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

Plan of Operation.

General.
Certain statements in this Report constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. The Company believes there have been no significant changes during the year ended December 31, 2008.

The Company's accounting policies are more fully described in Note 1 of the consolidated financial statements. As discussed in Note 1, the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future events that affect the amounts reported in the consolidated financial statements and the accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual differences could differ from these estimates under different assumptions or conditions. The Company believes that the following addresses the Company's most critical accounting policies.

We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). Under SAB 104, revenue is recognized at the point of passage to the customer of title and risk of loss, when there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured. We recognize revenue as services are provided with specific long lead time orders.

Our allowance for doubtful accounts is maintained to provide for losses arising from customers' inability to make required payments. If there is deterioration of our customers' credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required. For example, at December 31, 2008, every additional one percent of our accounts receivable that becomes uncollectible would reduce our operating income by approximately $1,221.

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109). Under SFAS No. 109, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets will be reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. A valuation allowance has currently been recorded to reduce our deferred tax asset to $0.

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Our Business Growth

For the 12 month period ending December 31, 2008 our sales decreased to $2,504,321 from $2,542,825. Although sales decreased, our net loss decreased to $583,950 compared to the same 12 months period in 2007 when our net loss was $642,659. Our nuclear sales have had the biggest sales volume of all product categories with the sales of $1,075,272, and the second biggest category is the Radioactive Isotope Identifier products with the sale of 803,482 for the 12 month period. The third largest sales category are X-ray Detectors. The largest growth for the 12 month period was in Radioactive Isotope Identifiers, where the sales grew to $803,482 from $502,000, which is 60% growth. This was due to an enhanced sales distribution as well as introducing the new product, fixed installation products, to the market. Nuclear detectors had a steady growth, due to big demand from governmental applications. Nuclear products sales grew $129,449 or 13.7% in the 12 month period ending December 31, 2008, compared the same time period previous year. We anticipate a significant growth to continue in our Radioactive Isotope Identifier products in 2009, as our existing and new products reach the growing market of homeland security as well as introducing new applications to all market segments.

Results of Operations

Total sales decreased $38,504 for the comparable 12 month period in 2008 from 2007. Our gross profit margins decreased due to some higher than anticipated cost in both Nuclear and X-ray detector products group. However, we were able to control operating expenses better, thereby reducing expenses for the year ended December 31, 2008, to $1,397,213 from $1,566,761 for the 2007 year end. As a result of the reduced expenses our net loss narrowed to $583,950 for the calendar year 2008 from a net loss of $642,659 for the same period in 2007.

The narrowing of our loss was a reflection of the efforts to reduce our operating expenses, as well as move more profitable products from the research and development stage and early stage commercialization into market.. As we have had a chance to work on new applications, we will be able to reduce cost of goods sold and increase our gross profit margin. We are hopeful, as our new applications gain more acceptance we are able to increase sales, improve cost of goods sold, and increase our gross margin. We still will need increased sales to reach profitability and cover all of our operating cost.

We anticipate general and administrative expenses to remain at present levels or higher in the future. General and administrative expenses decreased from $829,721 for calendar year 2007 to $730,546 for the calendar year 2008. This reduction reflects the strong restructuring efforts of our management staff. We expect general and administrative expenses to increase in future as we expand our sales revenues and our operations.

Since we are in the initial phases of product sales for some new products, we are hopeful sales will increase and be able to cover operating cost. We will be dependent on sales to increase before we will be able to cover ongoing cost. Until we are able to increase sales, we may have to seek additional financing to fund operations.

Off Balance Sheet Arrangements.

We had no off balance sheet arrangements during the year ended December 31, 2008.