- Amended Annual Report (10-K/A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment #1

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2009 amended

o	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number 0-26604

Allied Security Innovations, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	23-2770048
(State of incorporation)	(IRS Employer Identification Number)

1709 Route 34 South Farmingdale, New Jersey	07727
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (732) 751-1115

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

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

Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Check whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. o

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

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

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes o No x

The issuer had revenues of $3,597,653 for the fiscal year ended December 31, 2009.

As of April 7, 2010, 90,222,937 shares of the issuer's Common Stock were outstanding

The aggregate market value of the voting Common Stock held by non-affiliates on June 30, 2009 (the last business day of our most recently completed second fiscal quarter) was $331,165 using the closing price on June 30, 2009.

PART I

ITEM 1. Business

History

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

Our Business

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

Description of Business of CGM

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

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

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

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

Products

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

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

Uses for this product and technology include such items as:

o Aircraft and truck seals

o Fiber and Steel drum seals

o Motor Vehicle inspection seals

o Pharmaceutical Packaging

o Box or container closure seals

o Cash bag components

o Computer seals

o Validation devices

o General security products

o Law Enforcement Agencies

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

Production Process

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

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

Markets & Customers

Principal Customers

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

The Company’s revenue from one customer accounted for 12.75% of total revenue for the twelve months ended December 31, 2009, which defines them as a major customer.

Sales

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

Competition

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

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

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

Industry Trends

Employees

ASII employs a total of 14 full time employees and 2 part time employees, of whom 12 are employed by CGM.

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

Imaging technology enables computers to record, store and retrieve both textual information and visual images. The common problem in imaging technology is how to record, store, process and retrieve information and images within the same system. ASII's software programs utilize technology to link the textual information with the images so that customers can record and retrieve related text and images. ASII originally developed the software to address the information retrieval problems of tax assessors. ASII subsequently adapted the software for use by law enforcement agencies and management of jail facilities. ASII's software also addresses different information retrieval needs such as reproducing line ups and producing housing badges (jails), bar coded wristbands for identification which facilitates movement within jails and courts and storing and retrieving hand written and computer generated document images within arrest records. The marketplace for this technology has become more of a commodity item than the specialized software it was in the past and the Company has made a decision not to actively pursue this market in the future as the cost of upgrading the software and competing in what we consider to be a very small marketplace does not justify the investment that would be necessary. While we will still support and maintain the existing customer base we will no longer actively solicit new customers.

ASII does offer maintenance and support for their products.

Maintenance and Support

ASII offers its customers' ongoing maintenance and support plus updates of the software, for an annual fee.

Marketing

Law Enforcement Applications

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

Customers

ASII maintains a continuing relationship with its customers based upon support services and periodic upgrades of the Compu-Capture(R) line and Compu-Sketch(R) software. The major revenue-generating event is presently the support and maintenance of our existing customer base. ASII has one major customer that purchased $458,841 or 12.8% of total sales, with $0 accounts receivable balance at December 31, 2009.

Business Alliances

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

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

Seek Acquisitions and Alliances

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

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

The principal amount of the three year Note is subject to adjustment based upon the average of (i) the gross revenues of CGM-AST Sub for the fiscal year ending December 31, 2009 and (ii) an independent valuation of CGM-AST Sub based upon the consolidated audited financial statements of the Company and CGM-AST Sub for the fiscal years ended December 31, 2009 and 2008. In addition, the Company has granted CGM-AST a secondary security interest in substantially all of its assets and intellectual property. If the Company is unable to fulfill its obligations pursuant to the Asset Purchase Agreement and the Note, there is a likelihood that CGM Security Solutions, Inc. can declare default and attempt to take back the asset.

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

On May 16, 2008 the Company came to an agreement to pay CGM Security Solutions, Inc. and its owner Mr. Erik Hoffer Five Hundred Thousand Dollars ($500,000) and signed a new note with him raising the purchase price by One Million Dollars ($1,000,000). The new note for Four Million Dollars is a three year note, maturing on May 16, 2011 and carrying an annual interest rate of 7% of which the interest is due quarterly.

Sales by Geographic Area

During the fiscal year ended December 31, 2009 the percentage of revenues that ASII received from domestic customers has been approximately 82%. Foreign sales for 2009 were $645,778.

Suppliers

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

Government Regulation or Government Approval

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

Research and Development

ASII spent $88,801 and $94,946, respectively for the years ended December 31, 2009 and 2008 on research and development. This amount includes amounts spent on outside sources for assistance with Research and Development projects. None of these costs have been borne directly by our customers.

Product Liability Insurance

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

Patents, Trademarks and Licenses

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

ITEM 2. Properties

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

ITEM 3. Legal Proceedings

None

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

ASII's (formerly DDSI quoted under the symbol “DDSI”) common stock has been quoted on the OTC Bulletin Board since July 7, 1997 and under the symbol "ASVN" since February 2007. As of November 4, 1999 ASII's shares traded on the Pink sheets. ASII returned to trading on the OTC Bulletin Board effective February 23, 2001, but as of June30, 2003 began trading on the Pink sheets. Under the “ASVN” symbol, ASII returned to the OTC Bulletin Board in October 2007. The following table sets forth, the high and low bid prices for the common stock for the quarters indicated. As of February 1, 2009 there were approximately 3,200 shareholders of record.

	Common Stock
	Bid Price

	Low		High

Calendar Year 2008
First Quarter	$	0.1250	$	0.3125
Second Quarter	$	0.1250	$	0.1875
Third Quarter	$	0.1250	$	0.1875
Fourth Quarter	$	0.1250	$	0.1875

Calendar Year 2009
First Quarter	$	0.1250	$	0.1250
Second Quarter	$	0.1250	$	0.1250
Third Quarter	$	0.0890	$	0.0090
Fourth Quarter	$	0.0190	$	0.0008

As of April 7, 2010, 90,222,937 shares of the issuer's Common Stock were outstanding.

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

Recent Issuances of Unregistered Securities

During February 2009, $3,700 of the convertible debentures issued in September 2001, were converted into 143,126 shares of common stock.

During May 2009, $2,700 of the convertible debentures issued in May 2008, were converted into 30,000 shares of common stock.

During June 2009, $1,800 of the convertible debentures issued in May 2008, were converted into 20,000 shares of common stock.

