12
 
 During
        May 2001, the Company issued three convertible notes for an aggregate amount
        of
        $20,000. The debentures are collateralized by substantially all of the Company's
        assets. The debentures accrue interest at the rate of 10% per
        annum.
 
 The
        holders have the right to convert the principal amount plus accrued interest
        into shares of the Company's common stock. The conversion price in effect
        on any
        Conversion Date shall be an amount equal to 40% of the mean average price
        of the
        common stock for the ten trading days prior to notice of
        conversion.
 
 We
        recorded a derivative liability related to this convertible debenture. The
        initial fair market value of the conversion option in the amount of $4,992
        was
        recorded as a debt discount and is being amortized over the stated maturities
        of
        the notes using the effective interest method. The fair market value of the
        conversion feature is also shown as a derivative liability on the company’s
        balance sheet and is being adjusted to fair market value each reporting period
        with the change being reported as “other income and expenses” in the statement
        of operations.
 
 During
        September 2001, the Company issued two convertible debentures for an aggregate
        amount of $400,000. The debentures are collateralized by substantially all
        of
        the company's assets. These debentures are in default as they were due on
        September 30, 2002. The debentures accrue interest at the rate of 12% per
        annum.
        A late fee equal to 15% of the accrued and unpaid interest is also assessed
        during the default period. Interest on the debentures was not paid quarterly
        and
        accordingly accrued interest and late fees payable related to the notes is
        included in the accompanying consolidated financial statements.
 
 The
        holders have the right to convert the principal amount plus accrued interest
        into shares of the Company's common stock at anytime after issuance. The
        conversion price in effect on any Conversion Date shall be the lesser of
        $.08
        per share or 40% of the average of the lowest three inter-day sales prices
        during the ten trading days immediately preceding the applicable Conversion
        Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        800,000 shares of common stock (1,600 shares after stock split in February
        2007)
        of the Company at an exercise price per share equal to the lesser of $.36
        or the
        average of the lowest three closing sales prices for the common stock during
        the
        twenty Trading Days immediately prior to exercise. The estimated fair value
        of
        the warrants of $48,000 was allocated to paid-in capital. This resulting
        debt
        discount plus $90,000 of financing charges were amortized on a straight-line
        basis over the term of the debentures, and were fully amortized at December
        31,
        2002.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $59,407 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 13
  During
        2004, $10,500 of the debenture was converted into 35,000,000 shares of common
        stock (70,000 shares after stock split in February 2007).
 
 In
        December 2001 the Company issued three convertible debentures for an aggregate
        amount of $500,000. The debentures are collateralized by substantially all
        of
        the Company's assets. The debentures are in default as they were due December
        31, 2002. Interest accrues at the rate of 12% per annum through maturity,
        and
        increased to 15% per annum during the default period. Quarterly interest
        payments were not made, and accordingly accrued interest payable related
        to the
        notes is included in the accompanying consolidated financial
        statements.
 
 The
        holders have the right to convert the principal amount plus accrued interest
        into shares of the Company's common stock at any time. The conversion price
        in
        effect on any Conversion Date shall be the lesser of $.043 per share or 40%
        of
        the average of the lowest three inter-day sales prices during the twenty
        Trading
        Days immediately preceding the applicable Conversion Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        1,500,000 shares of common stock (3,000 shares after stock split in February
        2007) of the Company at an exercise price per share equal to the lesser of
        $.02
        or the average of the lowest three inter-day sales prices during the twenty
        Trading Days immediately prior to exercise. The estimated fair value of the
        warrants of $90,000 was allocated to paid-in capital. This resulting debt
        discount plus $77,500 of financing charges were amortized on a straight-line
        basis over the term of the debentures, and were fully amortized at December
        31,
        2002.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 388,800 was recorded as a debt discount and is being amortized over
        the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 In
        September 2002, a 12% convertible promissory note for $75,000 was issued
        to two
        investors. The debentures are collateralized by substantially all of the
        company's assets. The debentures are in default as they were due in August
        2003.
        The debentures accrue interest at the rate of 12% per annum. A late fee equal
        to
        15% of the accrued and unpaid interest is also assessed during the default
        period. Quarterly interest on the debentures was not paid and accordingly
        accrued interest and late fees payable related to the notes is included in
        the
        accompanying consolidated financial statements.
 
