UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC. - Annual Report: 2008 (Form 10-K)

d33191110k.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

x Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934:

For the fiscal year ended: December 31, 2008

o Transition report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934:

For the transition period from:

000-50081

(Commission File Number)

Invisa, Inc.

(Exact name of small business issuer as specified in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)

65-1005398

(I.R.S. employer identification number)

1880 Desoto Road, Suite B29

Sarasota, Florida 34234

(Address of principal executive offices)

(941) 870-3950

(Issuer’s telephone number)

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

Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value per share.

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” I Rule 12b-2 of the Exchange Act.

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

The Issuer’s revenues for its most recent fiscal year were $102,297.

On December 31, 2008, 34,781,081 shares of Invisa Common Stock, $0.001 par value, were outstanding.

TABLE OF CONTENTS

		Page
	Part I

Item 1	Description of Business	3
Item 2	Description of Property	6
Item 3	Legal Proceedings	6
Item 4	Submission of Matters to Vote of Security Holders	6

	Part II

Item 5	Market for Common Equity and Related Stockholder Matters	7
Item 6	Selected Financial Data	7
Item 7	Managements Discussion and Analysis or Plan of Operations	7
Item 8	Financial Statements	12
Item 9	Changes in and Disagreements with Accountants on Accounting	12
Item 9a	Controls and Procedures	13
Item 9b	Other Information	13
	Part III	14

Item 10	Directors and Executive Officers of the Registrant	14
Item 11	Executive Compensation	16
Item 12	Security Ownership of Certain Beneficial Owners and Management	18
Item 13	Certain Relationships and Related Transactions	19
Item 14	Principal Accountant Fees and Services	19
Item 15	Exhibits and Financial Statements Schedule	20

	Financial Statements

	Report of Stark Winter Schenkein & Co., LLP.	F-1
	Balance Sheet at December 31, 2008	F-2
	Statements of Operations for the years ended December 31, 2007 and 2008.	F-3
	Statements of Stockholders’ Equity for the years ended December 31, 2007 and 2008	F-4
	Statements of Cash Flows for the years ended December 31, 2007 and 2008.	F-5
	Notes to Financial Statements.	F-7

	Signature Page	24

	Index to Exhibits	20

PART I

Note regarding forward-looking statements. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements including, without limitation, statements containing the words believes, anticipates, intends, expects, and words of similar import, as well as all projections of future results. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of Invisa, Inc. to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: risks involved in our implementing our business strategy; our ability to obtain financing on acceptable terms; competition; our ability to manage growth; risks of technological change; our dependence on key personnel; and our ability to protect our intellectual property rights; risks of new technology and new products; and government regulation.

Item 1 - Description of Business

History

Invisa, Inc. is a development stage company that is commercializing patented presence-sensing technology under the InvisaShield™ trade name. The Company was incorporated in Nevada in 1998. In 2000, we acquired SmartGate, L.C. (“SmartGate”), before it had achieved any significant revenues. SmartGate had developed presence-sensing technology for safety applications in the powered closure market, such as powered overhead doors and parking barrier gates. Subsequently, at the end of 2004, it was merged into Invisa. From an accounting perspective, SmartGate was the acquirer in this transaction and the accompanying Financial Statements reflect the operations of SmartGate from inception.

In February of 2002, the Company purchased 100% of the outstanding capital stock of Radio Metrix Inc. (“RMI”), a company owned by the principal shareholders of Invisa. RMI had virtually no operations since its inception and, therefore, the Company determined that by acquiring RMI, the Company acquired an asset (a patent) and not a business. RMI, formed to commercialize InvisaShield security sensors for applications such as zone and perimeter protection, was merged into Invisa at the end of 2004. With that merger, Invisa now owns the patent and patent applications, as well as the sole rights to the InvisaShield technology in all markets worldwide

In April 2003, the RMI Purchase Agreement was amended whereby the Company agreed to issue 3,250,000 shares of its Common Stock for full satisfaction of the future contingent consideration. In November 2003, the RMI Purchase Agreement was further amended whereby the $1,300,000 notes payable were forgiven. In August 2004, we negotiated the cancellation of the 7% royalty agreement in exchange for 400,000 warrants to purchase Common Stock. As a part of this latter amendment, certain compensation owed to affiliated parties was forgiven.

Our offices are located at 1880 Desoto Road, Suite B29, Sarasota, FL 34234, telephone (941) 870-3950.

Overview

Invisa manufactures and sells sensors that use the Company’s patented InvisaShield presence-sensing design and technology. In the past the Company engaged in development activities as well as efforts to license the technology. Presence-sensing is the reliable, repeatable detection of people and conductive objects. InvisaShield technology detects objects at a distance of typically less than one meter.

Today, the InvisaShield technology is used in the safety market. In the past, the Company engaged in preliminary development, market testing and market analysis regarding the use of the InvisaShield technology in the security market. While the Company believes the InvisaShield technology has market opportunity in the Security Market, the Company’s efforts in the Security Market have been, at least temporarily, terminated due to the Company’s cash constraints.

In the safety market, the Company sells a line of SmartGate ® brand safety sensors. These sensors are life and property safety devices used in or with powered closures - mechanisms such as parking gates, slide gates, and overhead doors. To date, our revenues have been derived mostly from the sale of SmartGate safety sensors which are incorporated into powered parking gates. Parking gates are motorized barriers used to control the flow of vehicular traffic, such as parking facilities, vehicle storage facilities, toll booths, and metered entry points for highways.

In the security market, the Company has been testing first generation security sensor units at a major New England museum. These devices created invisible presence-sensing fields around displays and exhibits. The InvisaShield sensors were used to detect any person who tries to enter the monitored zone, thereby preventing vandalism or inadvertent damage. These units have been in operation at the museum since the summer of 2003. We believe that the security market may offer significant promise and, depending on the availability of financing for such use, we anticipate additional efforts to further develop sensors for museum exhibit/display and other security-related applications.

Applications

Safety Market - Many safety devices and safety functions depend upon presence-sensing technology. While we have historically been developing a range of presence-sensing devices for the safety market under our brand name, SmartGate™, we are currently primarily focused on safety products used in the parking gate market. We believe that our safety sensors offer potential operational and maintenance benefits for the powered closure industry. Today, we sell SmartGate safety sensors for use with powered parking gates.

We also have developed pre-production versions of presence-sensing devices for use in powered slide-gates, commercial overhead doors, powered industrial doors (which are used in commercial, manufacturing and industrial facilities) and residential garage doors; however we do not currently sell these products. We believe that there may be other applications for our presence-sensing technology in the safety market. Ultimately, based on availability of financing, we plan to offer safety sensors based upon our InvisaShield technology to be used with a broad range of powered closure products manufactured by other companies.

In 2007 and 2008, all revenue has been derived from the sale of SmartGate safety sensors used with powered parking barrier gates. These gates are commonly used for traffic control and typically have a power-operated barrier arm made of metal, wood or PVC. This arm moves vertically between an open and a closed position. Our device places an invisible presence-sensing field that proceeds and moves with the potentially dangerous barrier arm to detect people and vehicles in its path. Our device signals the powered gate to trigger a predetermined response, such as stopping and reversing the barrier arm.

Another potential application of InvisaShield technology is with vertical powered doors. These doors are frequently used in manufacturing and industrial environments where air-conditioned, cooler, and freezer areas are separated within warehouses and other buildings. In July 2002, we granted Rytec Corporation a license to use our safety devices as original equipment on high-speed industrial doors in North America. In 2005, the license agreement was converted into a joint development agreement. Due to cash constraints, we are not currently able to conduct any development of this product and no sales of this product were made in 2007 or 2008. We anticipate that in the future we may explore this or other opportunities in the high-speed industrial door market.

Our selling price for InvisaShield safety sensors allows us an acceptable gross profit margin and we expect that our cost of goods will continue to decline as we realize economies of scale.

Security Market - Security systems and security equipment generally rely, to varying degrees, on presence-sensing technologies to detect the presence of potential intruders and trespassers, or to provide surveillance of valuable objects. In addition to museum applications, in preliminary pre-marketing situations we have demonstrated prototypes of InvisaShield security sensors for retail, industrial, commercial, defense and government applications. As with our museum security sensors, these devices place a monitoring field around objects needing protection. Examples of applications that we have demonstrated include safes, locking cabinets, display cases, objects of art and jewelry and or exposed perimeters (doors, windows, fences etc.). When the detection field is entered, the InvisaShield sensor signals the security system. The security system then responds with a warning or alarm.

We have tested a limited number of security sensors under field evaluation and based on availability of financing we anticipate that we may engage further development for the security market. Due to cash constraints, we are not currently able to conduct any development of this product and no sales of this product were made in 2007 or 2008.

Marketing

We sell our safety products to manufacturers, distributors, dealers and, in some instances, to selected end-users. Due to cash constraints, we are currently unable to conduct any significant marketing efforts. Our current sales effort is primarily limited to filling unsolicited orders for our safety product for powered parking gates and in some cases contacting existing customers.

Sales

During 2007 and 2008, Magnetic Automation Corp. was our largest customer, comprising approximately 29% and 21%, respectively, of our product revenues in both years.

Technology

The InvisaShield technology uses electronic circuitry that emits, controls, and monitors changes in an invisible energy field. The field is based, in part, upon low energy radio waves oscillating within a controlled frequency range. The field that is monitored can be varied in sensitivity from a distance of approximately one meter to a centimeter or less, depending upon the selected application. Circuitry constantly checks the field to test for the presence of people, vehicles or other conductive objects (objects that conduct electricity) that would disturb the monitored field.

We believe that the InvisaShield technology is a novel and proprietary way to provide presence-sensing. At the core of the technology is the ability to project a field or zone capable of detecting most conductive objects that enter the field. The field is projected from a metallic substance, referred to as an antenna, which may consist of wire, self-adhesive metallic tape or other metallic items. The technology allows flexibility in designing and locating the antenna. This may offer unique opportunities to place presence-sensing fields where they can be used more efficiently or effectively. This adaptability may mean that the InvisaShield technology can perform non-contact presence-sensing tasks not currently possible with competing technologies and/or it may perform presence-sensing tasks similar to those performed by competing technologies, but in a more efficient, effective, and reliable manner.

We believe that the InvisaShield technology has a number of operational advantages. The technology does not depend upon lenses, beams or reflectors which may require replacement, cleaning and aligning. The non-intrusive, non-contact presence-sensing capability of our technology is generally not disrupted by its operating environment, including electronic noise, mechanical noise, temperature, dust, frost, snow, ice or other operating conditions. We believe that the InvisaShield technology may have greater capability, flexibility and benefits than other non-contact sensing technologies.

Competing Technologies - The presence-sensing business is highly competitive, consisting of numerous manufacturers of presence-sensing products based on various technologies, including infrared, ultrasonic, laser, microwave, and similar technologies. For the most part, these technologies have been in use for a number of years and, in many cases, may not be proprietary.

Our competitors provide a variety of presence-sensing and other safety and security alternatives such as motion detectors, CCTV-based movement detection systems, infrared and visible light beam detectors, light curtains, on/off switching mats and pads, tape switches, contact edges, as well as others.

In the safety and/or security sectors we compete with many companies, including MillerEdge, Stanley, Optex, Napco, Pelco, and DMP, along with other large and well-established firms such as Honeywell, Tyco, General Electric, Bosch, and Siemens.

Many of our competitors have substantially greater development, technical, marketing, sales and financial capabilities than we have. As a result of these factors, competitors and potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and/or to devote greater resources to the development, promotion and sale of their products and services than we can. We believe that our ability to successfully compete depends, to a large degree, upon the performance of our technology, our current and planned presence-sensing products and our ability to finance our development, marketing and distribution efforts.

Patents and Trademarks - We own five Patents issued by the U.S. Patent Office, three of which were issued in the year 2006 or the first quarter of 2007: Patent No. 5,337,039 issued on August 9, 1994, Patent No. 6,819,242 issued on November 16, 2004, Patent No. 7,023,222,B2 issued on April 4, 2006; Patent No. 7,167,093 B2 issued on January 23, 2007 and Patent No. 7,187,282 issued on March 6, 2007. In addition, we have filed for two patents (as PCT, or Patent Cooperation Treaty filings), one provisional patent application and have one application pending, all of which cover improvements to the InvisaShield technology.