During July 2009 $5,998 of the convertible debentures issued in May 2008, were converted into 838,599 shares of common stock.

During August 2009 $9,855 of the convertible debentures issued in May 2008, were converted into 1,651,726 shares of common stock.

During September 2009 $6,973 of the convertible debentures issued in May 2008, were converted into 2,101,956 shares of common stock.

During October 2009 $6,571 of the convertible debentures issued in May 2008, were converted into 3,763,607 shares of common stock

During November 2009 $4,702 of the convertible debentures issued in May 2008, were converted into 3,337,818 shares of common stock

During December 2009 $4,728 of the convertible debentures issued in May 2008, were converted into 8,170,663 shares of common stock

During January 2008, $7,689 of the convertible debentures issued in September 2001, were converted into 189,173 shares of common stock.

During February 2008, $7,051 of the convertible debentures issued in September 2001, were converted into 191,495 shares of common stock.

During March 2008, $7,240 of the convertible debentures issued in September 2001, were converted into 192,196 shares of common stock.

During April 2008 $4,998 of the convertible debentures issued in September 2001, were converted into 124,945 shares of common stock.

During July 2008 $40,618 of the convertible debentures issued in September 2001, were converted into 477,260 shares of common stock.

During August 2008 $63,087 of the convertible debentures issued in September 2001, were converted into 734,865 shares of common stock.

During September 2008 $34,115 of the convertible debentures issued in September 2001, were converted into 379,060 shares of common stock.

ITEM 6 Selected Financial Data

Not applicable.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Critical Accounting Policies

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

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

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

Plan of Operations

The short-term objective of ASII is the following:

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

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

ASII's long-term objective is as follows:

o To seek additional products to sell into its basic business market.

ASII believes that it will not reach profitability in the foreseeable future. Over the next twelve months, management is of the opinion that sufficient working capital will be obtained from operations and external financing to meet ASII's liabilities and commitments as they become payable. ASII has in the past successfully relied on private placements of common stock securities, bank debt, loans from private investors and the exercise of common stock warrants in order to sustain operations. If ASII is unable to obtain additional funding in the future, it may be forced to curtail or terminate operations.

ASII is doing the following in its effort to reach profitability:

o Cut costs in areas that add the least value to ASII.

o Concentrate on increasing the sales of the CGM product line.

o Derive funds through investigating business alliances with other companies.

o Acquire and effectively add management support to profitable companies complementary to its broadened target markets.

Results of Operations

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenues for the year ended December 31, 2009 of $3,597,653 a decrease $1,241,281 or 25.7% from the year ended December 31, 2008. ASII generates its revenues through software licenses, hardware, post customer support arrangements and other services. CGM-AST generates its revenue through the manufacturer and distributor of indicative and barrier security seals, security tapes and related packaging security systems, protective security products for palletized cargo, physical security systems for tractors, trailers and containers as well as a number of highly specialized authentication products. The decrease revenue is attributed to the downturn in the economy and Company’s cutting of expenses.

Revenue from products sales for the year ended December 31, 2009 and 2008 were $3,498,673 and $4,626,817, respectively, for a decrease of $1,128,144 or 24.4%. Revenue from service sales for the year ended December 31, 2009 and 2008 were $98,980 and $212,117, respectively for a decrease of $113,137 or 53.3%.

Cost of revenue for the year ended December 31, 2009 was $1,388,782, a decrease of $575,790 or 29.3% from the prior year. Cost of revenue sold as a percentage of revenue for the year ended December 31, 2009 was 38.6% of total revenues, versus 40.6% the year earlier. The decrease cost of revenue was primarily due to decrease in revenue.

Operating expenses decreased $369,162 or 7.2% during the year ended December 31, 2009 versus the year ended December 31, 2008. This decrease was primarily attributable to the aggressive cost savings implemented by management.

General and Administrative expenses for the year ended December 31, 2009 were $1,913,398 versus $2,278,188 for the prior year for a decrease of $364,790 or 16.0%. This decrease was primarily attributable to controls on spending.

Sales and Marketing expenses for the year ended December 31, 2009 were $666,702 versus $719,927 for the prior year for a decrease of $53,225 or 7.4%. This decrease was primarily attributable to aggressive cost savings implemented by management.

Research and development for the year ended December 31, 2009 was $88,801 compared to $94,946 for the same period prior year for a decrease of $6,145 or 6.5%. This decrease is attributable to controls on spending.

The net (loss) for ASII decreased 3.3% or $(179,736) for the year ended December 31, 2009 to a net (loss) of $(5,217,710) from a net (loss) of $(5,397,446) for the year ended December 31, 2008.

Liquidity and Capital Resources

Net cash (used in) operating activities for the year ended December 31, 2009 and 2008 was $(215,846) and $(158,969) respectively. The increase in net cash used by operating activities in the year ended December 31, 2009 of $(56,877) was due in part to the change in fair market value of the derivative liability.

Net cash used in investing activities was $(-0- ) and $(24,146) for the years ended December 31, 2009 and 2008, respectively. The decrease in cash used in investing activities in the year ended December 31, 2009 of $(24,146) was due to tighter controls for spending on new equipment.

Net cash provided by financing activities was $55,000 and $10,000 for the years ended December 31, 2009 and 2008, respectively.

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

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

At December 31, 2009, ASII had assets of $718,563 compared to $3,471,662 on December 31, 2008 a decrease of $2,753,099 and shareholder deficit of $(38,344,582) on December 31, 2009 compared to shareholder deficit of $(33,271,043) on December 31, 2008, an increase of $5,073,539. This increase in shareholder deficit for the year ended December 31, 2009 resulted from the net loss for the year ended December 31, 2009.

As of December 31, 2009, ASII negative working capital was $(20,599,249), a change from negative working capital of $(17,716,423) at December 31, 2008. The increase in negative working capital was primarily a result of the restructuring of debt and an increase in the fair market value of the derivative liabilities.

Recent Developments

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

The principal amount of the three year Note is subject to adjustment based upon the average of (i) the gross revenues of CGM-AST Sub for the fiscal year ended December 31, 2008 and (ii) an independent valuation of CGM-AST based upon the consolidated audited financial statements of the Company and CGM-AST for the fiscal years ended December 31, 2009 and 2008. In addition, the Company has granted CGM Security Solutions, Inc. a secondary security interest in substantially all of its assets and intellectual property. If the Company is unable to fulfill its obligations pursuant to the Asset Purchase Agreement and the Note, there is likelihood that CGM Security Solutions, Inc. can declare default and attempt to take back the asset.