 The
        holders have the right to convert the principal amount plus unpaid accrued
        interest into shares of the Company's common stock at any time through
        repayment. The conversion price is equal to fifty percent of the average
        of the
        lowest three (i) inter-day trading prices, or (ii) if the common stock is
        traded
        on the OTC Bulletin Board or Pink Sheets, the prices asked by any person
        or
        entity acting as a market maker in the common stock during the twenty trading
        days immediately preceding the relevant date upon which a conversion is
        effected.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 59,430 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 In
        September 2002, the Company issued secured convertible debentures in the
        aggregate principal amount of $100,000. The debentures are collateralized
        by
        substantially all of the company's assets. The debentures are in default
        as they
        were due on September 30, 2003. The debentures accrue interest at the rate
        of
        12% per annum. A late fee equal to 15% of the accrued and unpaid interest
        is
        also assessed during the default period. Quarterly interest on the debentures
        was not paid, and accordingly accrued interest and late fees payable related
        to
        the notes is included in the accompanying consolidated financial
        statements.
 
 14
  The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of common stock. The conversion price in effect
        on
        any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
        of the lowest three inter-day sales prices of the common stock during the
        twenty
        Trading Days immediately preceding the applicable conversion date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        300,000 shares of common stock (600 shares after stock split in February
        2007)
        of the Company at an exercise price per share equal to $.01. The estimated
        fair
        value of the warrants was zero. Debt issuance costs of $27,500 were also
        amortized on a straight-line basis over the term of the debentures and were
        fully amortized at December 31, 2003.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 79,190 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  In
        January, 2003 the Company issued three convertible debentures for an aggregate
        amount of $250,000, with simple interest accruing at the annual rate of 10%.
        The
        debentures are collateralized by substantially all of the company's assets.
        These debentures are in default as they were due January 10, 2004. Quarterly
        interest was not paid and accordingly accrued interest is included in the
        consolidated financial statements.
 
 The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of common stock. The conversion price in effect
        on
        any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
        of the lowest three inter-day sales prices of the common stock during the
        twenty
        Trading Days immediately preceding the applicable Conversion Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        750,000 shares of common stock of the Company (1,500 shares after stock split
        in
        February 2007) at an exercise price per share equal to $0.01. The estimated
        fair
        value of the warrants was zero. Financing costs incurred of $56,750 were
        fully
        amortized at December 31, 2003.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 92,225 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  In
        February, 2003, the Company issued three convertible debentures for an aggregate
        amount of $125,000, with simple interest accruing at the annual rate of 10%.
        The
        debentures are collateralized by substantially all of the Company's assets.
        The
        debentures are in default as they were due February 27, 2004. Quarterly interest
        due was not paid and accordingly accrued interest is included in the
        consolidated financial statements.
 
 The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of common stock. The conversion price in effect
        on
        any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
        of the lowest three inter-day sales prices of the common stock during the
        twenty
        Trading Days immediately preceding the applicable Conversion Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        375,000 shares of common stock (750 shares after stock split in February
        2007)
        of the Company at an exercise price per share equal to $0.01. The estimated
        fair
        value of the warrants was zero. Debt issuance costs of $10,843 were also
        amortized on a straight-line basis over the term of the debentures. Amortization
        expense during 2004 was $24,307 and the costs were fully amortized as of
        December 31, 2004.
 
 15
  In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 47,850 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  In
        April,
        2003, The Company issued three convertible debentures for an aggregate amount
        of
        $125,000, with simple interest accruing at the annual rate of 10%. The
        debentures are collateralized by substantially all of the company's assets.
        The
        debentures are in default as they were due September 30, 2004. Quarterly
        interest was not paid and accordingly accrued interest is included in the
        consolidated financial statements.
 
