Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our consolidated 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 Quarterly Report on Form 10-Q.

Background of our Company

We are a development-stage company, and we expect to continue the commercialization of our InvisaShield technology. For the nine months ended September 30, 2009, we had revenue from product sales of $110,989 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 2009 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-Q 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.

Quarter Ended September 30, 2008 Compared to the Quarter Ended September 30, 2009

Net Sales and Cost of Sales - During the quarter ended September 30, 2008 and 2009, product sales totaled $22,565 and $45,521 respectively. The Company's sales to date have been limited and constrained by lack of capital. Sales increased by $22,956, representing an increase of 102 percent. The cost of goods sold as a percent of sales increased from 43% to 47% as a result of higher product cost in 2009.

Research and Development Expenses - The Company has suspended ongoing research and development activities due to cash constraints. In the fourth Quarter of 2006, employment of our in-house engineer and his assistant was terminated. These former employees are currently considered outside consulting resources on an as requested/as available basis. To date, we have not requested significant access to this consulting resource and accordingly have experienced a reduction in research and development expenses.

Selling, General and Administrative Expenses - During the third quarter of 2008 and 2009 selling, general and administrative expenses totaled $65,827 and $49,733, respectively. The decrease of $16,094 in 2009 principally resulted from a reduction in insurance expense and net other overhead.

Interest Income (expense), Net - During third quarter of 2008 and 2009 interest income (expense) totaled ($14,827) and ($17,574), respectively. The interest expense during 2008 related to debt paid off during 2008 and to financing costs and interest due to certain stockholders under lines of credit to the Company. During 2009 the interest expense related primarily to the latter. The Company made the decision to settle a trade payable at an extinguishment gain of $3,486 in the third quarter of 2009.

Net (Loss) - Net (Loss) decreased from a net loss of $(43,038) in 2008 to net loss of $(38,034) in 2009. This decrease resulted from the cost reductions and the other matters discussed above.

Nine Months Ended September 30, 2008 and 2009

Net Sales and Cost of Sales - During the nine months ended September 30, 2008 and 2009, net sales totaled $78,541and $110,989, respectively, representing an increase of $32,448 or 41.4 percent. The Company's sales to date have been limited and constrained by lack of capital. Cost of sales totaled $53,431and $49,969, respectively, or 68% and 45% of related sales.

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Selling, General and Administrative Expenses - During the nine months ended September 30, 2008 and 2009, selling, general and administrative expenses totaled $202,786 and $169,686, respectively. The decrease of $33,100 in 2009 principally resulted from a reduction in staffing, compensation, related payroll and net other overhead. Marketing activities have been severely limited due to cash constraints.

Interest Income (Expense) , Net - During the nine months ended September 30, 2008 and 2009, net interest (expense) income totaled $(40,067) and $(45,857). The interest expense during 2008 related to debt paid off during 2008 and to financing costs and interest due to certain stockholders under lines of credit to the Company. During 2009 the interest expense related primarily to the latter.

Net Income (Loss) and Net Income (Loss) Per Share - The Company's net income (loss) and net income (loss) per share for these periods decreased from a gain of $205,438 and $0.01 to a loss of $(128,234) and $0.00 as a result of the matters described above, including the gain on debt extinguishment of $398,681 in 2008.

Plan of Development and Operations

We obtained funding of $262,730, in the form of short-term debt financing in 2008, and an additional $69,370 in the first nine months of 2009, 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 550 square feet of space. Additional financing or increased cash from sales will be necessary to continue our operations at their current level. Over the periods described herein, sales have been increasing, resulting in improved operations and cash flow.

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 September 30, 2009 we raised cash of approximately $16.5 million net of issuance costs, principally through private placements of common and preferred stock financings. At September 30, 2009, we had cash and cash equivalents totaling $463.

The Company has obtained financing arrangements with its senior lender aggregating $500,000 at December 31, 2008 under which it had borrowed in full as of 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 on December 31, 2008, but under an oral understanding have been held in abeyance while discussions are in progress for anticipated additional financing. The $63,400 in excess of the Notes has also been borrowed under an oral understanding with the lender with terms similar to the Notes.