On December 19, 2006 a special meeting of the shareholders was held and at the meeting the shareholders passed a resolution to change the name of the Company from Digital Descriptor Systems, Inc. to Applied Security Innovations, Inc. The shareholders also passed a resolution to authorize a 1 for 500 reverse stock split. Both of these events took place on February 5, 2008. In addition the 2006 Incentive Stock Option Plan adopted by The Board of Directors on October 12, 2006 was approved by the shareholders.

On October 9, 2007 the Company’s stock began trading on the NASDAQ-over-the-counter market. Previously, the Company’s common stock traded on Pink Sheets.

ITEM 8. Financial Statements

The report of the independent registered public accounting firm and financial statements are set forth in this report.

ITEM 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure.

None

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company had concluded that the Company's disclosure controls and procedures as of the period covered by this Annual Report on Form 10-K were not effective for the following reasons:

a) The deficiency was identified as the Company's limited segregation of duties among the Company's employees with respect to the Company's control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

b) The deficiency was identified in respect to the Company's Board of Directors. This deficiency is the result of the Company's limited number of external board members. This deficiency may give the impression to the investors that the board is not independent from management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship of possible changes in the organization of the Board of Directors.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2009. In making this assessment, management used the framework set forth in the report entitled "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a Company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded, as of the end of the fiscal year covered by this Annual Report on Form 10-K, due to a lack of segregation of duties, that our internal control over financial reporting has not been effective. However, at this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. The Company intends to remedy the material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the Company's employees as soon as the Company has the financial resources to do so. Management is required to apply judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

Table of Contents

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

Changes in Internal Controls.

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

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

Name	Age	Position with Company

Anthony Shupin	53	Director, Chief Executive Officer, President
Michael Pellegrino	59	Senior Vice President, CFO and Director
Robert Gowell	39	Director
Vincent Moreno	64	Director

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

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

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

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

Code of Ethics

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

Section 16 Beneficial Ownership Compliance.

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

To ASII's knowledge, based solely on its review of the copies of such reports furnished to ASII and written representations that no other reports were required during the fiscal year ended December 31, 2009, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that the following individuals have filed their Form 3s late: Anthony Shupin, Vincent Moreno and Erik Hoffer and the following individuals have filed their Form 4s late: Michael Pellegrino and Robert Gowell.

ITEM 11. Executive Compensation

The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our Chief Executive Officer and other executive officers with annual compensation exceeding $100,000 during fiscal 2008and 2008.

								Long Term Compensation
				Annual Compensation				Awards				Payouts
						Other				Securities
Name and						Annual		Restricted		Underlying				Other
Principal						Compen-		Stock		Options/		LTIP		Compen-
Position	Year	Salary		Bonus		sation($)		Award($)		Sar (#)		Payouts($)		sation ($)
Anthony Shupin	2009	$	227,900		0		0		0		0		0		0
President & CEO	2008	$	227,900		0		0		0		0		0		0

Michael Pellegrino	2009	$	185,500		0		0		0		0		0		0
Senior VP & CFO	2008	$	185,500		0		0		0		0		0

Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.

Effective November 13, 2006 the Company granted to each of Anthony Shupin, its President and Chief Executive Officer and Michael Pellegrino, its Chief Financial Officer, 10,000 shares of newly created Series A Preferred Stock ("A Preferred") as recognition for services. On May 11, 2009 the Series A Preferred Stock was cancelled and replaced with 10,000 shares each of newly created Series B Preferred Stock.

Each share of B Preferred is convertible into 200,000 shares of common stock of the Company starting three years from the date of issuance, provided that the closing bid price of the Company's common stock is then $2.00 per share. The shares of B Preferred may be voted with the Company's common stock on an as converted basis on any matters that the common stock is entitled to vote on as a class.

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

On May 11, 2009 the Company filed with the Secretary of State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock.

Options/SAR Grants in Last Fiscal Year

Number of

% of Total

Securities

Options/SARS

Underlying

Granted to

Options/SARS

Employees in

Exercise or Base

Name

Granted

Fiscal Year

Price ($/Sh)

Expiration Date

Michael J. Pellegrino, CFO

N/A

Anthony Shupin, President & CEO

N/A

Aggregated Option/SAR Exercises

None exercised.

Employment Agreements

Anthony R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin was re-appointed as Chairman, President and Chief Executive Officer effective February, 2005. On February 25, 2005, ASII entered into a five-year employment agreement with Mr. Shupin, which entitled him to a base salary of $227,900 per year, which may at the Board of Directors discretion adjust his base salary (but not below $227,900 per year). Mr. Shupin is also entitled to participate in the Annual Management Bonus Plan. As a participant in the Annual Management Bonus Plan, Mr. Shupin will be eligible to receive bonuses, based on performance, in any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall participate in the Management Equity Incentive Plan. As a participant in the Management Equity Plan, Mr. Shupin will be eligible to receive options, which vest over a period of time from the date of the option's issue, to purchase common shares of ASII. The Company may grant Mr. Shupin, following the first anniversary of the date hereof and at the sole discretion of the Board of Directors, options to purchase common shares of the Company (subject to the vesting and the satisfaction of the other terms and conditions of such options). Mr. Shupin will be entitled to 25 vacations days per year at such times as may be mutually agreed with the Board of Directors. ASII will provide Mr. Shupin a monthly car allowance of One Thousand Dollars ($1,000) along with related car expenses.

Michael J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr. Pellegrino was appointed as Senior Vice President and Chief Financial Officer effective February 25, 2005. On February 25, 2005, ASII entered into a five-year employment agreement with Mr. Pellegrino, which entitled him to a base salary of $185,500 per year which may at the Board of Directors discretion adjust his base salary (but not below $185,500 per year). Mr. Pellegrino is also entitled to participate in the Annual Management Bonus Plan. As a participant in the Annual Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses, based on performance, in any amount from 10% to 200% of the Base Salary. In addition, Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As a participant in the Management Equity Incentive Plan, Mr. Pellegrino will be eligible to receive options, which vest over a period of time from the date of the option's issue, to purchase common shares of ASII. ASII may also grant to the Employee, following the first anniversary of the date of the Agreement and at the sole discretion of the Board of Directors, options to purchase common shares of the Company (subject to the vesting and the satisfaction of the other terms and conditions of such options). Mr. Pellegrino will be entitled to 25 vacation days per year at such times as may be mutually agreed with the Board of Directors. ASII shall also furnish Mr. Pellegrino with monthly car allowance of One Thousand Dollars ($1,000) and related car expenses.