 The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of common stock. The conversion price in effect
        on
        any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the average
        of the lowest three inter-day sales prices of the common stock during the
        twenty
        Trading Days immediately preceding the applicable Conversion Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        375,000 shares of common stock (750 shares after stock split in February
        2007)
        of the Company at an exercise price per share equal to $0.01. The estimated
        fair
        value of the warrants was zero. Debt issuance costs of $20,844 were also
        amortized on a straight-line basis over the term of the debentures. Amortization
        expense during 2004 was $38,591 and the costs were fully amortized as of
        December 31, 2004.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 68,250 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 In
        October, 2003, the Company issued two convertible debentures for an aggregate
        amount of $165,000, with simple interest accruing at the annual rate of 12%.
        The
        debentures are collateralized by substantially all of the company's assets.
        The
        debentures are in default as they were due October 1, 2004. Quarterly interest
        was not paid and accordingly accrued interest is included in the consolidated
        financial statements.
 
 The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of the Company's common stock. The conversion
        price
        in effect on any Conversion Date shall be the lesser of (1) $.005 or (2)
        40% of
        the average of the lowest three inter-day sales prices of the common stock
        during the twenty Trading Days immediately preceding the applicable Conversion
        Date.
 
 The
        debenture holders also received warrants to purchase 1,505,000 shares (3,010
        shares after stock split in February 2007) at an exercise price of $0.01
        per
        share. The estimated fair value of the warrants was zero. Amortization expense
        during 2004 was $147,469 and the costs were fully amortized as of December31,
        2004.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 326,733 was recorded as a debt discount and is being amortized over
        the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  16
  In
        November, 2003, the Company issued two convertible debentures for an aggregate
        amount of $45,000, with simple interest accruing at the annual rate of 10%.
        The
        debentures are in default as they were due November 27, 2004. Quarterly interest
        was not paid and accordingly accrued interest is included in the consolidated
        financial statements.
 
 The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of the Company's common stock. The conversion
        price
        in effect on any Conversion Date shall be the lesser of (1) $.005 or (2)
        40% of
        the average of the lowest three inter-day sales prices of the common stock
        during the twenty Trading Days immediately preceding the applicable Conversion
        Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        315,000 shares of common stock of the Company(630 shares after stock split
        in
        February 2007) at an exercise price per share equal to $0.01. The estimated
        fair
        value of the warrants was zero. Amortization expense during 2004 was $47,469
        and
        the costs were fully amortized as of December 31, 2004.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 72,572 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  In
        December, 2003, the Company issued three convertible debentures for an aggregate
        amount of $45,000, with simple interest accruing at the annual rate of 12%.
        The
        debentures are collateralized by substantially all of the company's assets.
        These debentures are in default as they were due by December 3, 2004. Quarterly
        interest was not paid and accordingly accrued interest is included in the
        consolidated financial statements.
  The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of the Company's common stock. The conversion
        price
        in effect on any Conversion Date shall be the lesser of (1) $.005 or (2)
        40% of
        the average of the lowest three inter-day sales prices of the common stock
        during the twenty Trading Days immediately preceding the applicable Conversion
        Date.
 
 The
        Company also issued common stock purchase warrants for the right to purchase
        750,000 shares of common stock of the Company (1,500 shares after stock split
        in
        February 2007) at an exercise price per share equal to $0.01. The estimated
        fair
        value of the warrants was zero. Amortization expense during 2004 was $42,349
        and
        the costs were fully amortized as of December 31, 2004.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $ 72,527 was recorded as a debt discount and is being amortized over the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  In
        November, 2004, the Company issued four convertible debentures for an aggregate
        amount of $3,500,000, with simple interest accruing at the annual rate of
        12%.
        The debentures are collateralized by substantially all of the Company's assets.
        These debentures were due in November, 2005. Quarterly interest was not paid
        and
        accordingly accrued interest is included in the consolidated financial
        statements.
 