We have a trademark on the trade name “SmartGate” which we use in our safety products category. We have filed trademark applications for the following: “Invisa”, “InvisaShield” and the tagline “Safe. Secure. No Question.” We believe that our patent and trademark position will be useful in our efforts to protect our perceived competitive advantages.

Materials and Manufacturing

We believe that the materials required and the sources of such materials will be similar for our various existing and planned product categories. All components and parts are modified or manufactured by third parties to our specifications or are otherwise generally available as off-the-shelf materials. Our products have a number of components including proprietary electronic circuitry manufactured to our specifications by third party manufacturers and a standard power supply available in the marketplace. The antenna is standard wire, tape or other metallic materials, which can generally be purchased in bulk. Whenever possible, we use fixed price manufacturing for our electronic circuitry, placing the responsibility for component supply on the manufacturer. We believe that there are multiple manufacturers and suppliers for each component and that adequate components and materials will be available to support our planned growth. We perform some final assembly and predetermined quality control procedures in our facility.

Government Regulation

The use of radio frequency or “RF”, such as that used by our safety products, is regulated by the Federal Communications Commission. RMI submitted its patented technology for required FCC testing and, in August of 1993, it received FCC Certification. We will endeavor to continue satisfying all requirements of the FCC.

On March 1, 2001, a new safety standard was implemented by Underwriters Laboratory (UL) for the powered gate, door and window industry. This rule, UL-325, while not a governmental regulation, is considered an indication of reasonable safety for powered gates, doors and windows, and is a requirement for UL certification for certain powered gate, door and window operators. Gate and operator manufacturers that rely upon UL certification or consider UL certification important for components most likely will require that our products be UL certified before incorporating our products as original equipment. We do not have a UL certification and the absence of UL certification for our products may represent a sales or marketing barrier in certain market categories and to certain customers.

Warranty

Our safety products are sold with a 90-day (upgradeable to one year) limited warranty. We anticipate that our security products will carry a warranty that is generally in line with industry suppliers’ practice. We have had no significant claims expensed under the warranty in 2007 or 2008.

Employees

We have continued to reduce our staff, and at December 31, 2008 we had no full time employees. Our CFO, who also serves as our Acting President, serves in such a capacity, on a part-time basis. We support operations by using consultants as required.

Research and Development

During the years ended December 31, 2007 and 2008, research and development expenses totaled $0.00. We have temporarily put a hold on ongoing research and development activities.

Item 2 - Description of Property

In the fourth quarter of 2008 we leased approximately 550 square feet of space at 1880 Desoto Road in Sarasota, Florida, on a month-to-month basis. Monthly rent is approximately $391. We rent the facilities from a non-affiliated party. No zoning or other governmental requirements are needed for the continued use of our facilities.

We have adopted a policy, pursuant to which, we do not invest in real estate or maintain an interest in real estate, real estate mortgages or securities issued that are based upon real estate activities.

Item 3 - Legal Proceedings

None.

Item 4 - Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of the Company’s security holders.

PART II

Item 5 - Market for Common Equity and Related Stockholder Matters

Market Information

From July 7, 2003 to date, our Common Stock has traded on the NASD OTC BB which is the principal market for our Common Stock under the symbol INSA.OB. The following table sets forth the range of high and low bids to purchase our Common Stock during the last two fiscal years. Such prices represent quotations between dealers, without dealer markup, markdown, or commissions, and may not represent actual transactions.

As of December 31, 2008 there were 394 stockholders of record of Invisa Common Stock.

Quarter	High Bid	Low Bid
First Quarter 2007	0.04	0.04
Second Quarter 2007	0.03	0.03
Third Quarter 2007	0.10	0.10
Fourth Quarter 2007	0.02	0.02
First Quarter 2008	0.01	0.01
Second Quarter 2008	0.02	0.01
Third Quarter 2008	0.02	0.01
Fourth Quarter 2008	0.02	0.00

On March 31, 2009, the closing bid and closing ask prices for shares of our Common Stock in the over-the-counter market, as reported by NASD OTC BB was $0.001 per share.

We believe that there are presently approximately 10 market makers for our Common Stock. When stock is traded in the public market, characteristics of depth, liquidity and orderliness of the market may depend upon the existence of market makers as well as the presence of willing buyers and sellers. We do not know if these or other market makers will continue to make a market in our Common Stock. Further, the trading volume in our Common Stock has historically been both sporadic and light.

Dividend Policy

The payment by the Company of dividends, if any, in the future, rests within the sole discretion of its Board of Directors. The payment of dividends will depend upon our earnings, our capital requirements and our financial condition, as well as other relevant factors. The Company has not declared any cash dividends since its inception, and has no present intention of paying any cash dividends on its Common Stock in the foreseeable future.

Transfer Agent

The Transfer Agent for the Common Stock of the Company is Continental Stock Transfer and Trust Company 17 Battery Place, New York, NY 10004.

Recent Sales of Unregistered Securities

We issued 20,000,000 shares of our Common Stock in September of 2007 and an additional 33,333,333 in 2008 to collateralize several notes totaling $494,030.00 evidencing loans made to the Company by a third party lender. The shares were deposited in an escrow account and will only be delivered to such lender in the event of a default under or non payment of the notes. Upon full repayment of the notes, said shares will be returned to the Company. The shares delivered to the escrow agent as security for the notes are not being treated as outstanding and will only be considered as being issued and outstanding if and when the shares are released by the escrow agent and delivered to the lender as a result of a default under the promissory notes and related security agreement. (Additionally, see Note G to the accompanying financial statements.)

Item 6 – Selected Financial Data

Item 7 - Management’s Discussion and Analysis or Plan of Operations

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this filing. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements. The cautionary statements made herein should be read as being applicable to all related forward-looking statements in this Annual Report on Form 10-K.

Background of our Company

We are a development-stage company, and we expect to continue the commercialization of our InvisaShield technology. For the year ended December 31, 2008, we had revenue from product sales of $102,297, principally representing sales of our product for powered parking gates. In addition to limited revenue, these sales have been a vehicle for receiving customer feedback on the reliability, ease of installation, and determining the market’s acceptance of our safety product.

Financing for our operations in 2008 were derived from limited sales and short-term debt financing. We are working to increase our sales of product, further reduce operating costs and obtain financing including through business combinations and licensing relationships and transactions. In the future based on available financing, we may develop additional safety and security products and bring them to market.

Limited Operating History

We have had a limited history of operations and anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. The information in this Form 10-K must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies commercializing new and evolving technologies such as InvisaShield.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2008

Net Sales - During the years ended December 31, 2007 and 2008, product sales totaled $124,986 and $102,297, respectively. The Company's sales to date have continued to be limited and constrained by lack of capital and have been largely limited to filling orders as the Company lacks any formal sales effort. We had a gross profit of $50,994 for the year ended December 31, 2007 and gross profit of $41,739 for the year ended December 31, 2008. Gross margin was 41 percent during 2007 and 2008.

Research and Development Expenses - The Company has suspended ongoing research and development activities due to cash constraints. As a result, during the years ended December 31, 2007 and 2008, there were no expenses allocated to Research and Development.

Selling, General and Administrative Expenses - During the years 2007 and 2008, selling, general and administrative expenses totaled $581,993 and $256,999, respectively. The decrease principally resulted from a reduction in rent, staffing, compensation and related payroll expenses. Marketing activities have been severely limited due to cash constraints with ongoing marketing activities largely limited to filling unsolicited orders.

Interest (expense) and other, Net - The expense during 2007 relates primarily to interest of $45,685 and a charge of $60,000 related to the modification of a warrant and the loss on abandonment of furniture, equipment and leasehold improvements, net of a disposition gain totaling $23,717. Interest expense of $56,348 during 2008 relates primarily to financing costs and interest due to certain stockholders under lines of credit to the Company. During 2008, the Company settled certain debts for cash and stock resulting in the extinguishment gain of $377,454.

Net Income (Loss) applicable to Common Stockholders and Net Income (Loss) Per Share applicable to Common Stockholders - The Company’s net income (loss) applicable to Common Stockholders and net income (loss) per share applicable to Common Stockholders for these periods decreased from ($5,085,695) and ($0.20) in 2007 to a net gain of $18,096 and $0.00 in 2008, respectively, as a result of the matters described above.

Plan of Development and Operations

We obtained funding of $231,300, in the form of short-term debt financing in 2007, and an additional $262,730 in 2008, which together with our limited cash from sales supported our operations at a low level. Due to the limited amount of financing available to us in 2007, we reduced our staff to one part-time person who is supported by consultants, hired on an as needed basis. During 2008 we further reduced our leased space to less than 600 square feet of space. Additional financing or increased cash from sales will be necessary to continue our operations at their current level. We do not plan to engage in additional technology or product development until we are able to secure sufficient financing to conduct our operations and fund such research and development.

Recommencing the Company's plan of development and operations will require additional funding. Accordingly, the Company is pursuing additional funding which may include debt or equity financing. Additionally, the Company is considering the potential for establishing business relationships or transactions, such as a business combination or joint venture/strategic partnerships, which may improve the Company's access to additional capital and/or funding and also potentially support its current and future operations. In the event the Company is not able to access sufficient funding to support its operations its business operations will be effected adversely.

Liquidity and Capital Resources

From inception through December 31, 2008 we raised cash of approximately $16.3 million net of issuance costs, principally through private placements of common and preferred stock financings. At December 31, 2008, we had a cash and cash equivalents deficit totaling ($191).

The Company has obtained financing arrangements with its senior lender aggregating $500,000 at December 31, 2008 under which it had borrowed an approximate accumulated $500,000 at that date. The financing arrangements comprise Notes entered into (i) July 2008 for $100,000, (ii) March 2008 for $150,000 and (iii) prior to 2008 for $250,000. Each of these notes bears interest at 10 percent per annum and are secured by all of the assets of the Company. Additionally, the Company has pledged an aggregate of 53,333,333 shares of its common stock which were issued for the sole purpose of being deposited into an escrow account. These shares, held as collateral, will be delivered to the lender only in the event of a default under or non payment of the notes. Upon full repayment of the notes, said shares will be returned to the Company. The shares delivered to the escrow agent as security for the notes are not being treated as outstanding and will only be considered as being issued and outstanding if and when the shares are released by the escrow agent and delivered to the lender as a result of a default or non payment under the promissory notes and related security agreement. The Notes were due in 2008, but under an oral understanding have been held in abeyance while discussions are in progress for anticipated additional financing.

From inception (February 12, 1997) through December 31, 2008 we were largely focused on technology and product development. The estimated dollar amount spent during this period on company-sponsored research and development was $3,471,292. Because of the Company’s net losses (which aggregate $35.3 million from inception through December 31, 2008) and limited capital, the Company’s consolidated financial statements report that substantial doubt exists regarding the Company’s ability to continue as a going concern.

The Company had negative working capital at December 31, 2008, totaling $959,938. At December 31, 2008 the Company had ($191) in cash and cash equivalent deficit. To finance planned operations through at least the next 12 months, we will continue to depend upon our ability to access additional financing. To support operations, in March 2008 and July 2008, we entered into additional credit facility agreements pursuant to which we could borrow up to $150,000 and $100,000, respectively, subject to agreement of the lender, under secured promissory notes. Through December 31, 2008, we have borrowed all of the $150,000 and $100,000 facilities. Additional financing arrangements are currently in progress. We have previously borrowed $250,000 from a series of notes from our senior lender. Our plan is to seek to obtain the funding required to meet ongoing operating expenses through additional private equity and debt financing, license fees, grants, and through potential strategic or business relationships, transactions or business combinations.

Additional funding may not be available when required or it may not be available on acceptable terms. Without adequate funds, we may need to significantly reduce or refocus our operations or obtain funds through arrangements that may require us to relinquish rights to certain or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional funding is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders.