Employee and Director Stock Option Plans

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

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

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

Compensation of Directors

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

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

The following table lists stock ownership of our common stock as of December 31, 2009. The information includes beneficial ownership by (i) holders of more than 5% of our common stock, (ii) each of our current directors and executive officers and (iii) all of our directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by the persons listed or contained in filings made by them with the Commission. Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all shares of our common stock beneficially owned by them.

Percentage of beneficial ownership is based upon 23,176,249, shares of common stock outstanding at December 31, 2009, together with securities exercisable or convertible into shares of common stock within 60 days of December 31, 2009 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2009 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

		Beneficial Ownership
Name and Address		of Common Stock
of Beneficial Owner	Title	No. of Shares			Percent of Class

Anthony R. Shupin	Chairman, CEO and		20	(1)		*
1709 Route 34 Suite 2	President
Farmingdale, NJ 07727

Michael Pellegrino	Senior Vice President,		20	(1)		*
1709 Route 34 Suite 2	Chief Financial Officer
Farmingdale, NJ 07727	& Director

Robert Gowell	Director		1			*
1709 Route 34 Suite 2
Farmingdale, NJ 07727

Vincent Moreno	Director		0			*
1709 Route 34 Suite 2
Farmingdale, NJ 07727

All Officers & Directors			41			*
As a Group

less than 1%

(1) This does not include the 2,000,000 shares of common stock issuable upon conversion 10,000 shares of Series B Preferred Stock assigned. The terms of the Series B Preferred Stock permit the holders thereof to vote on all matters voted on by holders of the common stock on an as converted basis.

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

ITEM 13. Certain Relationships and Related Transaction

None

ITEM 14. Principal Accountant Fees and Services

Audit Fees. The aggregate fees billed by our independent registered public accounting firm, for professional services rendered for the audit of the Company's annual financial statements for the last two fiscal years and for the reviews of the financial statements included in the Company's Quarterly reports during the last two fiscal years 2009 and 2008 were $122,647 and $138,052, respectively.

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

Tax Fees. The aggregate fees billed by the Company's principal accountants for tax compliance, tax advice and tax planning services rendered to the Company during the last two fiscal years 2009 and 2008 were $7,000 and $7,000, respectively.

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

Part IV

ITEM 15. Exhibits

31.1	Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Section 302

31.2	Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Section 302

32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

Signatures

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

Allied Security Innovations Inc.

By:	/s/ Anthony Shupin
	Anthony Shupin, Chairman, President, and
	Chief Executive Officer

	Dated: April 12, 2010

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

Signature Title Date

By:	/s/ Anthony Shupin	Chairman, President, and Chief,
	Anthony Shupin	Executive Officer

By:	/s/ Michael Pellegrino	Senior Vice President and Chief
	Michael Pellegrino	Financial Officer, Director

By:	/s/ Vincent Moreno	Director
	Vincent Moreno

By:		Director
	Robert Gowell

Allied Security Innovations, Inc. and Subsidiary

Table of Contents

December 31, 2009

	Page(s)

Reports of Independent Registered Public Accounting Firms	20-21

Audited Consolidated Financial Statements:

Balance Sheets as of December 31, 2009 and 2008

Statements of Operations for the Years Ended December 31, 2009and December 31, 2008

Statement of Stockholders' Deficit for the Years Ended December 31, 2009 and December 31,2008

Statements of Cash Flows for the Years Ended December 31, 2009and December 31, 2008

Notes to Consolidated Financial Statements	22-33

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Allied Security Innovations, Inc. and Subsidiary

1709 Route 34 South

Farmingdale, New Jersey 07727

We have audited the accompanying consolidated balance sheet of Allied Security Innovations, Inc. and Subsidiary (the “Company”) as of December 31, 2009, and the related consolidated statement of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Allied Security Innovations Inc. and Subsidiary as of December 31, 2008 and for each of the two years in the period ended December 31, 2008 were audited by other auditors who have ceased operations. The auditors expressed an unqualified opinion on those financials statements, dated April 13, 2009, and included an explanatory paragraph relating to the existence of substantial doubt about the Company’s ability to continue as a going concern.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Allied Security Innovations, Inc. and Subsidiary, as of December 31, 2009, and the results of its operations and its cash flows for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company did not generate sufficient cash flows from revenues during the year ended December 31, 2009, to fund its operations. Also at December 31, 2009, the Company had negative net working capital of $20,599,248. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Friedman LLP

Friedman LLP

Marlton, NJ 08053

April 14, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Allied Security Innovations, Inc. and Subsidiary

Formerly Digital Descriptor Systems, Inc.

1709 Route 34 South

Farmingdale, New Jersey, 07727

We have audited the accompanying consolidated balance sheet of Allied Security Innovations, Inc. and Subsidiary (the “Company”) as of December 31, 2008, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 15 to the consolidated financial statements, the Company did not generate sufficient cash flows from revenues during the year ended December 31, 2008, to fund its operations. Also at December 31, 2008, the Company had negative net working capital of $17,716,423. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.

Bagell, Josephs, Levine & Company, L.L.C.

Marlton, NJ 08053

April 13, 2009

Allied Security Innovations, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2009 and December 31, 2008

Note 1 - Description of Business

On October 9, 2007 the Company’s stock began trading on the OTCBB market. Previously, the Company’s common stock traded on Pink Sheets.

Allied Security Innovations, Inc., incorporated in Delaware in 1994, develops, assembles and markets computer installations consisting of hardware and software, which capture video and scanned images, link the digitized images to test and store the images and text on a computer database and transmit this information to remote locations. The principal product of the Company is the Compu-Capture ® Law Enforcement Program, which is marketed to law enforcement agencies and prison facilities. Substantially all of the Company's revenues are derived from governmental agencies in the United States.

CGM-Applied Security Technology, Inc. (CGM) is a manufacturer and distributor of indicative and barrier security seals, security tapes and related packaging security systems, protective security products for palletized cargo, physical security systems for tractors, trailers and containers as well as a number of highly specialized authentication products.