 The
        holders have the right to convert the principal amount and interest due under
        the debentures into shares of the Company's common stock. The conversion
        price
        in effect on any conversion date shall be the lesser of (1) $.0005 or (2)
        67% of
        the average of the lowest three inter-day sales prices of the common stock
        during the twenty trading days immediately preceding the applicable conversion
        date. In addition the debenture holders also received warrants to purchase
        10,500,000 shares at an exercise price of $0.005 per share anytime before
        November 30, 2009. The estimated fair value of the warrants, $5,250, was
        also
        recorded as a debt discount. The total debt discount is being amortized on
        a
        straight line basis which approximates the effective interest method over
        the
        life of the note.
 
 17
  Additional
        costs of $391,569 with the issuance of the convertible debentures were recorded
        as deferred financing cost and are being amortized on a straight-line basis
        which approximates the effective interest method, over the term of the
        debentures. In September 2005, $513,431 was repaid on convertible debentures
        from the proceeds of this debenture.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $2,519,300 was recorded as a debt discount and is being amortized over
        the
        stated maturities of the notes using the effective interest method. The fair
        market value of the conversion feature is also shown as a derivative liability
        on the Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 In
        October of 2005 the Company converted $643,340 of accrued interest into four
        convertible debentures; with simple interest accruing at the annual rate
        of 2%.
        The debentures are collateralized by substantially all of the company's assets.
        These debentures are due in October, 2008. Quarterly interest is accrued
        interest and is included in the consolidated financial statements.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $97,402 was recorded as debt discount and is being amortized over the
        stated
        maturities of the notes using the effective interest method. The fair market
        value of the conversion feature is also shown as a derivative liability on
        the
        Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 In
        December of 2006 the Company converted $536,546 of accrued interest into
        four
        convertible debentures; with simple interest accruing at the annual rate
        of 2%.
        The debentures are collateralized by substantially all of the Company's assets.
        These debentures are due December 2009. Quarterly interest is accrued interest
        and is included in the consolidated financial statements.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $310,124 was recorded as debt discount and is being amortized over the
        stated
        maturities of the notes using the effective interest method. The fair market
        value of the conversion feature is also shown as a derivative liability on
        the
        Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
 
 In
        December of 2007 the Company converted $568,730 of accrued interest into
        four
        convertible debentures; with simple interest accruing at the annual rate
        of 2%.
        The debentures are collateralized by substantially all of the Company's assets.
        These debentures are due December 2010. Quarterly interest is accrued interest
        and is included in the consolidated financial statements.
 
 In
        addition, we recorded a derivative liability related to this convertible
        debenture. The initial fair market value of the conversion option in the
        amount
        of $243,246 was recorded as debt discount and is being amortized over the
        stated
        maturities of the notes using the effective interest method. The fair market
        value of the conversion feature is also shown as a derivative liability on
        the
        Company’s balance sheet and is being adjusted to fair market value each
        reporting period with the change being reported as “other income and expenses”
in the statement of operations.
  **Note
        7 - Income Taxes**
  At
        December 31, 2007, the Company had federal net operating loss carry forwards
        of
        approximately $32,700,000 to offset future federal taxable income expiring
        in
        various years through 2027. The Company also has state net operating loss
        carry
        forwards in various states, which approximate the federal amount to offset
        future state taxable income expiring in various years, generally 7 to 10
        years
        following the year the loss was incurred.
  The
        timing and extent in which the Company can utilize future tax deductions
        in any
        year may be limited by provisions of the Internal Revenue Code regarding
        changes
        in ownership of corporations due to certain ownership changes of the
        Company.
  The
        differences between income tax provisions in the financial statements and
        the
        tax expense (benefit) computed at the U.S. Federal Statutory rate are as
        follows:
 Year
                    Ended December 31,2007
                