Risk Factors

You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties occurs, our business, financial condition or operating results could be materially harmed. In that case the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we may face. Risks related to our business we have historically incurred losses and losses are expected to continue in the future, which means that we may not be able to continue operations unless we obtain additional funding. Our auditors have qualified their audit opinion with regard to our ability to continue as a going concern.

We have historically incurred losses.

From inception through December 31, 2008, we have sustained aggregate net losses of $35.3 million. In the twelve months ended December 31, 2008, we sustained net income of $18,096 which consisted of a loss of $215,260 from operations and a gain of $377,454 to reflect the favorable settlement of certain debt.

Future losses are expected to continue. Accordingly, we will experience significant liquidity and cash flow problems if we are not able to raise additional capital as needed and on acceptable terms. No assurances can be given that we will be successful in reaching or maintaining profitable operations. Our ability to generate revenue and achieve profitability depends upon our ability to manufacture and sell our products in sufficient volume to cover our fixed and variable costs of operations. Because of our ongoing losses and our very limited financial resources, our auditors have included an explanatory paragraph in their audit report with regard to our ability to continue as a going concern.

We will need to raise additional financing to continue our operations or we may be unable to fund our operations, promote our products or develop our technology.

Our operations have relied almost entirely on external financing to fund our operations. In the past, such financing has primarily come from the sale of stock to third parties and to a lesser degree from borrowings and revenue from product sales and license fees. During 2008 we funded our operations with a funds borrowed under short term notes which, for the most part, were secured with the Company’s assets. We anticipate, based on our current proposed plans and assumptions relating to our operations, that we will need additional debt or equity funding to continue to operate our business. We may seek to access required capital through potential strategic or business relationships or business combinations which may be dilutive to our current stockholders. We will need to raise additional capital to fund our anticipated operating expenses and future expansion. Among other things, external financing will be required to cover our operating costs. We cannot assure you that financing whether from external sources or related parties will be available if needed or on favorable terms. If additional financing is not available when required or is not available on acceptable terms, we may be unable to support our secured debt, fund our operations and planned growth, develop or enhance our technology, take advantage of business opportunities or respond to competitive market pressures, any of which could raise doubt as to the Company’s ability to continue as a going concern. Any reduction in our operations may result in a lower stock price.

Our financing requirements could result in dilution to existing stockholders.

The additional financings we will require may be obtained through one or more transactions which effectively dilute the ownership interests of our stockholders. Further, we may not be able to secure such additional financing on terms acceptable to us, if at all. We have the authority to issue additional shares of common stock, as well as additional classes or series of ownership interests or debt obligations which may be convertible into any one or more classes or series of ownership interests. We are authorized to issue 95,000,000 shares of common stock and 5,000,000 shares of preferred stock. Such securities may be issued without the approval or other consent of our stockholders.

We are a development stage company and have had limited revenue.

Our operating history has resulted only limited revenue. We are a development stage company, and accordingly, we anticipate that we will encounter many difficulties and risks associated with our early stage of development which includes, but is not limited to, the introduction of new products, the search for and hiring of new personnel, access to required capital, management issues, ramping up manufacturing capacity, and other important business aspects.

We will be required to compete with larger and well-established companies which are better financed.

There are a number of well-established companies which are well known in the manufacture and/or distribution of products for the security and life-safety markets. Such companies include Honeywell, Tyco, General Electric, Bosch, Siemens and others. Accordingly, we are subject to the difficult challenge of introducing and commercializing our new technology and products in a market place in a strong competitive environment. Additionally, our technology and products based thereon will have to compete with other technologies such as passive infrared and various types of motion detection which are well known and well accepted.

We are commercializing a new technology which will involve uncertainty and risks related to market acceptance.

We are commercializing a new technology with which we seek to gain market acceptance and to demonstrate competitive advantages. Our success is dependent, to a large degree, upon our ability to fully develop and commercialize our technology and gain industry acceptance of our products, based upon this new technology and its perceived competitive advantages. Accordingly, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in connection with the establishment of a new business in a highly competitive industry, characterized by frequent new product introductions. We anticipate that we will incur substantial operating expenses in connection with the development and testing of our proposed products and expect these expenses to result in continuing and significant operating losses until such time, if ever, that we are able to achieve adequate levels of sales or license revenues. We may not be able to raise additional financing, increase revenues significantly, or achieve profitable operations.

Management and founders of the Company control a significant amount of our common stock and such concentration of ownership may have the effect of delaying or preventing a change of control of our Company.

As a result, these stockholders will have significant influence in matters requiring stockholder approval, including the election and removal of directors, the approval of significant corporate transactions, such as any merger, consolidation or sale of all or substantially all of the our assets, and the control of our management and affairs. Accordingly, such concentration of ownership may have the effect of delaying, deferring or preventing a change in our control, impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquirer from attempting to obtain control of our Company.

The limits of our of product liability insurance coverage may affect our Business.

We may be exposed to potential product liability claims by consumers. Although we maintain product liability insurance, there can be no assurance that such insurance will be sufficient to cover all possible liabilities to which we may be exposed. Any product liability claim, even one that was not in excess of our insurance coverage or one that is meritless and/or unsuccessful, could adversely affect our cash available for other purposes, such as research and development. In addition, the existence of a product liability claim could affect the market price of our common stock. In addition, certain vendors may require minimum product liability insurance coverage as a condition precedent to purchasing or accepting products for retail distribution. Product liability insurance coverage includes various deductibles, limitations and exclusions from coverage, and in any event might not fully cover any potential claims. Failure to satisfy such insurance requirements could impede the ability of us or our distributors or licensees to achieve broad retail distribution of our proposed products, which could have a material adverse effect on us.

We may not be able to effectively protect our intellectual property rights, the foundation of our business, which could harm our business by making it easier for our competitors to duplicate our services.

We regard certain aspects of our products, processes, services and technology as proprietary. We have taken steps to protect them with patents, copyrights, trademarks, restrictions on disclosure and other methods. Despite these precautions, we cannot be certain that third parties will not infringe or misappropriate our proprietary rights or that third parties will not independently develop similar products, services and technology. Any infringement, misappropriation or independent development could cause us to cease operations.

We have issued patents and have filed patent applications with respect to various aspects of our technology. The pending patent applications may not be issued to us, and if issued, may not protect our intellectual property from competition which could seek to design around or invalidate these patents. Our failure to adequately protect our proprietary rights in our products, services and technology could harm our business by making it easier for our competitors to duplicate our services. We may have to resort to litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others, or defend ourselves from claims of infringement, invalidity or unenforceability. Litigation may be expensive and divert resources even if we win. This could adversely affect our business, financial condition and operating results such that it could cause us to reduce or cease operations.

Other parties may assert that our technology infringes on their Intellectual property rights, which could divert management time and resources and possibly force our Company to redesign our technology.

Technology-based companies, such as ours, have the potential to be involved in litigation related to allegations of patent infringement. Although we have no knowledge of any such claims, from time to time, third parties may assert patent, copyright and other intellectual property rights to technologies that are important to us. While there currently are no outstanding infringement claims pending by or against us, we cannot assure you that third parties will not assert infringement claims against us in the future, that assertion by such parties will not result in costly litigation, or that they will not prevail in any such litigation. In addition, we cannot assure you that we will be able to license any valid and infringed patents from third parties on commercially reasonable terms or, alternatively, be able to redesign products on a cost-effective basis to avoid infringement. Any infringement claim or other litigation against or by us could have a material adverse effect on us and could cause us to reduce or cease operations.

We may not be able to keep up with rapid technological changes, which could render our products less competitive or obsolete.

Changes in technology, changes in customer requirements and preferences, introduction of products and services embodying new or different technologies and the emergence of new industry standards and practices could render our existing technology and products less competitive or obsolete. Our future success will depend on our ability to enhance and improve the responsiveness, functionality, accessibility and features of our technology and products. We expect that our marketplace will require extensive technological upgrades and enhancements to accommodate many of the new products and services that we anticipate will be added to our marketplace. We cannot assure you that we will be able to expand and upgrade our technology and systems, or successfully integrate new technologies or systems we develop in the future, to accommodate such increases in a timely manner.

We may not be able to increase sales or if we succeed in increasing sales and revenue to effectively manage the growth necessary to execute our business plan, which could adversely affect the quality of our operations and our costs.

In order to successfully execute our business plan, we must significantly increase our sales and revenue. Additionally, we will need to increase the number of strategic partners, manufactures, dealers, distributors and customers that use our products. Lack of growth in sales and revenue will require that we continue to access financing which will subject us to the risks attendant thereto. On the other hand, if we succeed in increasing sales and revenue, the resulting growth will place significant strain on our personnel, systems and resources. In the event of growth, we may not be able to maintain the quality of our operations, control our costs, continue complying with all applicable regulations and expand our internal management, technical information and accounting systems in order to support our desired growth. We cannot be sure that we will manage our growth effectively, and our failure to do so could cause us to reduce or cease operations.

We are thinly staffed.

We have no full time employees. Our CFO, who serves Part time, also serves as Acting President and Acting COO. Unless additional employees are hired, the limited size of our staff restricts the level or nature of our business operations.

We have promissory notes payable that are secured by all of our assets and default under these notes could result in the loss of our assets.

In order to fund our operations, we have entered into promissory notes payable that are secured by all of our assets and in some instances by shares of our common stock that were issued to secure the promissory notes. The promissory notes are short term obligations and we currently do not have the available cash or other financing resources to pay the interest or principal there under. Default under these promissory notes could result in the loss of all of our assets and business opportunity.

Item 8 - Financial Statements

The Financial Statements of the Company and the accompanying notes thereto, and the Report of Independent Registered Public Accounting Firm is included as part of this Form 10-K beginning on Page F-1.

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Effective May 1, 2008, Aidman, Piser & Company, P.A. ("Aidman Piser") practice was acquired by Cherry, Bekaert & Holland, L.L.P. (Cherry Bekaert") in a transaction pursuant to which Aidman Piser merged its operations into Cherry Bekaert and certain of the professional staff and shareholders of Aidman Piser joined Cherry Bekaert either as employees or partners of Cherry Bekaert and will continue to practice as members of Cherry Bekaert. Accordingly, on July 14,2008, Aidman Piser resigned as our independent registered public accounting firm. The Audit Committee of our Board of Directors is currently evaluating whether to engage Cherry Bekaert as our independent registered public accounting firm for fiscal year ending December 31, 2008, and we expect to make an announcement with regard to this matter in the near future.

The report of Aidman Piser regarding our financial statements for the past two fiscal years ended December 31, 2007 and 2006 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that substantial doubt was raised as to our ability to continue as a going concern. During the two most recent fiscal years and during the period from the end of the most recently completed fiscal year through July 14, 2008, the date of resignation, there were no disagreements with Aidman Piser on procedures, which disagreements, if not resolved to the satisfaction of Aidman Piser would have caused it to make reference to such disagreements in its reports.

We provided Aidman Piser with a a copy of this Current form 8-K prior to its filing with the Securities and Exchange Commission and requested that Aidman Piser furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements set forth above in this Item 4.01 and, if it does not agree, the respects in which it does not agree.

Effective November 14, 2008 the Company engaged Stark, Winter Schenkein and Co. LLP, Certified Public Accountants, to serve as its independent auditors.

Item 9a - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President, Chief Financial Officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our Acting President and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2008 and concluded that our disclosure controls and procedures were effective as of December 31, 2008.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our Acting President and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our controls and procedures were effective as of December 31, 2008.

This Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

Changes in Internal Controls over Financial Reporting

During the quarter ended December 31, 2008, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d–15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9b - Other Information

None.

PART III

Item 10 - Directors and Executive Officers of the Registrant

The Company’s Directors are elected at the Annual Meeting of Stockholders and hold office until their successors are elected and qualified. The Company’s officers are appointed annually by the Board of Directors and serve at the pleasure of the Board. There are no family relationships between any of the officers, directors or significant employees of the Company.

