United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-KSB

x         Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934:
For the fiscal year ended: December 31, 200 7  

x         Transition report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934:
 For the transition period from:
000-50081
(Commission File Number)
 
Invisa, Inc.
(Exact name of small business issuer as specified in its charter) 
     
Nevada
(State or other jurisdiction of incorporation or organization)
     
65-1005398
(I.R.S. employer identification number)
     
  290 Cocoanut Avenue, Suite 1A
Sarasota, Florida 34236
(Address of principal executive offices)
     
   (941) 870-3950
(Issuer’s telephone number)

Securities to be registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities to be registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $.001 per share
 
 
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨  No

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

Indicate by a check mark whether issuer is a shell Company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

The Issuer’s revenues for its most recent fiscal year were $124,986.

Indicate by check mark whether Invisa is an accelerated filer as defined in the Exchange Act Rule 126-2. ¨ Yes x No

The aggregate market value of the Issuer’s voting stock held as of December 31, 2007 by non-affiliates of the Issuer based upon the closing bid and asked price of the Issuer’s Common Stock on that date is $0.02 The Issuer does not have any non-voting stock.

On December 31, 2007, 25,066,126 shares of Invisa Common Stock, $0.001 par value, were outstanding.  

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TABLE OF CONTENTS
 
 
 
Page
 
Part I
 
 
 
 
Item 1
Description of Business
3
Item 2
Description of Property
5
Item 3
Legal Proceedings
5
Item 4
Submission of Matters to Vote of Security Holders
5
 
 
 
 
Part II
 
 
 
 
Item 5
Market for Common Equity and Related Stockholder Matters
5
Item 6
Managements Discussion and Analysis or Plan of Operations
6
Item 7
Financial Statements
10
Item 8
Changes in and Disagreements with Accountants on Accounting
10
Item 8a
Controls and Procedures
  10
 Item 8b
Other Information
  10
 
Part III
  11
 
 
 
Item 9
Directors and Executive Officers of the Registrant
  12
Item 10
Executive Compensation
14
Item 11
Security Ownership of Certain Beneficial Owners and Management
 19
Item 12
Certain Relationships and Related Transactions
 20
Item 13
Principal Accountant Fees and Services
 20
Item 14
Exhibits and Financial Statements Schedule
 21
 
 
 
 
Financial Statements
 
 
 
 
 
Report of Aidman, Piser & Company, P.A.
F-1
 
Balance Sheet at December 31, 2007
F-2
 
Statements of Operations for the years ended December 31, 2006 and 2007.
  F-3
 
Statements of Stockholders’ Equity for the years ended  December 31, 2006 and 2007
  F-4
 
Statements of Cash Flows for the years ended December 31, 2006 and 2007.
F-5
 
Notes to Financial Statements.
F-6
 
 
 
 
Signature Page
24
 
 
 
 
Index to Exhibits
21
 

 
 

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PART I

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

Item 1 - Description of Business

History

Invisa, Inc. is a development stage company that is commercializing patented presence-sensing technology under the InvisaShield™ trade name. The Company was incorporated in Nevada in 1998. In 2000, we acquired SmartGate, L.C. (“SmartGate”), before it had achieved any significant revenues. SmartGate had developed presence-sensing technology for safety applications in the powered closure market, such as powered overhead doors and parking barrier gates. Subsequently, at the end of 2004, it was merged into Invisa. From an accounting perspective, SmartGate was the acquirer in this transaction and the accompanying Financial Statements reflect the operations of SmartGate from inception.
 
     In February of 2002, the Company purchased 100% of the outstanding capital stock of Radio Metrix Inc. (“RMI”), a company owned by the principal shareholders of Invisa. RMI had virtually no operations since its inception and, therefore, the Company determined that by acquiring RMI, the Company acquired an asset (a patent) and not a business. RMI, formed to commercialize InvisaShield security sensors for applications such as zone and perimeter protection, was merged into Invisa at the end of 2004. With that merger, Invisa now owns the patent and patent applications, as well as the sole rights to the InvisaShield technology in all markets worldwide
 
In April 2003, the RMI Purchase Agreement was amended whereby the Company agreed to issue 3,250,000 shares of its Common Stock for full satisfaction of the future contingent consideration. In November 2003, the RMI Purchase Agreement was further amended whereby the $1,300,000 notes payable were forgiven. In August 2004, we negotiated the cancellation of the 7% royalty agreement in exchange for 400,000 warrants to purchase Common Stock. As a part of this latter amendment, certain compensation owed to affiliated parties was forgiven.

     Our offices are located at 290 Cocoanut Avenue, Suite 1A, Sarasota, FL 34236, telephone (941) 870-3950.

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

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

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

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


Applications

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

We also have developed pre-production versions of presence-sensing devices for use in powered slide-gates, commercial overhead doors, powered industrial doors (which are used in commercial, manufacturing and industrial facilities) and residential garage doors; however we do not currently sell these products.  We believe that there may be other applications for our presence-sensing technology in the safety market. Ultimately, based on availability of financing, we plan to offer safety sensors based upon our InvisaShield technology to be used with a broad range of powered closure products manufactured by other companies.
 
In 2006 and 2007, all revenue has been derived from the sale of SmartGate safety sensors used with powered parking barrier gates. These gates are commonly used for traffic control and typically have a power-operated barrier arm made of metal, wood or PVC. This arm moves vertically between an open and a closed position. Our device places an invisible presence-sensing field that proceeds and moves with the potentially dangerous barrier arm to detect people and vehicles in its path. Our device signals the powered gate to trigger a predetermined response, such as stopping and reversing the barrier arm.