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

Note 2 - Summary of Significant Accounting Policies

Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below:

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Revenue Recognition

The Company derives revenue from the sale of hardware, software, post customer support, and other related services. Post customer support includes telephone support, virus fixes, and rights to upgrades. Other related services include basic training. CGM derives its revenue from the sale of its tapes, labels and other security devices. Revenue is recognized when products are shipped or services are rendered, evidence of a contract exists, the price is fixed or reasonably determinable, and collectability is reasonably assured .

The Company recognizes revenue upon delivery of the product to the end-user, when the fee is determinable and collectability is probable. Revenue allocable to post customer support is recognized on a straight-line basis over the period which the service is to be provided.

Deferred Income

Revenue allocable to post customer support is recognized on a straight-line basis over the period which the service is to be provided. Revenue collected for future services is recorded as deferred income. Deferred revenue for the years ended December 31, 2009 and 2008 was $52,182 and $10,098 respectively. Revenue allocable to other services is recognized as the services are provided. The CGM-AST subsidiary recognizes it revenue upon shipment of the product to the customer.

Software Development Costs

All costs incurred in the research and development of new software products and costs incurred prior to the establishment of a technologically feasible product are expensed as incurred. Research and development of software costs were $88,801 and $94,946, respectively, for the years ended December 31, 2009 and 2008.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2009 and 2008. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.

Accounts Receivable

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. No interest is charged on any past due accounts. Accounts receivable are stated at the amount billed to the customer.

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of the amount that will not be collected. Management reviews all accounts receivable balances that exceed 90 days from invoice date and based on assessment of current creditworthiness, estimates the portion, if any that will not be collected. The allowance for doubtful accounts is $138,627 and $148,506 at December 31, 2009 and 2008.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful life of the assets.

Machinery and equipment	7 years
Furniture and fixtures	7 years
Computers	3 years
Leasehold improvements	39 years

Income Taxes

The Company provides for income taxes under the liability method. Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Such differences result from differences in the timing of recognition by the Company of net operating loss carry forwards, certain expenses, and differences in the depreciable lives and depreciation methods for certain assets.

Accounting for Stock Options

The Company has adopted FASB ASC 718-10, “Accounting for Stock-Based Compensation”, which establishes financial accounting and reporting standards for stock-based employee compensation plans. This pronouncement also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. For stock options, fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option.

Net Loss Per Common Share

Basic loss per share is calculated by dividing the net loss by the weighted average common shares outstanding for the period. Diluted loss per share is calculated by dividing the net loss by the weighted average common shares outstanding of the period plus the dilutive effect of common stock equivalents. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for the years presented.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and accounts receivable. The Company does not require collateral from its customers. The Company sells its principal products to end users and distributors principally in the United States. ASII has one major customer that purchased $458,841 or 12.8% of total sales. The accounts receivable at December 31, 2009 for this customer was $0.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary CGM. All inter-company accounts have been eliminated.

Inventory

Inventories consist principally of inks, adhesives, film and finished goods held in the Company’s warehouse. Inventory is stated at the lower of cost or market, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventory for unsalable or obsolete inventory. Obsolete or unsalable inventory write-offs have been immaterial to the financial statements.

Advertising

The Company’s policy is to expense the costs of advertising as incurred. The Company had $105,746 and $109,485 for the years ended December 31, 2009 and 2008 respectively.

Fair Value of Financial Instruments

The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for the convertible debentures and notes payable approximates fair value because, in general, the interest on the underlying instruments fluctuates with market rates.

Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board (“FASB”) issued ASC 350 “Goodwill and Other Intangible Assets”. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, “Intangible Assets.” It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Goodwill was acquired upon the purchase of its wholly-owned subsidiary of CGM totaling $4,054,998.

In addition, the Company has acquired licenses, which are included as other intangible assets. The licenses are being amortized over a period of 15 years based on the expected benefits to be consumed or otherwise used up. Goodwill and other intangible assets are tested annually for impairment in the fourth quarter, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The Company assesses the recoverability of its goodwill and other intangible assets by comparing the projected undiscounted net cash flows associated with the related asset, over their remaining lives, in comparison to their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.

In December of 2008 the Company decreased the value of goodwill from $4,054,998 to $2,054,998 and in December 2009 the Company decreased the value of the goodwill to $0.

Derivative Instruments

The Company has an outstanding convertible debt instrument that contains free-standing and embedded derivative features. The Company accounts for these derivatives in accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities,” and EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.” In accordance with the provisions of ASC 815 and EITF Issue No. 00-19, the embedded derivatives are required to be bifurcated from the debt instrument and recorded as a liability at fair value on the consolidated balance sheet. Changes in the fair value of the derivatives are recorded at each reporting period and recorded in change in fair market value of derivative liability, a separate component of the other income (expense).

Earnings (Loss) Per Share of Common Stock

Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share at December 31, 2009 and 2008 when the Company reported a loss because to do so would be anti-dilutive for years presented.

The following is a reconciliation of the computation for basic and diluted EPS:

	December 31, 2009			December 31, 2008

Net (Loss)	$	( 5,217, 710	)	$	(5,397,446	)

Weighted-average common shares outstanding (Basic)		6,422,710			1,877,405

Weighted-average common stock Equivalents:
Stock options		-			-
Warrants		-			-

Weighted-average common shares outstanding (Diluted)		6,422,710			1,877,405

Options and warrants outstanding to purchase stock were not included in the computation of diluted EPS in 2009 and 2008 because inclusion would have been anti-dilutive. There were no options and warrants available at December 31, 2009 and 2008.

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has sustained operating losses and has accumulated large deficits for the year ended December 31, 2009. These factors raise substantial doubt about its ability to continue as a going concern.

Management has formulated and is in the process of implementing its business plan intended to develop steady revenues and income, as well as reducing expenses in the areas of operations. This plan includes the following management objectives:

· Soliciting new customers in the U.S.

· Expanding sales in the international market

· Expanding sales through E-commerce

· Adding new distributors both in the U.S and internationally

· The introduction of new products into the market

· Seeking out possible merger candidates

Presently, the Company cannot ascertain the eventual success of management’s plan with any degree of certainty. Each objective is contingent upon a number of factors and the Company does not represent that any or all of these objectives will occur. The accompanying consolidated financial statements do not include any adjustments that might result from the eventual outcome of the risks and uncertainties described above.