The directors, executive officers, and significant employees of the Company at December 31, 2008 are as follows:

		Positions and Offices Presently
Name	Age	Held with the Company
Edmund C. King	74	Director, Acting President, COO, Chief Financial Officer, Treasurer
Gregory J. Newell	59	Director
John E. Scates	60	Director

EDMUND C. KING has served as our Chief Financial Officer and Director since February 9, 2000. In 2007, Mr. King began serving as our Acting President and Acting COO. Until October 1, 1991, Mr. King was a partner in Ernst & Young, an international accounting and consulting firm. While at Ernst & Young, Mr. King was that firm’s Southern California senior healthcare partner and prior to that directed the Southern California healthcare practice for Arthur Young & Company, one of the predecessor firms of Ernst & Young. During his 30 years with Ernst & Young, Mr. King counseled clients in structuring acquisitions and divestitures; advised on the development of strategic plans; directed the preparation of feasibility studies; assisted with operational and financial restructuring; directed and supervised audits of client financial statements; and provided expert witness testimony and technical SEC consultation. Commencing in 1999, Mr. King became a financial consultant to SmartGate, L.C. that we acquired in February 2000. Mr. King has served as Chief Financial Officer and Director of SmartPlug, Inc. since November 2000 and Chief Financial Officer and Director of FlashPoint International, Inc. since October 2001. From January 1992, Mr. King has been a general partner of Trouver, an investment banking and financial consulting partnership. Mr. King is also a member of the Board of Directors of LTC Properties, Inc., an NYSE listed real estate investment trust. Mr. King is a graduate of Brigham Young University, having served on the National Advisory Council of that school’s Marriott School of Management, and has completed a Harvard University management course sponsored by Ernst & Young. Mr. King also has served as Chairman of the HFMA’s Long-Term Care Committee (Los Angeles Chapter) and is a past member of the National Association of Corporate Directors. He holds CPA certificate in the state of California.

Ambassador GREGORY J. NEWELL has served as a Director of the Company since June 13, 2002. Ambassador Newell is an international business development strategist and former: U.S. Ambassador; U. S. Assistant Secretary of State; and White House Commissioned Officer, having served under four U.S. Presidents. From 1992 to the present, Ambassador Newell has served as President of International Commerce Development Corporation in Provo, Utah, an international business-consulting firm. From 1989 to 1991, Ambassador Newell served as President and International Development Strategist of Dow, Lohnes & Albertson International, a subsidiary of one of Washington, D.C.’s oldest and largest law firms. Ambassador Newell was U.S. Ambassador to Sweden from 1985 to 1989. Prior to that he was U.S. Assistant Secretary of State for International Organizational Affairs serving as the senior U.S. government official responsible for the formulation and execution of U.S. multilateral foreign policy in 96 international organizations including the United Nations, where he served as senior advisor to the 37th, 38th, 39th and 40th United Nations General Assemblies. He served as Director of Presidential Appointments and Scheduling and Special Assistant to President Ronald Reagan and Staff Assistant to President Gerald R. Ford. Ambassador Newell has also served on the boards of the Landmark Legal Foundation, Sutherland Institute and the Swedish-American Chamber of Commerce.

JOHN E. SCATES, a garage door industry engineer and consultant, was appointed to the Company’s Board of Directors on June 27, 2002. From June 1997 to the present, Mr. Scates has been President and Owner of Scates, Inc., a product design and failure analysis consultancy in Carrollton, Texas. From May 1993 to May 1997, Mr. Scates served as Manager of Research and Development for Windsor Door, Little Rock, Arkansas. From February 1985 to May 1993, Mr. Scates served as Manager of Structures at Overhead Door R & D/engineering, Dallas, Texas. Mr. Scates earned a BS Degree in Mechanical Engineering, Summa Cum Laude from Texas A & M University in 1979. Mr. Scates is licensed as a Professional Engineer in Texas, Florida and North Carolina.

Significant Employees

At December 31, 2008 we had no full time employees. Our CFO, who also serves as our Acting President and COO, is employed on a part-time basis. We support operations by using consultants as we can afford or as required.

Compensation Committee and Compensation of Directors

Messrs., Newell and Scates serve on the Compensation Committee, which determines the compensation amounts to be paid to our directors, officers and employees.

Report of the Audit Committee

The Audit Committee is composed of two independent directors and operates under a written charter adopted by the Board of Directors. A copy of the Audit Committee Charter (as amended) is filed herewith as exhibit 10.58. As described above, the Audit Committee is responsible for appointing and replacing our independent accountants; reviewing the results and scope of the independent accountants’ audit and the services provided by the independent accountants; reviewing compliance with legal and regulatory requirements; evaluating our audit and internal control functions; and ensuring the integrity of our financial statements. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

The Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of our accounting principles, and such other matters as are required to be discussed with the Committee in accordance with the standards of the Public Company Accounting Oversight Board (United States). In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from management and the Company, including the matters in the written disclosures required by the Independence Standards Board and considered compatibility of non-audit services with the auditors’ independence.

The Audit Committee discussed with our independent auditors the overall scope and plans for their audit. The Committee meets with the independent auditors, with and without management present, to discuss the results of their examination, and the overall quality of our financial reporting. The Audit Committee held 4 meetings during 2008.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to our Board of Directors, and the Board approved, that the audited financial statements be included in our Annual Report on Form 10-K for the 2008 fiscal year for filing with the Securities and Exchange Commission. The Audit Committee and the Board of Directors have also recommended the selection of our independent auditors.

THE AUDIT COMMITTEE

Gregory Newell, Chairman

John Scates

Board Meetings and Independence

During the year ended December 31, 2008, the Board of Directors of the Company held 4 telephonic meetings. Each director attended at least 75% of the aggregate of (1) the total number of meetings of the Board (held during the period for which he has been a director) and (2) the total number of meetings held by all committees of the Board on which he served (during the periods that he served).

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers to send reports of their ownership of the equity securities of the Company and of changes in such ownership to the SEC. SEC regulations also require the Company to identify in this Annual Report on Form 10-K any person subject to this requirement who failed to file any such report on a timely basis.

Code of Ethics

Our board of directors has adopted a Code of Business Conduct and Ethics and Compliance Program which is applicable to Invisa, Inc. and to all our directors, officers and employees, including Invisa, Inc.’s principal executive officer and principal financial officer, principal accounting officer or comptroller, or other persons performing similar functions.

A copy of the Company’s Code of Ethics may be obtained free of charge by making the request to the Company in writing.

Director Compensation

We do not have a formal plan for compensating our directors and during the 2008 fiscal year our Directors were paid no compensation.

Our bylaws provide for us to indemnify our directors and officers to the extent permitted by Nevada law, with respect to actions taken by them on our behalf. We maintain a policy of directors’ and officers’ liability insurance for this purpose.

Compensation Committee Interlocks and Insider Participation

We have no interlocking director relationships. None of our executive officers is a member of the Compensation Committee of any company in which any director or executive officer is a member of our board of directors.

Item 11.

EXECUTIVE COMPENSATION

Compensation Discussion & Analysis

Overview.

This Compensation Discussion and Analysis is intended to describe the material factors underlying the compensation policies and decisions of the Company with regard to compensation paid to our executive officers in FY 2008. The Compensation Committee oversees the Company’s executive compensation in accordance with its Charter and recommends to the Board of Directors compensation for the named executive officers. The Compensation Committee receives input and recommendations when requested from our executive officers.

While we have historically used executive compensation as a tool to retain and motivate our executive officers, however, during, our financial condition prevented the Company from paying usual and customary compensation. Our only named executive officer at the end of fiscal 2008, Mr. Edmund King, does not have a written employment agreement and works on a part-time basis for the Company. Mr. King received no salary or other cash compensation during fiscal 2008

Our compensation philosophy for our executive officers has been shaped by our lack of long-term financing and our sever shortage of operating capital. Accordingly, our compensation decisions and particularly our approach to allocating compensation between cash and non-cash elements of the compensation package reflect our goal to preserve cash whenever possible. In fiscal 2007 our compensation decisions for our executive officers emphasized option grants which we believe supports our goals with regard to both retention and motivation of our executive officers. In making our compensation decisions, we strive to be aware of the level of compensation which is paid to executive officers of various companies that we consider to be comparable to us in size. Our goal is for the compensation paid to our named executive officers to be at or below the fiftieth percentile of the companies that we have identified as being comparable companies.

Base Salaries.

Mr. King did not receive any base salary in fiscal 2008, however $35,500 has been charged to operations and credited to additional paid in capital.

Option Grants.

No Options were granted in fiscal year 2008.

Perquisites.

Consistent with our philosophy to preserve cash, we have sought to limit perquisites. Perquisites paid to our named executive officers are discussed as footnotes to the following Summary Compensation Table. Our current policy for paying medical and dental insurance is not to pay insurance premiums. Our policy is not to pay for life insurance, long-term and short-term disability insurances and accidental death and dismemberment insurance. Our policy with regard to unused vacation for our executive group is to pay at the base salary rate for vacation not used during the calendar year of termination.

Change in Control Severance Policy.

None.

REPORT OF COMPENSATION COMMITTEE

The Compensation Committee of the Board of Directors has reviewed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and discussed it with the Company’s management. Based on the Compensation Committee’s review and discussions with management, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for fiscal 2008.


John E Scates, Chairman Gregory J Newell

DIRECTOR COMPENSATION

FOR YEAR ENDED DECEMBER 31, 2008

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Non Qualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Edmund C. King	----	----	----	----	----	----	----
Greg Newell	----	----	----	----	----	----	----
John Scates	----	----	----	----	----	----	----

Employment Agreements with Executives

We have no written employment agreements.

Equity Incentive Plans

We have five stock plans as listed below:

Plan	Shares Authorized for Issuance
2000 Plan		1,200,000
2002 Plan		1,500,000
2003 Plan		1,500,000
2003A Plan		3,500,000
2006 Plan		2,500,000
		10,200,000

All of the Plans have been approved by the Board of Directors and all, except for the 2006 Plan have been approved by the Shareholders. All of the plans authorize awards of incentive stock options or non-qualified stock options to employees, directors, and consultants of our company and affiliates. The purposes of the Plan are to encourage and enable employees, directors, and consultants to acquire a proprietary interest in the growth and performance of our company, to generate an increased incentive for key employees and directors to contribute to our future success and prosperity, thus enhancing the value of our company for the benefit of our stockholders, and to enhance the ability of our company to attract and retain key employees and directors who are essential to progress, growth, and profitability.

The Plans are administered by the Compensation Committee of our Board (the “Administrator”). All members of our Compensation Committee are non-employee directors and outside directors, as defined in the Plans. Subject to the limitations set forth in the Plans, the administrator has the authority to grant options and to determine the purchase price of the shares of our common stock covered by each option, the term of each option, the number of shares of our common stock to be covered by each option, to establish vesting schedules, to designate options as incentive stock options or non-qualified stock options, and to determine the persons to whom grants are to be made.

The Administrator establishes the option exercise price, which in the case of incentive stock options, must be at least the market price (as such term is defined in the Plans) of our common stock on the date of the grant or, with respect to optionees who own at least 10% of the total combined voting power of all classes of our stock (a “10% Stockholder”), 110% of the market price on the date of the grant.

Options granted under the Plans are generally not transferable by the optionee except by will or the laws of descent and distribution, or pursuant to written agreement approved by the administrator relating to any non-qualified stock options in any manner authorized under applicable law. Except as provided in the applicable stock option agreement, options must be exercised within 90 days of termination for any reason other than disability, retirement, or death, within one year of termination by disability or retirement, or by a designated beneficiary within two years of death.

Except as provided to the contrary, in the option agreement options granted under the Plans vest in one-third annual increments, beginning on the grant date of the option. In no event may an incentive stock option be granted more than 10 years from the effective date of the plan, be exercised after the expiration of 10 years from the grant date, or five years from the grant date in the case of a 10% Stockholder.

Incentive stock options may not vest for the first time with the respect to any optionee in a calendar year with a market price exceeding $100,000. Any option grants that exceed that amount shall be automatically treated as non-statutory stock options.