                2006Tax
                    provision at the U. S. Federal Statutory rate
                
                
                34
                %
                
                34
                %Valuation
                    allowance
                
                
                (34
                )%
                
                (34
                )%Effective
                    tax rates
                
                
                --
                %
                
                --
 18
  The
        tax
        effects of temporary differences that give rise to significant portions of
        deferred tax assets at December 31, 2007 and December 31, 2006 follows:
 2007
                
                2006Deferred
                    tax assetNet
                    approximate operating loss carry forward
                
                $
                11,118,000
                
                $
                5,748,000Bad
                    debt reserves
                
                
                --
                
                
                --Deferred
                    tax assets
                
                
                11,118,000
                
                
                5,748,000Valuation
                    allowance
                
                
                (11,118,000
                )
                
                (5,748,000
                )Net
                    deferred tax asset
                
                $
                --
                
                $
                --
  **Note
        8 - Commitments and Contingencies**
 
 Operating
        Lease
 CGM-AST
        leases two facilities, one in Somerset NJ and the other in Staten Island,
        New
        York under non-cancelable lease agreements that end in December 2007 and
        December 2008, respectively.
 
 On
        July
        1, 2007 the offices of Allied Security Innovations, Inc. and the Somerset
        office
        of CGM-AST Applied Security Technologies, Inc. were combined into a new office
        located at 1709 Route 34, Farmingdale, NJ in a 6,000 square foot combination
        warehouse /office space. The reason for this was cost savings and improved
        operational efficiencies.
 The
        new
        lease is a five year lease that ends in May 2012.
 
 **Employment
        Agreements**
 
 Anthony
        R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin was
        re-appointed as Chairman, President and Chief Executive Officer effective
        February, 2005. On February 25, 2005, ASII entered into a five-year employment
        agreement with Mr. Shupin, which entitled him to a base salary of $227,900
        per
        year, which may at the Board of Directors discretion adjust his base salary
        (but
        not below $215,000 per year). Mr. Shupin is also entitled to participate
        in the
        Annual Management Bonus Plan. As a participant in the Annual Management Bonus
        Plan, Mr. Shupin will be eligible to receive bonuses, based on performance,
        in
        any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall
        participate in the Management Equity Incentive Plan. As a participant in
        the
        Management Equity Plan, Mr. Shupin will be eligible to receive options, which
        vest over a period of time from the date of the option's issue, to purchase
        common shares of ASII. The Company may grant Mr. Shupin, following the first
        anniversary of the date hereof and at the sole discretion of the Board of
        Directors, options to purchase common shares of the Company (subject to the
        vesting and the satisfaction of the other terms and conditions of such options).
        Mr. Shupin will be entitled to 25 vacations days per year at such times as
        may
        be mutually agreed with the Board of Directors. ASII will provide Mr. Shupin
        a
        monthly car allowance of One Thousand Dollars ($1,000) along with related
        car
        expenses.
 
 19
  Michael
        J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr. Pellegrino
        was appointed as Senior Vice President and Chief Financial Officer effective
        February 25, 2005. On February 25, 2005, ASII entered into a five-year
        employment agreement with Mr. Pellegrino, which entitled him to a base salary
        of
        $185,500 per year which may at the Board of Directors discretion adjust his
        base
        salary (but not below $175,000 per year). Mr. Pellegrino is also entitled
        to
        participate in the Annual Management Bonus Plan. As a participant in the
        Annual
        Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses,
        based
        on performance, in any amount from 10% to 200% of the Base Salary. In addition,
        Mr. Pellegrino shall participate in the Management Equity Incentive Plan.
        As a
        participant in the Management Equity Incentive Plan, Mr. Pellegrino will
        be
        eligible to receive options, which vest over a period of time from the date
        of
        the option's issue, to purchase common shares of ASII. ASII may also grant
        to
        the Employee, following the first anniversary of the date of the Agreement
        and
        at the sole discretion of the Board of Directors, options to purchase common
        shares of the Company (subject to the vesting and the satisfaction of the
        other
        terms and conditions of such options). Mr. Pellegrino will be entitled to
        25
        vacation days per year at such times as may be mutually agreed with the Board
        of
        Directors. ASII shall also furnish Mr. Pellegrino with monthly car allowance
        of
        One Thousand Dollars ($1,000) and related car expenses.
 