Subsequent Events

In May 2009, the FASB issued FASB ASC 855-10, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Company adopted FASB ASC 855-10 effective April 1, 2009 and has evaluated subsequent events after the balance sheet date of December 31, 2009 through the date the financial statements were issued.

Note 3 - Impact of Recent Accounting Pronouncements

In June 2009, the FASB issued ASC 105, Generally Accepted Accounting Principles. This section designates the FASB Accounting Standards Codification (FASC) as the source of authoritative U.S. GAAP. ASC 105 is effective for interim or fiscal periods ending after September 15, 2009. We have used the new guidelines and numbering system prescribed by the FASC when referring to GAAP in our fiscal quarter ending September 30, 2009. The adoption of ASC 105 did not have a material impact on our financial position, results of operation or cash flows.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”). SFAS 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. All future references to authoritative accounting literature in our financial statements issued for reporting periods that end after September 15, 2009 will be referenced in accordance with SFAS 168.

In May 2009, the FASB issued ASC 855, Subsequent Events. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or available to be issued. Specifically, this standard codifies in authoritative GAAP standards the subsequent event guidance that was previously located in auditing standards. ASC 855 is effective for fiscal years and interim periods ended after June 15, 2009 and is applied prospectively. We adopted ASC 855 in our fiscal quarter ended June 30, 2009. The adoption of SFAS 165 did not have a material impact on our financial position, results of operation or cash flows.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 applies prospectively to both interim and annual financial periods ending after June 15, 2009. The adoption of SFAS 165 did not result in any material change to our policies.

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”). FSP 107-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, and Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require disclosures about fair value of financial instruments for interim periods of publicly traded companies as well as in annual financial statements. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009. The adoption of FSP 107-1 had no material effect on our disclosures in our financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt as of the specified effective date. Unless otherwise discussed in these financial statements and notes or in our financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2009, we believe the impact of any other recently issued standards that are not yet effective are either not applicable to us at this time or will not have a material impact on our consolidated financial statements upon adoption.

Note 4 – Intangible Assets

Intangible assets consist of the following at December 31, 2009 and 2008:

	2009		2008
Licenses	$	87,076	$	222,076
Accumulated amortization		53,535		84,108
Total	$	33,541	$	137,968

Licenses are being amortized over its estimated useful life of 15 years. Amortization expense for the years ended December 31, 2009 and 2008 was $15,167 and $15,169 respectively. The Licenses are amortized using the straight-line method over the useful life of 15 years.

Based on the results of its most recent annual impairment tests, the Company determined that there would be no future value on the Brake Lock License. Therefore, management authorized the impairment of that asset for a net affect of $89, 260. There was no impairment determined for the other licenses that exist. However, future impairment tests could result in a charge to earnings.

The following is a listing of the estimated amortization expense for the next five years :

Year ended December 31,

2010	$	6,168
2011		6,168
2012		6,168
2013		6,168
2014		6,168

Note 5- Property and Equipment

Property and Equipment consist of the following at December 31, 2009 and 2008:

	2009			2008

Furniture and Fixtures	$	75,613		$	75,613
Leasehold Improvements		159,607			159,607
Computers		219,301			219,301
Machinery and Equipment		762,987			762,987
		1,217,508			1,217,508
Less: Accumulated depreciation		(1,008,023	)		(949,914	)
Net	$	209,485		$	267,594

Depreciation expense for the years ended December 31, 2009 and 2008 was $58,109 and $62,789, respectively.

Note 6 - Convertible Debentures

Based on the guidance ASC 815, the Company concluded that the conversion features of its convertible debentures were required to be accounted for as derivatives. The imbedded conversion feature was bi-furcated and the fair market value was determined using a convertible bond valuation model. The derivative instruments are recorded at fair market value with changes in value recognized during the period of change.

On May 16, 2008 convertible debentures in the net amount of $5,832,483 were satisfied.

On May 16, 2008, the Company issued sixteen convertible notes for an aggregate amount of $14,165,899. The debentures are collateralized by substantially all of the Company's assets. The debentures accrue interest at the rate of 6% per annum.

The fair market value of the conversion feature is shown as a derivative liability on the Company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

The expected payment of principal over the life of the note assuming no principal is converted is as follows:

Year	Principal Payment
2010	$	25,279
2011		13,997,780

During January 2009, the Company issued 5 convertible notes for an aggregate amount of $50,000. The debentures are collateralized by substantially all of the Company's assets. The debentures accrue interest at the rate of 6% per annum with terms of three years.

We recorded a derivative liability related to these convertible debentures. The fair market value of the conversion feature is shown as a derivative liability on the Company’s balance sheet and is adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of income.

Note 7 – Derivative Liability

In accordance with ASC 815and EITF 00-19, the conversion feature associated with the Secured Convertible Debentures represents embedded derivatives. As such, the Company had recognized embedded derivatives as a liability in the accompanying consolidated balance sheet, and it was measured at its estimated fair value of $18,888,603 and $17,356,901 as of December 31, 2009 and 2008, respectively. The estimated fair value of the embedded derivative has been calculated based on a Black-Scholes pricing model using the following assumptions:

	2009			2008
Fair market value of stock	$	0.0012		$	0.0001
Exercise price	$	0.0003 to 0 .0009		$	0.00007
Dividend yield		0.00	%		0.00	%
Risk free interest rate	0.81 % to 2.03%				1.07	%
Expected volatility	254% to 356%				478.0	%
Expected life	1 to 2 Years			2.5 Years

Note 8 - Income Taxes

At December 31, 2009 and 2008, the Company had federal net operating loss carry forwards of approximately $18,800,000 and $11,900,000, respectively to offset future federal taxable income expiring in various years through 2029. The Company also has state net operating loss carry forwards in various states, which approximate the federal amount to offset future state taxable income expiring in various years, generally 7 to 10 years following the year the loss was incurred.

The timing and extent in which the Company can utilize future tax deductions in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations due to certain ownership changes of the Company.