The Plans may be suspended, terminated, modified, or amended by our board, but no such suspension, termination, modification, or amendment may adversely affect the terms of any option previously granted without the consent of the affected optionee, and any amendment will be subject to stockholder approval to the extent required by applicable law, rules, or regulations.

We, from time to time, grant to our directors, executive officers and employees options to purchase our common stock under the Plans. As of December 31, 2008, Invisa had no options to purchase shares of common stock outstanding or exercisable.

401(k) Savings Plan

We do not have a 401(k) savings plan.

Limitation of Liability and Indemnification of Officers and Directors; Insurance

Our Officers and Directors are indemnified to the fullest extent provided by Nevada law.

We maintain a policy of directors’ and officers’ liability insurance to indemnify our directors and officers with respect to actions taken by them on our behalf.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in such Act and is therefore unenforceable.

Item 12.

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

The following table sets forth the beneficial ownership of shares of our common stock as of December 31, 2008 for:

•

each person (or group of affiliated persons) known by us to beneficially own more than 5% of our common stock;

•

each of our directors;

•

each named executive officer; and

•

all of our directors and executive officers as a group.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares of common stock underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of December 31, 2008 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.

Except as otherwise noted below, and subject to applicable community property laws, the persons named have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

Name and Address of Beneficial Owner (1)	Reporting Status	Aggregate Number of Shares Beneficially Owned (2)	Percentage of Shares Beneficially Owned
Stephen A. Michael	5% Stockholder	3,939,261	10.14 %
Michael R. Ries (Trustee)	5% Stockholder	1,864,584	5.07
Frank A Ficarra (Trustee)	5% Stockholder	1,864,584	5.07
Samuel S Duffey	5% Stockholder	5,082,740 (3)	12.71
Edmund C. King	Acting President, CFO, Director	1,076,772 (4)	2.99
Gregory J. Newell	Director	203,565	0.61
John E. Scates	Director	203,565	0.61
All officers and directors as a group		1,483,902	4.08 %

(1)	Unless otherwise provided herein all addresses are c/o Invisa, Inc., 1880 Desoto Road, B28, Sarasota, FL 34234. The address for Mr. Ries is 4837 Swift Road, Suite 210, Sarasota, Florida 34231; for Mr. Ficarra is 4837 Swift Road, Suite 210, Sarasota, Florida 34231;

(2)

The percentage calculations are based on 34,709,191 shares that were outstanding as of December 31, 2008 plus the respective beneficial shares owned by each selling stockholder. Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and includes voting power and/or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of December 31, 2008 are deemed outstanding for computing the number, and the percentages of outstanding shares beneficially owned by the person holding such options, but are not deemed outstanding for computing the percentage beneficially owned by any other person.

(3)	Includes 4,528,666 shares held in the name of Friday Harbour and 554,074 in Mr. Duffey’s name.

(4)

Includes 1,071,792 shares held in Mr. King’s name, and 5,000 shares held in the name of the King Family Trust.

ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Other than the compensation discussed herein, we had no items to disclose hereunder for 2008 except Mr. King had loaned an $20,124 to the Company during 2007 and an additional $136 in 2008 aggregating $20,260. The loans were not secured and are interest free; they remain outstanding and unpaid at December 31, 2008 and on the date hereof.

ITEM 14

PRINCIPAL ACCOUNTANT FEES AND SERVICES

During 2008 and 2007, annual fees approved for the year-end audit and interim reviews aggregated approximately $40,000 and $73,000 respectively. In addition, during 2008 and 2007 tax-related fees approved for compliance aggregated, approximately, $4,000 and $7,500 respectively.

The Audit Committee has established its pre-approval policies and procedures, pursuant to which the Audit Committee approved the foregoing audit services, provided by Stark, Winters Schenkein & Co., LLP in 2008, and Aidman, Piser & Company, P.A. in 2007. Consistent with the Audit Committee’s responsibility for engaging the Company’s independent auditors, all audit and permitted non-audit services require pre-approval by the Audit Committee. The full Audit Committee approves proposed services and fee estimates for these services. The Audit Committee chairperson or their designee has been designated by the Audit Committee to approve any services arising during the year that were not pre-approved by the Audit Committee. Services approved by the Audit Committee chairperson are communicated to the full Audit Committee at its next regular meeting and the Audit Committee reviews services and fees for the year at each such meeting.

During 2008 Aidman, Piser & Company, PA was replaced by Stark, Winter Schenkein & Co., LLP as the Company’s independent auditors.

PART IV

ITEM 15

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Report:

Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this amendment to annual report on Form 10-K/A:

INDEX TO EXHIBITS

ITEM NO.	DESCRIPTION
2.1 1	Agreement of Merger and Plan of Reorganization dated 2/25/02 by and among SmartGate Inc., SmartGate/RadioMetrix Acquisition Corp. and Radio Metrix Inc., Letter of Clarification, and Amendment dated as of April 24, 2003

10.1 1	Quarterly Revenue Based Payment Agreement by and among the Company and Stephen A. Michael, Spencer Charles Duffey Irrevocable Trust u/a/ d July 29, 1998, Elizabeth Rosemary Duffey Irrevocable Trust u/a/d July 29, 1998, Robert T. Roth, William W. Dolan dated as of February 25, 2002; and Amendment dated as of April 24, 2003

10.2 1	Promissory Note, Security Agreement, and Escrow Agreement - Re: Daimler Capital Partners, Ltd. - loan and stock options; Stock Option Agreement with Daimler Capital Partners, Ltd. - October 28, 2002; Stock Option Agreement with Daimler Capital Partners, Ltd. - February 28, 2003

10.3 1	Form of Plan 2003 Option Agreement with Joseph F. Movizzo - May 13, 2003 (including form of Letter of Investment Intent)

10.4 1	Consulting Agreement - March 2003 between Crescent Fund, Inc. and the Company

10.5 1	Agreement dated as of April 24, 2003 between Alan A. Feldman and the Company

10.6 1	Financing Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the Company

10.7 1	Series 2003A 7% Convertible Note Due June 9, 2004, dated May 9, 2003 from the Company to BarBell Group, Inc.

10.8 1	Investment Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the Company

10.9 1	Warrant to Purchase Shares of Common Stock dated as of May 9, 2003, issued by the Company to BarBell Group, Inc.

10.10 1	Registration Rights Agreement dated as of May 9, 2003 between the Company and BarBell Group, Inc.

10.11 1	Broker-Dealer Placement Agent Selling Agreement - May 2003 between Capstone Partners LC and the Company

10.12 2	Amended and Restated Regulation S Subscription Agreement - July 22, 2003 between Capstone Partners LC and the Company

10.13 2	Amended and Restated Regulation S Subscription Agreement - July 22, 2003 executed by Nautilus Technologies, Ltd. - subscribing for 125,000 Units

10.14 2	Amended and Restated Regulation S Subscription Agreement - July 22, 2003 executed by GM Capital Partners, Ltd. - subscribing for 50,500 Units

10.15 2	Amended and Restated Regulation S Subscription Agreement - July 22, 2003 executed by Kallur Enterprises, Ltd. - subscribing for 50,000 Units

10.16 2	Publicity Agreement - July 2003 between Capital Financial Media, Inc. and the Company

10.17 2	Consulting Agreement - July 2003 between National Financial Communications Corp. and the Company

10.18 2	Agreement - July 2003 between Brooks Houghton & Company, Inc. and the Company

10.19 2	Non-Exclusive Financial Advisor Agreement - July 2003 between Source Capital Group, Inc. and the Company

10.20 2	Consulting Agreement - July 2003 between Patrick W.H. Garrard d/b/a The Garrard Group of West Redding, CT and the Company

10.21 2	Investment Agreement Modification I dated as of July 21, 2003 by and among Invisa, Inc. and BarBell Group, Inc.

10.22 2	Joint Development Agreement - July 2003 between Dominator International Ltd. And SmartGate, L.C.

10.23 3	Engagement Agreement dated September 9, 2003 between G.M. Capital Partners, Ltd and Invisa, Inc.

10.24 4	Employment Agreement dated November 6, 2003 between Herb Lustig and Invisa, Inc.

10.25 4	Severance Agreement dated November 13, 2003 between Samuel S. Duffey and Invisa, Inc.

10.26 4	Agreement dated November 13, 2003 between Invisa, Inc. and the Duffey related shareholders

10.27 5	SDR Metro Inc. letter extension agreement

10.28 5	SDR Metro Inc. confirmation letter agreement

10.29 5	Severance Agreement dated January 26, 2004 between Stephen A. Michael and Invisa, Inc.

10.30 5	Consulting Agreement dated January 26, 2004 between Stephen A. Michael and Invisa, Inc.

10.31 5	Severance Agreement dated December 31, 2003 between William W. Dolan and Invisa, Inc.

10.32 5	Agreement dated February 11, 2004 between The Video Agency, Inc. and Invisa, Inc.

10.33 5	Employment Agreement dated March 2004 between Charles Yanak and Invisa, Inc.

10.34 5	2003-A Employee, Director, Consultant and Advisor Stock Compensation Plan.

10.35 5	First Amendment to Invisa, Inc., 2003 Incentive Plan Date As of November 6, 2003

10.36 5	Stock Option Agreement for Herb M. Lustig dated November 6, 2003

10.37 6	Subscription Agreement for issuance of 22,000 shares of Series A Convertible Preferred Stock and Common Stock Warrants

10.38 6	Registration Rights Agreement

10.39 6	Warrants to Purchase Common Stock (Mercator Momentum Fund, LP, Mercator Advisory Group, LLC, and Monarch Pointe Fund, Ltd.)

10.40 6	Certificate of Designations of Preferences and Rights of Series A Convertible Preferred Stock.

10.41 7	Marketing Agreement between Aurelius Consulting Group and Invisa, Inc.

10.42 7	Lease Agreement among HAR-WAL ASSOCIATES, INC. and WR-I ASSOCIATES, LTD. and Invisa, Inc. dated September dated September 23, 2004

10.43 11	Business consulting agreement

10.44 11	Opinion of counsel regarding legality of Common Stock

10.45	Consent of Aidman, Piser and Company, PA

10.46 11	Consent of Legal Counsel

10.47 11	Power of Attorney relating to subsequent amendments

10.48 9	Promissory note agreements dated October 10, 2006 by and between Invisa, Inc. and M.A.G. Capital, LLC; Mercator Momentum Fund III, LP and Monarch Pointe Fund, Ltd. Borrowing Certificates and Forms of Assignments

10.499	Warrant Agreement dated October 10, 2006 by and between Invisa, Inc. and Ocean Park Advisors, LLP

10.50 9	UCC Financing Statements

10.51 9	Schedule of Advances: Permitted Payments

10.52 10	Business Consulting Agreement dated August 14, 2006 between Invisa, Inc. and John Anderson

10.53 17	Carl A. Parks Employment agreement

10.54 16	Forbearance and Modification agreement dated July 27, 2007

10.55 16	Promissory Note dated July 25, 2007

10.56 15	Promissory Note dated March 6, 2007

10.57 16	Forbearance and Modification Agreement

10.58 18	Audit Committee Charter

10.59 18	Senior Secured Promissory Note date March 28, 2008

10.60 18	Forbearance and Modification Agreement dated March 28, 2008

10.61 18	Extension of Promissory Note dated April 11, 2008

10.62 19	Senior Secured Promissory Note dated July 1, 2008

10.63 19	Forbearance and Modification Agreement dated June 1, 2008

31.2 8	Chief Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 8	Certification Pursuant to 18 U.S.C. Section 1350.

32.2 8	Certification Pursuant to 18 U.S.C. Section 1350.

1	Previously filed on June 23, 2003 with Invisa’s Form 10-KSB for the year ended December 31, 2002 and are incorporated by reference.

2	Previously filed on August 1, 2003 with Invisa’s Form 10-QSB for the quarter period ended June 30, 2003 and are incorporated by reference.

3	Previously filed on September 17, 2003 with Invisa’s Form 8-KA (Amendment No. 1) dated September 9, 2003 and is incorporated by reference.