 ASII
        has
        an employment agreement with Erik Hoffer, pursuant to which Mr. Hoffer will
        be
        employed as Executive Vice President of the Company for an initial term of
        three
        years, which may be extended, and President of CGM-AST Sub for an initial
        term
        of one year, which may be renewed for successive one-year terms. Pursuant
        to the
        Employment Agreement, Mr. Hoffer will receive a base salary of $200,000,
        a bonus
        of 5% of the gross margin sales increase over the prior year's gross margin
        sales of CGM-AST products and customary benefits and
        reimbursements.
 
 **Note
        9 - Stock Option and Other Plans**
 
 Effective
        November 13, 2006, Allied Security Innovations, Inc. ("ASII") granted to
        each of
        Anthony Shupin, its President and Chief Executive Officer and Michael
        Pellegrino, its Chief Financial Officer, 10,000 shares of newly created Series
        A
        Preferred Stock ("A Preferred") as recognition for services.
  The
        shares will vest in five equal monthly installments and will be issued at
        the
        discretion of Mr. Shupin and Mr. Pellegrino. These share have not been issued
        as
        of December 31, 2007. Each share of A Preferred is convertible into 480 shares
        of common stock of the Company starting three years from the date of issuance,
        provided that the closing bid price of the Company's common stock is then
        $2.00
        per share. The shares of A Preferred may be voted with the Company's common
        stock on an as converted basis on any matters that the common stock is entitled
        to vote on as a class.
  Unconverted
        shares of A Preferred will automatically cease to exist, and all rights
        associated therewith will be terminated upon the earlier of (i) that person's
        termination of employment with the Company for any reason, or (ii) five years
        from the date of issuance.
  On
        November 13, 2006, the Company filed with the Secretary of State of Delaware
        a
        Certificate of Designation of Preferences, Rights and Limitations of Series
        A
        Preferred Stock.
 
 The
        Company maintains the 1994 Restated Stock Option Plan (the 1994 Plan) pursuant
        to which the Company reserved 5,000,000 shares of common stock. The options
        granted have a term of ten years and are issued at or above the fair market
        value of the underlying shares on the grant date. The Company also maintains
        the
        1996 Director Option Plan (the Director Plan) pursuant to which the Company
        reserved 200,000 shares of common stock. Options granted under the Director
        Plan
        are issued at or above the fair market value of the underlying shares on
        the
        grant date. A portion of the first option vests at the six-month anniversary
        of
        the date of the grant and continues over a four-year period. Subsequent options
        vest on the first anniversary of the grant date. The options expire ten years
        from the date of the grant or 90 days after termination of employment, whichever
        comes first.
 
 The
        following is a summary of option activity under all plans:
 
 1994
                  Plan
              
              1996
                  Director Plan
              
              Nonqualified
              
              Total
                  Number of Options
              
              Weighted
                  Average Exercise PriceOutstanding
                  at December 31, 2006
              
              
              33,000
              
              
              --
              
              
              --
              
              
              33,000
              
              $
              .10
                  - $.365Outstanding
                  at December 31, 2007
              
              
              33,000
              
              
              
              
              
              
              
              
              33,000
              
              $
              .10-.365
 
 20
  **Note
        10 - Contingency**
 
 There
        were two holders of convertible notes dated December 31, 2001 who could
        potentially seek similar damages from the Company. Should they seek these
        damages, the Company could incur an additional expense of $71,668. Management
        feels however, that the likelihood that the other holders will seek the damages
        is remote, and therefore, no provision for this expense has been made in
        the
        accompanying consolidated financial statements.
 