The differences between income tax provisions in the financial statements and the tax expense (benefit) computed at the U.S. Federal Statutory rate are as follows:

	Year Ended December 31,
	2009			2008

Federal Income Tax Rate		(34.0	)%		(34.0	)%
State Income Tax, Net of Federal Benefit		(5.94	)%		(5.94	)%
Effective Income Tax Rate		(39.94	)%		(39.94	)%
Effect on valuation allowance		(39.94	)%		(39.94	)%
Effective Income Tax Rate		0.0	%		0.0	%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets at December 31, 2009 and December 31, 2008 follows:

	2009			2008
Deferred tax asset
Net approximate operating loss carry forward	$	6,588,000		$	4,165,000
Bad debt reserves		—			—
Deferred tax assets		6,588,000		$	4,165,000
Valuation allowance		(6,588,000	)		(4,165,000	)
Net deferred tax asset	$	—		$	—

Note 9 - Commitments and Contingencies

Operating Lease

CGM-AST leases one facility in Staten Island, New York under non-cancelable lease agreements that end in December 2008. Company still occupies the space on a month to month basis.

On June 1, 2007 the offices of Allied Security Innovations, Inc. and the Somerset office of CGM-AST Applied Security Technologies, Inc. were combined into a new office located in Farmingdale, NJ in a 6,000 square foot combination warehouse /office space. The reason for this was cost savings and improved operational efficiencies. The lease is a 5 year lease ending May 12, 2012 with a 5 year renewal option. The Company is required to pay utilities, insurance and other costs relating to the lease facility. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2009:

	Per Year
2010	$	58,529
2011		60,285
2012		30,588
Thereafter		-0-
Total Minimum Payrment required	$	149,402

Employment Agreements

Anthony R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin was re-appointed as Chairman, President and Chief Executive Officer effective February, 2005. On February 25, 2005, ASII entered into a five-year employment agreement with Mr. Shupin, which entitled him to a base salary of $227,900 per year. The Board of Directors may adjust his base salary at their discretion but it may not be adjusted below $215,000 per year. Mr. Shupin is also entitled to participate in the Annual Management Bonus Plan. As a participant in the Annual Management Bonus Plan, Mr. Shupin will be eligible to receive bonuses, based on performance, in any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall participate in the Management Equity Incentive Plan. As a participant in the the Management Equity Incentive Plan, Mr. Shupin will be eligible to receive options, which vest over a period of time from the date of the option's issue, to purchase common shares of ASII. The Company may grant Mr. Shupin, following the first anniversary of the date hereof and at the sole discretion of the Board of Directors, options to purchase common shares of the Company (subject to the vesting and the satisfaction of the other terms and conditions of such options). Mr. Shupin will be entitled to 25 vacations days per year at such times as may be mutually agreed with the Board of Directors. ASII will provide Mr. Shupin a monthly car allowance of One Thousand Dollars ($1,000) along with related car expenses.

Michael J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr. Pellegrino was appointed as Senior Vice President and Chief Financial Officer effective February 25, 2005. On February 25, 2005, ASII entered into a five-year employment agreement with Mr. Pellegrino, which entitled him to a base salary of $185,500 per year. The Board of Directors may adjust his base salary at their discretion but it may not be adjusted below $175,000 per year. Mr. Pellegrino is also entitled to participate in the Annual Management Bonus Plan. As a participant in the Annual Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses, based on performance, in any amount from 10% to 200% of the Base Salary. In addition, Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As a participant in the Management Equity Incentive Plan, Mr. Pellegrino will be eligible to receive options, which vest over a period of time from the date of the option's issue, to purchase common shares of ASII. ASII may also grant to the Employee, following the first anniversary of the date of the Agreement and at the sole discretion of the Board of Directors, options to purchase common shares of the Company (subject to the vesting and the satisfaction of the other terms and conditions of such options). Mr. Pellegrino will be entitled to 25 vacation days per year at such times as may be mutually agreed with the Board of Directors. ASII shall also furnish Mr. Pellegrino with monthly car allowance of One Thousand Dollars ($1,000) and related car expenses.

Note 10 - Stock Option and Other Plans

On May 11, 2009 the Company filed with the Secretary of State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock.

The Company maintains the 1994 Restated Stock Option Plan (the 1994 Plan) pursuant to which the Company reserved 5,000,000 shares of common stock. The options granted have a term of ten years and are issued at or above the fair market value of the underlying shares on the grant date. The Company also maintains the 1996 Director Option Plan (the Director Plan) pursuant to which the Company reserved 200,000 shares of common stock. Options granted under the Director Plan are issued at or above the fair market value of the underlying shares on the grant date. A portion of the first option vests at the six-month anniversary of the date of the grant and continues over a four-year period. Subsequent options vest on the first anniversary of the grant date. The options expire ten years from the date of the grant or 90 days after termination of employment, whichever comes first.

The following is a summary of option activity under all plans:

	1994 Plan		1996 Director Plan		Nonqualified		Total Number of Options		Weighted Average Exercise Price
Outstanding at December 31, 2008		0		—		—		00		0
Outstanding at December 31, 2009		0						0		0

Note 11 - Contingency

There were two holders of convertible notes dated December 31, 2001 who could potentially seek damages from the Company. Should they seek these damages, the Company could incur an additional expense of $71,668. Management feels however, that the likelihood that the other holders will seek the damages is remote, and therefore, no provision for this expense has been made in the accompanying consolidated financial statements.

Note 12 – Acquisitions and Note Payable

On March 1, 2005, the Company acquired substantially all of the assets of CGM Security Solutions, Inc., a Florida corporation ("CGM"), for (i) $1,500,000 in cash and (ii) a 2.86% promissory note (the "Note") in the principal amount of $3,500,000, subject to adjustment (the "Acquisition"). The assets of CGM Security Solutions, Inc. were acquired pursuant to an Asset Purchase Agreement among the Company and CGM Security Solutions, Inc. dated as of February 25, 2005. In connection with the acquisition, the Company and CGM-AST each entered into an employment agreement with Erik Hoffer (the "Employment Agreement"). CGM Security Solutions, Inc is a manufacturer and distributor of barrier security seals, security tapes and related packaging security systems, protective security products for palletized cargo, physical security systems for tractors, trailers and containers.

The principal amount of the three year Note is subject to adjustment based upon the average of (i) the gross revenues of CGM-AST for the fiscal year ending December 31, 2009 and (ii) an independent valuation of CGM-AST Sub based upon the audited consolidated financial statements of the Company and CGM-AST Sub for the fiscal years ending December 31, 2007 and 2008. In addition, the Company has granted CGM-AST a secondary security interest in substantially all of its assets and intellectual property. If the Company is unable to fulfill its obligations pursuant to the Asset Purchase Agreement and the Note, there is a likelihood that CGM Security Solutions, Inc. can declare default and attempt to take back the asset.