4	Previously filed on November 14, 2003 with Invisa’s Form 8-K dated November 6, 2003 and are incorporated by reference.

5	Previously filed on April 14, 2004 with Invisa Form 10-KSB for the year ended December 31, 2003 and incorporated herein by reference.

6	Previously filed on August 18, 2004 with Invisa Form 10-QSB and incorporated herein by reference.

7	Previously filed on February 7, 2005 with Invisa Form 10-KSB for the year ended December 31, 2004 and incorporated herein by reference.

8	Filed herewith.

9	Previously filed on October 10, 2006 with Invisa Form 8-K/A dated October 10, 2006 and are incorporated by reference.

10	Previously filed on August 17, 2006 with Invisa Form 8-K dated August 14, 2006 and are incorporated by reference.

11	Previously filed on August 14, 2006 with Invisa Form S-8 dated August 14, 2006 and are incorporated by reference

12	Previously filed on April 14, 2007 with Invisa For 10-KSB and incorporated herein by reference.

13	Previously filed on August 1, 2007 with Invisa’s Form 8-K and incorporated herein.

14	Previously filed on July 26, 2007 with Invisa’s Form 8-K and incorporated herein.

14 1	Code of Business Conduct and Ethics and Compliance Program

15	Previously filed on March 6, 2007 with Invisa’s Form 8-K and incorporated herein.

16	Previously filed on November 14, 2007 with Invisa Form 10-QSB and incorporated herein by reference.

17	Previously filed on April 18, 2007 with Invisa Form 10-KSB and incorporated herein by reference.

18	Previously filed on April 14, 2008 with Invisa Form 10-KSB and incorporated herein by reference.

19	Previously filed on July 30, 2008 with Invisa Form 8-K and incorporated herein by reference.

SIGNATURES

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


	INVISA, INC.

Dated: April 14, 2009	By:	/s/ Edmund C. King
		Edmund C. King
		Acting President



Dated: April 14, 2009	By:	/s/ Edmund C King
		Edmund C King
		Chief Financial Officer

NOW ALL PERSONS BY THESE PRESENTS , that each of the undersigned hereby constitutes and appoints Edmund C. King as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and on his behalf to sign, execute and file this annual report on Form 10-K and any or all amendments without limitation to this annual report, and to file the same, with all exhibits thereto and any and all documents required to be filed with respect therewith, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: April 15, 2009	/s/ Edmund C. King
	Edmund C. King, Acting President

Dated: April 15, 2009	/s/ Edmund C. King
	Edmund C. King, Chief Financial Officer, Director

Dated: April 15, 2009	/s/ Gregory J. Newell
	Gregory J. Newell, Director

Dated: April 15, 2009	/s/ John E. Scates
	John E. Scates, Director

Report of Independent Registered Certified Public Accounting Firm

Board of Directors and Stockholders

Invisa, Inc.

We have audited the accompanying balance sheet of Invisa, Inc. (the “Company”) (a development stage company) as of December 31, 2008, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company as of December 31, 2007, and for the year then ended and the period from inception (February 12, 1997) to December 31, 2007 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion with a going concern qualification on those financial statements in their report dated April 14, 2008.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Invisa, Inc. as of December 31, 2008, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has incurred significant losses from inception and has working capital and stockholders deficits at December 31, 2008. These factors, among others, as discussed in Note B, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Stark Winter Schenkein & Co., LLP..

Denver, Colorado

April 15, 2009

F-1

Invisa, Inc.

(A Development Stage Enterprise)

BALANCE SHEETS

	December 31,
	2007			2008
ASSETS
Current assets:
Cash and cash equivalents	$	2,281		$	----
Accounts receivable		19,324			6,498
Inventories		20,678			35,115
Prepaids and other assets		4,298			5,366
Total current assets		46,581			46,979

Furniture, fixtures and equipment, net of $39,286 and $39,718, respectively of accumulated depreciation		3,212			2,800
Total assets		49,793		$	49,779

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Bank overdraft	$	----		$	191
Accounts payable, trade		291,085			118,410
Accrued expenses		205,926			30,377
Due to stockholders and officers		364,551			105,334
Notes Payable		231,300			494,030
Preferred dividends payable		198,750			261,375

Total current liabilities		1,291,612			1,009,717

Stockholders’ Deficit
Convertible Preferred Stock, 5 million shares authorized ($0.001 par value):
Series A, 14,500 and 9,715, respectively, shares issued and outstanding		1,277,000			798,500
Series B, 10,000 and 9,000, respectively, shares issued and outstanding		1,000,000			900,000
Series C, 0 and 6,628, respectively, shares issued and outstanding		----			654,907
Common Stock; 95,000,000 shares authorized ($.001 par value), 25,066,126 and 34,781,081, respectively, shares issued and outstanding		25,066			34,781
Additional paid-in capital		31,797,807			31,975,470
Deficit accumulated during the development stage		(35,341,692	)		(35,323,596	)

Total stockholders’ deficit		(1,241,819	)		(959,938	)

Total liabilities and stockholders’ equity		49,793			49,779

See notes to financial statements.

F-2

Invisa, Inc.

(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS

							February 12, 1997
							(Date of inception)
	Years Ended December 31,						Through
	2007			2008			December 31, 2007

Net sales	$	124,986		$	102,297		$	1,516,614
Other operating revenues		----			----			300,000
		124,986			102,297			1,816,614
Costs and expenses:
Cost of goods sold (exclusive of patent amortization shown separately below)		73,992			60,558			1,082,874
Research and development costs		---			----			3,471,292
Selling, general and administrative expenses		581,993			256,999			15,997,470
Patent amortization		788,235			----			4,646,599
Impairment of patent		3,547,059			----			9,064,867

Loss from operations		(4,866,293	)		(215,260	)		(32,446,488	)

Other income (expense):
Interest (expense)and other, net		(129,402	)		(56,348	)		(1,031,422	)
Debt extinguishment gain		----			377,454			737,454
		(129,402	)		321,106			(293,968	)
Income (Loss) before income tax		(4,995,695	)		105,846			(32,740,456	)
Income tax		----			----			----

Net Income (Loss)		(4,995,695	)		105,846			(32,740,456	)

Non-cash constructive dividend related to Convertible Preferred Stock accretions		----						(2,296,640	)
Preferred Stock dividends		(90,000	)		(87,750	)		(286,500	)
Net Income (Loss) applicable to Common Stockholders	$	(5,085,695	)	$	18,096		$	(35,323,596	)

Net Income (Loss) per share applicable to Common Stockholders:
Basic and diluted	$	(0.20	)	$	0.00

Weighted average Common Stock shares outstanding: Basic and diluted		25,355,659			33,230,793

See notes to financial statements.

F-3

Invisa, Inc.

(A Development Stage Enterprise)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Convertible Preferred Stock						Common Stock				Additional paid – in capital			Stock Subscriptions Receivable			Deficit Accumulated During the Development Stage			Total
	Shares			Amount			Shares		Amount
FEBRUARY 12, 1997 (INCEPTION)		----		$	----			----	$	----	$	----		$	----		$	----		$	----
Summary of transactions from February 12, 1997
Through December 31, 2004:
Issuance of Common Stock to founders		----			----			6,105,128		5,980		(5,980	)		----			----			----
Issuance of Common Stock for cash								4,257,350		4,257		9,031,704			----			----			9,035,961
Exercise of stock options		----			----			1,027,964		1,027		1,316,160			(985,000	)		----			332,187
Offering Costs		----			----			500,000		500		637,436			----			----			637,936
Conversion of notes payable		----			----			635,022		635		449,365			----			----			450,000
Original issue discount on notes payable		----			----			----		----		201,519			----			----			201,519
Common Stock issuable for rent		----			----			164,799		290		88,084			----			----			88,374
Issuance of Common Stock for services		----			----			606,144		607		1,254,355			----			----			1,254,962
Issuance of Common Stock options for services		----			----			----		----		550,987			----			----			550,987
Original issue discount		----			----			----		----		144,000			----			----			144,000
Issuance of Common Stock related to reorganization		----			----			2,009,000		2,009		227,991			----			----			230,000
Issuance accrued on notes related to Radio Metric merger		----			----			3,685,000		3,685		11,268,815			----			----			11,272,500
Interest accrued on notes related to stock subscriptions receivable		----			----			----		----		248,836			(248,836	)		----			-----
Settlement of accounts in connection with severance agreements		----			----			----		----		544,090			923,432			----			1,467,522
Exercise of Stock Warrants		----			----			602,000		602		1,138,143			----			----			1,138,745
Issuance of Convertible Preferred Stock and detachable Warrants for cash, net of costs paid in the form of common stock		22,000			640,360			162,500		163		1,296,477			----			----			1,937,000
Non-cash constructive dividend related to beneficial conversion features of Convertible Preferred Stock		----			1,296,640			----		----		----			----			(1,296,640	)		----
Conversion of Convertible Preferred Stock into Common Stock		(7,500	)		(660,000	)		1,500,000		1,500		658,500			----			----			----
Issuance of Common Stock for settlement of cash advances		----			----			80,925		81		80,844			----			----			80,925
Issuable Common Stock for settlement of related party accrued compensation		----			----			300,000		300		194,700			----			----			195,000
Gain on related party accrued compensation extinguishment		----			----			----		----		581,132			----			----			581,132
Issuance of Common Stock Warrants for settlement of royalty contract		----			----			----		----		91,400			----			----			91,400
Collections of stock subscriptions receivable		----			----			----		----		----			36,500			----			36,500
Adjustment of stock subscrptions		----			----			----		----		(20,000	)		20,000			----			----
Net Loss										----		----			----			(23,868,740	)		(23,768,740	)
BALANCE AT DECEMBER 31, 2004		14,500			1,277,000			21,635,832		21,636		29,978,558			(253,904	)		(25,065,380	)		5,957,910
Issuance of Convertible Preferred Stock and detachable Warrants for cash, net of costs paid		10,000			----			----		----		878,000			----			----			878,000
Non-cash constructive dividend related to Convertible Preferred Stock accretions		----			1,000,000			----		----		----			----			(1,000,000	)		----
Issuance of Common Stock for cash		----			----			1,066,662		1,066		78,934			----			----			80,000
Issuance of Common Stock for services		----			----			1,096,774		1,097		103,903			----			----			105,000
Issuance of Common Stock options for services		----			----			----		----		33,000			----			----			33,000
Interest accrued on notes related to stock subscriptions receivable		----			----			----		----		15,000			(15,000	)		----			----
Preferred Stock Series B dividend		----			----			----		----		----			----			(18,750	)		(18,750	)
Net loss		----			----			----		----		----			----			(1,770,918	)		(1,770,918	)
BALANCE AT DECEMBER 31, 2005		24,500			2,277,000			23,799,268		23,799		31,087,395			(268,904	)		(27,855,048	)		5,264,242
Issuance of Common Stock for cash		----			----			400,000		400		43,600			----			----			44,000
Stock options exercised		----			----			316,670		317		23,933			----			----			24,250
Issuance of Common Stock for services		----			----			981,800		982		132,652			----			----			133,634
Employee share-based comp		----			----			----		----		198,089			----			----			198,089
Issuance of Common Stock options for services		----			----			----		----		133,390			----			----			133,390
Interest accrued on notes related to stock subscriptions receivable		----			----			----		----		15,000			(15,000	)		----			----
Preferred Stock Series B dividend		----			----			----		----		----			----			(90,000	)		(90,000	)
Net loss		----			----			----		----		----			----			(2,310,949	)		(2,310,949	)
BALANCE AT DECEMBER 31, 2006		24,500			2,277,000			25,497,738		25,498		31,634,059			(283,904	)		(30,255,997	)		3,396,656
Employee share-based compensation		----			----			----		----		165,410			----			----			165,410
Warrant Modification		----			----			----		----		60,000			----			----			60,000
Interest accrued on notes related to stock subscriptions receivable		----			----			----		----		15,000			(15,000	)		----			----
Preferred Stock Series B dividend		----			----			----		----		----			----			(90,000	)		(90,000)
Stock Redeemed		----			----			(431,612)		(432)		(298,472)			298,904			----			----
Related party forgiveness of debt		----			----			----		----		221,810			----			----			221,810
Net loss		----			----			----		----		----			----			(4,995,695)			(4,995,695	)
BALANCE AT DECEMBER 31, 2007		24,500			2,277,000			25,066,126		25,066		31,797,807			----			(35,341,692)			(1,241,819	)

Employee share-based compensation	----		----	2,667,361		2,667		24,006	----		----			26,674
Pro Forma officer compensation	----		----	----		----		35,500	----		----			35,500
Shares issued for settlement of debt	----		----	7,047,594		7,048		62,709	----		----			69,757
Contribution to capital	----		----	----		----		55,448	----		----			55,448
Preferred Stock Series B dividend	----		----	----		----		----	----		(87,750	)		(87,750	)
Preferred Series C Stock (6,185 shares) issued for settlement of debt, dividends and Preferred Series A and B Stock (4,785 shares and 1,000 shares, respectively)	400		35,541	----		----		----	----		----			35,541
Preferred Series C Stock issued for settlement of debt	483		40,866	----		----		----	----		----			40,866
Net Income	----		----	----		----		----	----		105,846			105,846
BALANCE AT DECEMBER 31, 2008	25,383	$	2,353,407	34,781,081	$	34,781	$	31,975,470	----	$	(35,323,596)		$	(959,938	)

See notes to financial statements.