 On
        October 16, 2003, a judgment was entered against the Company by its landlord,
        BT
        Lincoln L.P. for breach of lease in the amount of $184,706.
 
 **Note
        11 -****Acquisitions
        and Note Payable**
 
 On
        September 1, 2005, the Company acquired substantially all of the assets of
        CGM
        Security Solutions, Inc., a Florida corporation ("CGM"), for (i) $1,500,000
        in
        cash and (ii) a 2.86% promissory note (the "Note") in the principal amount
        of
        $3,500,000, subject to adjustment (the "Acquisition"). The assets of CGM-AST
        were acquired pursuant to an Asset Purchase Agreement among the Company and
        CGM-AST dated as of February 25, 2005. In connection with the acquisition,
        the
        Company and CGM-AST each entered into an employment agreement with Erik Hoffer
        (the "Employment Agreement"). CGM-AST is a manufacturer and distributor of
        barrier security seals, security tapes and related packaging security systems,
        protective security products for palletized cargo, physical security systems
        for
        tractors, trailers and containers.
 
 The
        principal amount of the Note is subject to adjustment based upon the average
        of
        (i) the gross revenues of CGM-AST for the fiscal year ending December 31,
        2007
        and (ii) an independent valuation of CGM-AST Sub based upon the consolidated
        audited consolidated financial statements of the Company and CGM-AST Sub
        for the
        fiscal years ending December 31, 2006 and 2007. In addition, the Company
        has
        granted CGM-AST a secondary security interest in substantially all of its
        assets
        and intellectual property.
 In
          connection with the Acquisition, the Company entered into a letter agreement
          with certain of its investors (the "Investors") which extended the maturity
          date
          of debt instruments issued on November 30, 2004 until September 1, 2008,
          and
          amended the conversion price of the debt that is held by the Investors
          to the
          lower of (i) $0.0005 or (ii) 40% of the average of the three lowest intraday
          trading prices for the Company's common stock during the 20 trading days
          before,
          but not including, the conversion date. In addition, the exercise price
          of the
          warrants held by the Investors was amended to $.001 per
          share.
  **Note
          12 - Going Concern**
  The
          accompanying consolidated financial statements have been prepared in accordance
          with accounting principles generally accepted in the United States of America,
          which contemplates continuation of the Company as a going concern. The
          Company
          has sustained operating losses and has accumulated large deficits for the
          year
          ended December 31, 2007. These factors raise substantial doubt about its
          ability
          to continue as a going concern.
  Management
          has formulated and is in the process of implementing its business plan
          intended
          to develop steady revenues and income, as well as reducing expenses in
          the areas
          of operations. This plan includes the following management
          objectives:
  · Soliciting new customers in the U.S.
  · Expanding sales in the international market
  · Expanding sales through E-commerce
  · Adding new distributor both in the U.S and internationally
  · The introduction of new products into the market
  ·  Seeking
          out possible merger candidates
  Presently,
          the Company cannot ascertain the eventual success of management’s plan with any
          degree of certainty. Each objective is contingent upon a number of factors
          and
          the Company does not represent that any or all of these objectives will
          occur.
          The accompanying consolidated financial statements do not include any
          adjustments that might result from the eventual outcome of the risks and
          uncertainties described above.
 
 21
 .
 **Note
        13 - Subsequent Event**
 
 On
        or
        about March of 2008 the Company, according to its Asset Purchase Agreement
        and
        Note with Erik Hoffer and CGM Applied Security Solutions, Inc. was to pay
        the
        final installment of $3,500,000 plus other possible incentives. ASII did
        not
        make the final installment and is currently in negations with Mr. Hoffer
        to
        extend the terms of the Note. In the event that Mr. Hoffer and the Company
        cannot reach an agreement, there is a substantial likelihood that Mr. Hoffer
        will attempt to take back the asset.
 
 On
        or
        about April 10, 2008, Mr. Hoffer voluntarily resigned from CGM-AST.
 
 22