In connection with the Acquisition, the Company entered into a letter agreement with certain of its investors (the "Investors") which extended the maturity date of debt instruments issued on November 30, 2004 until September 1, 2008, and amended the conversion price of the debt that is held by the Investors to the lower of (i) $0.0005 or (ii) 40% of the average of the three lowest intraday trading prices for the Company's common stock during the 20 trading days before, but not including, the conversion date. In addition, the exercise price of the warrants held by the Investors was amended to $.001 per share.

Whereas the Company did not have sufficient funds to satisfy this obligation and was not able to raise the required payment when due the Company came to an agreement to pay CGM Security Solutions, Inc. and its owner Mr. Erik Hoffer Five Hundred Thousand Dollars ($500,000) and signed a new note with him raising the purchase price by One Million Dollars ($1,000,000). The new note for Four Million Dollars is a three year note due on May 15, 2011 carrying an annual interest rate of 7% of which the interest is due quarterly.

Note 13 – Loss on extinguishment of debt

The Statements of Operations reports a loss on extinguishment of debt in the amount of $7,237,883. This amount is represented by the following:

Convertible debentures as of May 15, 2008	$	5,832,481
Accrued interest as of May 15, 2008		1,585,533
		7,418,014

Convertible debt balance after refinancing		13,655,897
Convertible debt balance after refinancing Hoffer*		1,000,000
		14,655,897

Total Loss on Extinguishment of Debt	$	(7,237,883	)

*In order to determine the accounting for the modification of the terms of the Amended Asset Purchase Agreement and Amended 7% Secured Convertible Promissory Note (increase in both the principal and interest), the Company had to consider if the creditor has granted any concessions to the debtor. In this case, the modifications to the Hoffer debt has resulted in an increase in interest rate, which went from 2.68% to 7% and an increase in principal from $3.5 mill to $4.5 mill, therefore, under the guidance set forth in EITF 02-04 Determining whether a debtor’s modification or exchange of debt instrument is within the Scope of FAS 15 , there is no concessions granted to the debtor. By default this modification of debt does not result in a troubled debt transaction, and it falls out of the scope of FAS 15 – Accounting by Debtor’s and Creditors for troubled debt restructuring . This test ruled out the debt being troubled debt transaction, therefore we follow the guidance promulgated by EITF 96-19, Debtor’s Accounting for Modification or Exchange of Debt Instrument

EITF 96-19 Debtor’s Accounting for Modification or Exchange of Debt Instruments provides that by modifying the terms of the agreement, one can achieve the same economic effect as extinguishments; therefore, the debt modification transaction should be accounted and recorded as if it was extinguishments. The EITF also discusses “substantially” modified and how to account for fees paid or received by a debtor and costs incurred by a debtor with third party as past of an exchange or modification.

From the debtor's perspective, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non-troubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if any of the following three conditions are met:

1. The present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument.

2. A modification or an exchange that affects the terms of an embedded conversion option, from which the change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10 percent of the carrying amount of the original debt instrument immediately prior to the modification or exchange.

3. A modification or an exchange of debt instruments that adds a substantive conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange.

Conclusion : We have considered the accounting guidance aforementioned, and have determined that the present value of the cash flows do exceeded 10%, therefore, the modification is substantial. Since this modification is substantial, the new debt instrument is recorded at fair value (the interest rate of 7% on this note is several basis points greater then LIBOR, therefore the face amount of the note is deemed to approximate its fair value) and the amount should be used to determine the debt extinguishments gain or loss to be recognized and the new effective rate of the new instrument. However, due to the economics of the transaction, we believe that the increase in the loan was more of an “inducement” or penalty; therefore we will record the loss to “Interest Expense”.

Note 14 -Fair Value Measurements

On January 1, 2008, the Company adopted ASC 820 “Fair Value Measurements”. ASC 820 defines fair value, provides a consistent framework for measuring fair value under Generally Accepted Accounting Principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

Level 1 Inputs– Quoted prices for identical instruments in active markets.

Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs– Instruments with primarily unobservable value drivers.

The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009.

Fair Value Measurements on a Recurring Basis as of December 31, 2009

Assets	Level I		Level II		Level III		Total

Assets	$	-		-	$	-	$	-
Total Assets	$	-	$	-	$	-	$	-
Liabilities		-	$	36,916,662		-	$	36,916,662
Total Liabilities	$	-	$	36,916,662	$	-	$	36,916,662

Note 15 - Subsequent Event

On March 2, 2010 the Company signed a six month promissory note in the amount of Seventy Thousand Dollars ($70,000) which carries and interest rate of 12% and is due in 5 monthly installments of $7,000 with a balloon payment in the sixth month of $38,242.

On March 2, 2010, the Company entered into a rescission agreement (the “Rescission Agreement”) with each of AJW Partners, LLC, AJW Master Fund, Ltd., New Millennium Capital Partners II, LLC and AJW Offshore, Ltd. as holders (the “Holders”) of the Company’s Callable Secured Convertible Notes (the “New Notes”). Under the terms of the Rescission Agreement, the parties agreed to rescind a recapitalization agreement dated May 16, 2008 among the Company and the Holders (the “Recapitalization Agreement”). Under the Recapitalization Agreement, certain convertible debt securities previously held by the Holders (the “Old Notes”) were exchanged for the New Notes.

Under the Rescission Agreement, the New Notes are deemed void as if they were never issued by the Company to the Holders and the Old Notes were returned to the Holders as if they had never been exchanged for the New Notes pursuant to the Recapitalization Agreement. As a result of the rescission, the Company is able to reduce its long term liabilities by approximately $8,000,000.

The Company considered all subsequent events through April 12, 2010, the date the financial statements were available to be issued.

No.
31.1		Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ALLIED SECURITY INNOVATIONS, INC.
	(Registrant)

Date: September 17, 2010	By:	/s/ ANTHONY SHUPIN
		Anthony Shupin
		(President, Chief Executive Officer)
		(Chairman)

Date: : September 17, 2010	By:	/s/ MICHAEL J. PELLEGRINO
		Michael J. Pellegrino
		Senior Vice President & CFO
		(Principal Financial and Accounting Officer)