F-4

Invisa, Inc.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

	Years Ended December 31,						February 12, 1997 (date of inception) Through
	2007			2008			December 31, 2007

Cash flows from operating activities:
Net income (loss)	$	(4,995,695	)	$	105,846			(32,740,336	)
Adjustments to reconcile net loss to net cash used in operating activities:
Patent impairment		3,547,059			----			9,064,867
Depreciation and amortization		791,168			515			5,203,957
Modification of Warrants		60,000			----			60,000
Common Stock and options exchanged for services/settlements		-----			----			3,028,164
Share Based Compensation and Proforma officer compensation		165,410			62,174			425,673
Abandonment loss on furniture equipment and leaseholds, net of disposition gain		23,817			----			23,817
Debt extinguishment gain		-----			(377,454	)		(737,454	)
Changes in operating assets and liabilities:
Accounts receivable		(7,674	)		12,827			(153,211	)
Inventories		51,161			(14,663	)		(35,341	)
Prepaids and other assets		15,935			(1,068	)		(5,367	)
Accounts payable, trade		22,962			(53,276	)		237,809
Accrued expenses		60,414			----			155,918
Net cash used in operating activities		(265,443	)		(265,099	)		(15,471,504	)

Cash flows from investing activities:
Patent acquisition		-----			----			(550,000	)
Transaction costs in connection with RMI business combination		-----			----			(121,475	)
Purchases of furniture, fixtures and equipment		-----			(103	)		(238,949	)
Net cash used in investing activities		-----			(103	)		(910,424	)

Cash flows from financing activities:
Proceeds from notes payable		231,300			262,730			672,367
Proceeds from notes payable and redeemable Common Stock		-----			----			908,000
Payment of notes payable		-----			----			(520,800	)
Collection of stock subscriptions		----			----			36,500
Stockholder Advances		33,524			----			1,585,007
Proceeds from sale of convertible Preferred Stock		----			----			2,815,000
Proceeds from sale of Common Stock		----			----			10,631,413
Proceeds from the exercise of stock options`		----			----			24,250
Cash received with combination transaction		----			----			230,000
Bank overdraft		----			191			191
Net cash provided by financing activities		264,824			262,921			16,381,928

Net (decrease) increase in cash		(619	)		(2,281	)		(2,281	)
Cash at beginning of period		2,900			2,281			2,281
Cash (overdraft) at end of period	$	2,281		$	----		$	----

See notes to financial statements.

F-5

Invisa, Inc.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS - CONTINUED

					February 12, 1997
					(Date of Inception)
					Through
	Year Ended December 31,				December 31,
	2007		2008		2008

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	42,534	$	37,132		308,828

Non-cash financing and investing activities:

Notes payable incurred in connection with merger transactions	$	-----	$	-----		(1,300,000	)

Notes payable canceled in connection with merger transaction	$	-----	$	-----		(337,489	)

Common Stock issued in connection with merger transaction (3,685,000 shares)	$	-----	$	-----		(11,272,500	)

Due to employees in connection with merger transaction	$	----	$	-----		(175,000	)

Accrued expenses assumed in connection with merger transaction	$	----	$	-----		(50,000	)

Exchange of liabilities for Common Stock	$	----	$	69,757		(857,057	)

Common Stock issued representing stock offering commitment (200,000 shares)	$	-----	$	-----		(554,000	)

Preferred dividends accrued as liabilities	$	90,000	$	87,750		286,500

Non-cash preferred stock accretions	$	----	$	-----		2,296,640

Subscription receivable redeemed for stock originally issued	$	298,904	$	-----		298,904

Stockholder forgiveness of debt	$	221,810	$	-----		221,810

Exchange of liabilities for Preferred Stock and dividends paid in Preferred Stock	$	----	$	76,407	$	76,407

See notes to financial statements.

F-6

Invisa, Inc.

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS

Invisa, Inc., (the “Company” or “Invisa”) is a development stage enterprise that incorporates safety system technology and products into automated closure devices, such as parking gates, sliding gates, overhead garage doors and commercial overhead doors. Invisa has also demonstrated production-ready prototypes of security products for the museum and other markets. The Company has not fully implemented its sales and marketing plan and has, therefore, not emerged from the development stage. The Company, however, is currently manufacturing and selling powered closure safety devices for certain gates. The Company acquired a license to use the core technology used in the powered closure safety devices in 1992.

NOTE B - LIQUIDITY AND MANAGEMENT’S PLANS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended December 31, 2008 and since the date of inception, the Company has had net income and net losses applicable to Common Shareholders of $18,096 and $35.3 million, respectively. As of December 31, 2008, the Company has not emerged from the development stage and has negative working capital of $.96 million. Since inception, the Company has financed its operations principally from the sale of equity securities and, to a lesser extent, debt, as the Company has not generated significant revenues from the sales of its products. Continuation of the Company as a going concern is dependent upon additional external funding and, ultimately, a substantial increase in sales volume and achievement of profitable operations. The Company has substantially reduced its operations because of a current lack of available external funding. The Company intends to finance its future development activities and its working capital needs largely from additional debt and the issuance of equity securities with some additional funding from other traditional financing sources, including term notes and proceeds from licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements. There can be no assurance in that such financing will be available at acceptable terms, if at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Continuation of the company as a going concern is dependent upon additional external funding and, ultimately, a substantial increase in sales volume and achievement of profitable operations.

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalents at a major commercial bank. Such amounts are occasionally in excess of the maximum federally insured amounts.

Accounts Receivable, Major Customer Information and Export Sales

Accounts receivable are due primarily from companies in the gate manufacturing industry located throughout the United States and the United Kingdom. Credit is extended based on an evaluation of the customers’ financial condition and, generally, collateral is not required. Account balances are evaluated for collectability based on the condition of the customers’ credit including repayment history and trends and relative economic and business conditions. Bad debts have not been significant. During 2007, Magnetic Automation Corp. was our largest customer, comprising approximately 29% of our product revenues. During 2008, Magnetic Automation Corp. was again our largest customer, comprising approximately 21% of our product revenues.

F-7

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using an averaging method, which approximates the first-in, first-out method. Inventory consists principally of finished goods and raw materials.

Furniture, Fixtures and Equipment

Furniture, fixtures, and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives, principally five years. Leasehold improvements are amortized over the term of the lease or the estimated useful lives, whichever is shorter. Depreciation expense was $2,933 and $515 for 2007 and 2008 respectively.

Patent

The patent for the Company’s underlying technology was amortized on a straight-line method over 10 years, which represented the remaining useful life of the patent. At December 31, 2003, the Company recorded an impairment charge of $5,517,808 that was included in the statement of operations to reflect the fair value as determined by the Company’s management. The 2003 patent impairment resulted principally from perceived shifts in markets and our approach to such markets requiring more reliance on our patents applied for and less on the original patent.

At December 31, 2007 the remaining balance of the deferred patent costs totaling $3,547,059 was determined to be impaired and written off (See below – Impairment of Long-Lived Assets.)

Revenue

In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

Product sales under fixed price arrangements are recognized as revenue upon shipment of product (when title transfers to the purchaser) and collectability is assured. Other operating revenues relate to services and are recorded as earned.

Licensing agreement

In July 2002 Invisa entered into an Original and Independent Distribution License Agreement with Rytec Corporation (the Agreement) and received $300,000 cash representing an advance on the first 3000 units purchased by Rytec. In February 2005, because of extended development efforts by Invisa, the Agreement was revised to recharacterize the $300,000 deposit as compensation to the Company for engineering expenditures and efforts expended by Invisa during 2005. Price reductions reflected in the original Agreement were also discontinued.

Shipping costs

Shipping and handling costs are included in cost of sales in the accompanying statements of operations.

Research and Development Costs

Research and development costs consist of direct costs that are associated with the development of the Company’s technology. These costs are expensed as incurred. During the years 2007 and 2008, the Company did not incur research and development expense.

Advertising Costs

The Company’s policy is to expense advertising costs as incurred.

Warranty Costs

The Company warrants its products for ninety days. Estimated warranty costs are recognized in the period product is shipped. However, there have been no significant warranty costs incurred through December 31, 2008, nor are any significant amounts expected to occur subsequently. Accordingly, no warranty liability has been recognized for any period presented.

F-8

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences between the financial statements and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, notes payable and due to stockholders. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items and the use of market rates of interest.

Derivative Financial Instruments

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risk that may affect the fair values of its financial instruments. However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets or asset groups, including patents, annually; or whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related asset may be less than previously anticipated. If the net book value of the related asset exceeds the undiscounted future cash flows of the asset, the carrying amount would be reduced to the present value of its expected future cash flows and an impairment loss would be recognized.

The Company’s management performed a valuation of the patent in connection with its acquisition in February 2002. In doing this valuation we considered several factors, including the size of the total applicable safely market, our estimates of penetration into this market and a valuation. This market is large and growing, principally as a result of increased emphasis on safety by governmental agencies and others plus increased concerns for security, principally as a result of the September 11, 2001 terrorist event and all that has followed relative to terrorism.

During the fourth quarter of 2003 the Company expensed $5,517,808 to reflect an impairment of its patent. Our original cost of the patent totaled $13,711,000 which we paid in February 2002 and April 2003. The 2003 patent impairment resulted principally from the Company’s reduced forecast of expected discounted future cash flows associated with the licensing business model being pursued by the Company in 2003.

The Company subsequently determined that the licensing business model was no longer suitable and the Company adopted a product sales model with potential customers including end-users, dealers, distributors and manufacturers. While product sales have remained low and operating loses have continued, management continues to believe that the potential market for its existing technology is viable. Management further believes that market viability was to some degree exhibited by the continued sales of our safety product for parking gates in 2007 notwithstanding the lack of formal sales effort, adequate financial resources or appropriate staffing. In the recent nation-wide cash liquidity environment, our access to funding to finance a formal Invisa, Inc. sales and marketing effort, finalize development of the contemplated additional products and launch their commercialization which we consider to be critical to our ability to recover the patent costs in the foreseeable future is uncertain. This uncertainty has caused us to continue to review the likelihood of the short term recoverability of our deferred patent cost. Because of our limited financing resources, our inability to obtain long-term financing, our belief that the capital markets may be further deteriorating for companies in positions similar to ours, and our continued uncertainty regarding access to additional long-term funding, coupled with our continuing low level of product sales, continuing operating losses, current reduced level of staffing and technical capability which cannot be increased without funding, we have concluded that recovery of the deferred patent cost over the foreseeable future is unlikely. Additionally, the pledge of our patents as security for certain of our short-term notes creates additional uncertainty as we believe that such pledge might interfere with future efforts to sell a license, sell the patents or otherwise use the patents as a basis to obtain required financing. As a result of our review, we have written off the remaining patent cost as of December 31, 2007 in the amount of $3,547,059.

F-9

Earnings per Common Share

The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses common stock equivalents, if any, are not considered, as their effect would be anti dilutive.

Options and warrants to purchase 12,989,167 shares of Common Stock as of December 31, 2007 were not considered in the calculation of diluted loss per share because the effect would be anti-dilutive. At December 31, 2008 the preferred stock was convertible into 20,757,500 shares of common stock, which has also not been considered in the calculation of diluted loss per share since the effect would be anti-dilutive.

Equity-Based Compensation

The Company follows SFAS 123 (revised 2004) "Share-Based Payment". This Statement requires that the cost resulting from all share-based transactions be recorded in the financial statements. The Statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The Statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions. The Statement replaces SFAS 123 "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees". The provisions of this Statement were effective beginning January 1, 2006.

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The provisions of SFAS 159 will become effective as of the beginning of the 2009 fiscal year. The adoption of these new Statements is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141 (R) “Business Combinations”. SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. Management believes the adoption of this pronouncement will not have a material impact on the Company's financial statements.

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. Management believes the adoption of this pronouncement will not have a material impact on the Company's financial statements.

In February 2008, FASB Staff Position (FSP) No. 157-2, “Effective Date of FASB Statement No. 157” was issued. FSP No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, or all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Examples of items within the scope of FSP No. 157-2 are non-financial assets and non-financial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment assessment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The partial adoption of SFAS 157 on February 1, 2008, with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis, is not expected to have a material effect on the Company’s consolidated financial statements. The Company is currently assessing the impact, if any, of SFAS No. 157 relating to its planned February 1, 2009, adoption of the remainder of the standard.

F-10

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an Amendment of FASB Statement No. 133”, which became effective on November 15, 2008. This standard changed the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedging items affect an entity’s financial position, financial performance, and cash flows. The adaptation of this standard had no material impact on the Company’s financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FSP 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” The intent of this FSP if to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows to measure the fair value of the asset under FASB Statement No. 141 (Revised 2007), “Business Combinations,” and other U.S. generally accepted accounting principles (GAAP). This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company does not expect the adoption of FAS 142-3 to have a material effect on its results of operations and financial condition.

In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”. FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, on a retroactive basis and will be adopted by the Company in the first quarter of fiscal 2009. The Company does not expect the adoption of FSP APB 14-1 to have a material effect on its results of operations and financial condition.

In May 2008, the FASB issued SFAB No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which becomes effective upon approval by the SEC. The standard sets forth the sources of accounting principles and provides entities with a framework for selecting the principles used in the preparation of financial statements that are presented in conformity with GAAP. It is not expected to change any of the Company’s current accounting principles or practices and therefore, is not expected to have a material impact on its financial statements.

NOTE F - COMMON AND PREFERRED STOCK

In September 2004, the Company issued 22,000 shares of Series A Convertible Preferred Stock in the face amount of $2,200,000 for $1,937,000 (net of $263,000 transaction expenses) which was paid in the respective amounts of $1,158,200 and $778,800 at closing. Additionally, the transaction included:

Issuance of Detachable Warrants to acquire up to 1,500,000 shares of the Company’s Common Stock at $1.00 per share. The Warrants expire on August 16, 2007. The terms of these Warrants were revised in August 2007 to extend the expiration date to August 2010.

In addition to the transaction costs referred to above, the Company granted 162,500 shares of Common Stock and Detachable Warrants to acquire up to 162,500 shares of the Company’s Common Stock at $1.00 per share to a broker. The term of the Warrants is three years.

The Preferred Stock is non-voting, entitled to dividends only when, or if, declared by the Board of Directors and has preference over the Common Stock in the event of the Company’s liquidation. The Preferred Stock is convertible into Common Stock at the option of the holder. The conversion price is equal to 80% of the market price at the time of conversion, subject to a floor of $0.50 per share and a ceiling of $1.17 per share. During 2005, the floor was modified to $0.12 per share as an inducement to execute the Series B Convertible Preferred Stock transaction discussed below.

The Company accounted for the host instrument as equity under the guidance of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and under provisions of EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and accounted for both the beneficial conversion feature and the warrants as equity as well.

In August 2005, the Company issued 10,000 shares of Series B Convertible Preferred Stock in the face amount of $1,000,000 for $878,000 (net of $122,000 transaction expenses) which was paid in the respective amounts of $378,000 and $500,000 at closing. Additionally, the transaction included:

F-11

·	Detachable warrants to acquire up to 2,500,000 shares of the Company’s Common Stock at $0.30 per share. The warrants expire on August 31, 2010 and are subject to call by the Company upon the Common Stock trading at a price of $0.60, a minimum trading volume of 60,000 shares for 20 consecutive days and the registration statement being effective.

·	In addition to the transaction costs referred to above, the Company granted warrants to acquire up to 666,667 shares of the Company’s Common Stock at $0.16 per share to a broker. The term of the warrants is three years.

·	The Preferred Stock is non-voting and is entitled to receive dividends at an annual rate equal to the lower of the Prime Rate plus 3.5% or 9%. The dividend may either be paid in cash or registered shares of the Company’s Common Stock, subject to certain limitations. The Preferred Stock is convertible into Common Stock at the option of the holder. The conversion price is equal to 80% of the market price at the time of conversion, subject to a floor of $0.12 per share and a ceiling of $0.275 per share.

The Series B Preferred Stock and Series A Preferred Stock as amended permit the Company, in its discretion, to redeem part or all of the outstanding Preferred A and B Stock at 125 percent of par value per share until August 2007 and thereafter at 150 percent of par value, plus any accrued dividends.

In 2006 Warrants were issued to financial advisors that included registration right obligations that the Company has determined are not within its control. The warrants were fair valued on the date of grant and secured as a liability. The change in fair value at each reporting date is recorded as an expense in the accompanying statement of operations. The derivative liability at December 31, 2007 is included in accrued expenses in the accompanying balance sheet.

In 2007, the Company redeemed 431,612 shares of the Company’s issued and outstanding common stock in cancellation of an aggregate of $298,904 in stock subscription notes receivable.

In 2007, 20,000,000 and in 2008 an additional 33,333,333 shares of the Company’s authorized but unissued common stock were delivered by the Company to an escrow agent to hold as security for certain short term note obligations of the Company. The aggregate 53,333,333 shares are not being treated as outstanding and will only be considered as being issued and outstanding if and when the shares are released by the escrow agent and delivered to the lender as a result of a default under the promissory notes and related security agreement.

In 2008 the Company issued 9,714,955 shares of Common stock in exchange for the redemption of 12,989,167 outstanding warrants and options and settlement of certain debt totaling $341,071.

In 2008 the Company also issued 6,185 shares of its Series C Convertible Preferred stock in exchange for 4,785 and 1,000 shares, respectively of its Series A and Series B Convertible Preferred stock. In addition, the Company issued 483 shares of its Preferred C stock for settlement of debt.

F-12

NOTE G- STOCK OPTION AND WARRANT ACTIVITY

The Company has five stock-based compensation plans which provides for the granting of options to purchase the Company’s Common Stock to employees, directors, consultants and advisors. The options granted are subject to a vesting schedule as set forth in each individual option agreement.

	Maximum Shares
	of Common Stock
Plan	which can be issued
2000 Plan		1,200,000
2002 Plan		1,500,000
2003 Plan		1,500,000
2003A Plan		3,500,000
2006 Plan		2,500,000
		10,200,000

Activity with respect to the stock-based compensation plans is summarized as follows:


	Shares			Range of Exercise Prices		Weighted- average Option price per share
Outstanding at December 31, 2006		7,000,000					0.65
Options Granted		800,000		$	0.04		0.04
Options canceled/expired		(1,960,000	)	0.26-3.85			0.26
Options exercisable at December 31, 2007		5,840,000		0.11			0.11
Options canceled/expired		(5,840,000	)	0.11			0.11
Outstanding at December 31, 2008		----					----

Aggregate intrinsic value of options outstanding at December 31, 2008 is $0.00.

The total intrinsic value of options exercised during 2007 and 2008 was $0.00 and $0.00, respectively.

Activity with respect to warrants for common stock is as follows:

	Shares			Range of Exercise Prices		Weighted-average Option price per share
Outstanding at December 31, 2006		7,536,042		$	0.62	$	0.62
Warrants canceled/expired		(386,875	)	0.68			0.68
Outstanding at December 31, 2007		7,149,167		0.62			0.62
Warrants canceled/expired		(7,149,167	)	0.62			0.62
Outstanding at December 31, 2008		----					----

The fair value of the options granted in 2007 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the above years:

	2007	2008
Dividend yield	0.00%	N/A
Expected volatility	161%-228%	N/A
Risk free interest rates	4.04%-5.03%	N/A
Expected lives	3 - 10 years	N/A

The weighted-average grant date fair value for options granted during 2007 was approximately $0.04.

F-13

As of December 31, 2008, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements.

NOTE H - COMMITMENT

Operating Leases

For the previous two years, the Company has occupied space in a building in Sarasota, Florida under a lease with a five year term expiring December, 2009 and annual lease payments of approximately $50,000. In the second quarter of 2007, the Company assigned this lease to a new tenant and moved to space with less square footage (less than 550 square feet) and which is occupied on a month to month basis. Rent expense for the years ended December 31, 2008 and 2007 was $8,535 and $33,294, respectively.

NOTE I - DUE TO STOCKHOLDERS AND OFFICERS

Due to stockholders and officers consists of the following at December 31, 2008:

Monarch Point Fund, Ltd	$	85,074
Edmund C. King		20,260
Total	$	105,334

These advances are due on demand and bear interest at 10% to Monarch Point Fund, Ltd. and no interest is due on the remaining note of $20,260.

During 2007 a stockholder forgave $55,448 related to compensation from 2004 that had previously been accrued. This transaction has been recorded as a capital contribution.

NOTE J - LINES OF CREDIT

The Company has four lines of credit with a private investor. The credit facilities allow for advances up to $500,000, bear interest at 10% and have a first security interest in all of the Company’s assets. Additionally the credit facilities are secured by a security interest in 53,333,333 shares of the Company’s common stock which are held in escrow. Because the credit facilities are not in default the shares are not treated as issued and outstanding. At December 31, 2008, $494,030 is outstanding. The Notes were due December 31, 2008, but under an oral understanding had been held in abeyance while discussions are in progress for anticipated additional financing.

NOTE K – GAIN ON THE SETTLEMENT OF DEBT

During 2008 the Company recorded a gain on the settlement of debt aggregating $377,454 as follows:

Cash:
Amount of debt settled	$	190,955
Cash payments		(84,815	)
Gain	$	106,140

Common stock:
Amount of debt settled	$	341,071
Fair value of common shares issued		(69,757	)
Gain	$	271,314

F-14

NOTE L - INCOME TAXES

Deferred taxes are recorded for all the tax effects of existing temporary differences in the Company’s assets and liabilities for income tax and financial reporting purposes. Due to the valuation allowance for deferred tax assets, as noted below, there was no net deferred tax benefit or expense for the years ended December 31, 2007 or 2008.

Reconciliation of the federal statutory income tax rate of 34.0% to the effective income tax rate is as follows at December 31:

	2007			2008
Federal statutory income tax rate		(34.0	) %		(34.0)	%
State income taxes, net of federal tax benefit		( 3.5	) %		(3.5)	%
Deferred tax asset valuation allowance		37.5	%		37.5	%
		-0-	%		-0-	%

SFAS No. 109 Accounting for Income Taxes requires that a deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. As a result the Company recorded a valuation allowance with respect to all the Company’s deferred tax assets.

The Company has a federal net operating loss carryforward of approximately $16.9 million as of December 31, 2008. Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the net operating loss and other deductions which are available to the Company. The Company has not determined the impact of these limitations at this time.

F-15