Another potential application of InvisaShield technology is with vertical powered doors. These doors are frequently used in manufacturing and industrial environments where air-conditioned, cooler, and freezer areas are separated within warehouses and other buildings. In July 2002, we granted Rytec Corporation a license to use our safety devices as original equipment on high-speed industrial doors in North America. In 2005, the license agreement was converted into a joint development agreement. Due to cash constraints, we are not currently able to conduct any development of this product and no sales of this product were made in 2006 or 2007.  We anticipate that in the future we may explore this or other opportunities in the high-speed industrial door market.
 
Our selling price for InvisaShield safety sensors allows us an acceptable gross profit margin and we expect that our cost of goods will continue to decline as we realize economies of scale.

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

We have tested a limited number of security sensors under field evaluation and based on availability of financing we anticipate that we may engage further development for the security market. Due to cash constraints, we are not currently able to conduct any development of this product and no sales of this product were made in 2006 or 2007.


  Marketing

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


Sales

During 2006 and 2007, Magnetic Automation Corp. was our largest customer, comprising approximately 11% and 29%, respectively, of our product revenues in both years.

Technology

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

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

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

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

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

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

Many of our competitors have substantially greater development, technical, marketing, sales and financial capabilities than we have. As a result of these factors, competitors and potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and/or to devote greater resources to the development, promotion and sale of their products and services than we can. We believe that our ability to successfully compete depends, to a large degree, upon the performance of our technology, our current and planned presence-sensing products and our ability to finance our development, marketing and distribution efforts.
 
Patents and Trademarks - We own five Patents issued by the U.S. Patent Office, three of which were issued in the year 2006 or the first quarter of 2007: Patent No. 5,337,039 issued on August 9, 1994, Patent No. 6,819,242 issued on November 16, 2004, Patent No. 7,023,222,B2 issued on April 4, 2006; Patent No. 7,167,093 B2 issued on January 23, 2007 and Patent No. 7,187,282 issued on March 6, 2007. In addition, we have filed for two patents (as PCT, or Patent Cooperation Treaty filings), one provisional patent application and have one application pending, all of which cover improvements to the InvisaShield technology.

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



Materials and Manufacturing

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

Government Regulation

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

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

Warranty

Our safety products are sold with a 90-day (upgradeable to one year) limited warranty. We anticipate that our security products will carry a warranty that is generally in line with industry suppliers’ practice. We have had no significant claims expensed under the warranty in 2006 or 2007.

Employees

We have continued to reduce our staff, and at December 31, 2007 we had no full time employees.  Our CFO, who also serves as our Acting President,  serves in such a capacity, on a part-time basis.  We support operations by using consultants as required. 

Research and Development

During the years ended December 31, 2006 and 2007, research and development expenses totaled $119,937 and $0.00, respectively.  The decrease was due principally to our decision to temporarily hold ongoing research and development activities in abeyance due to cash constraints.
 
Item 2 - Description of Property

As of December 31, 2007 we lease approximately 1,500 square feet of office shop space at 290 Cocoanut Plaza in Sarasota, Florida, on a month-to-month basis.  Monthly rent is approximately $1,000. We rent the facilities from a non-affiliated party. No zoning or other governmental requirements are needed for the continued use of our facilities.
 
We have adopted a policy, pursuant to which, we do not invest in real estate or maintain an interest in real estate, real estate mortgages or securities issued that are based upon real estate activities.
 
Item 3 - Legal Proceedings

None.

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

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

PART II

Item 5 - Market for Common Equity and Related Stockholder Matters

Market Information

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

As of December 31, 2007 there were 375 stockholders of record of Invisa Common Stock.
Quarter
High Bid
Low Bid
First Quarter 2006
0.23
0.10
Second Quarter 2006
0.30
0.13
Third Quarter 2006
0.23
0.05
Fourth Quarter 2006
0.10
0.03
First Quarter 2007
0.04
0.04
Second Quarter 2007
0.03
0.03
Third Quarter 2007
0.10
0.10
Fourth Quarter 2007
0.02
0.02

On March 11, 2008, the closing bid and closing ask prices for shares of our Common Stock in the over-the-counter market, as reported by NASD OTC BB was $0.01 per share.

We believe that there are presently approximately 13 market makers for our Common Stock. When stock is traded in the public market, characteristics of depth, liquidity and orderliness of the market may depend upon the existence of market makers as well as the presence of willing buyers and sellers. We do not know if these or other market makers will continue to make a market in our Common Stock. Further, the trading volume in our Common Stock has historically been both sporadic and light.

Dividend Policy

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

Transfer Agent

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

Recent Sales of Unregistered Securities
 
We issued 20,000,000 shares of our Common Stock in September of 2007 and an additional 13,333,333 in the first quarter of 2008 to collateralize several notes totaling $250,000.00 evidencing loans made to the Company by a third party lender. The shares were deposited in an escrow account and will only be delivered to such lender in the event of a default under or non payment of  the notes. Upon full repayment of the notes, said shares will be returned to the Company. The shares delivered to the escrow agent as security for the notes are not being treated as outstanding and will only be considered as being issued and outstanding if and when the shares are released by the escrow agent and delivered to the lender as a result of a default under the promissory notes and related security agreement.

5

Item 6 - Management’s Discussion and Analysis or Plan of Operations

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

Background of our Company

We are a development-stage company, and we expect to continue the commercialization of our InvisaShield technology. For the year ended December 31, 2007, we had revenue from product sales of $124,986, principally representing sales of our product for powered parking gates. In addition to limited revenue, these sales have been a vehicle for receiving customer feedback on the reliability, ease of installation, and determining the market’s acceptance of our safety product.

Financing for our operations in 2007 was derived from limited sales and short-term debt financing. We are working to increase our sales of product, further reduce operating costs and obtain financing including through business combinations and licensing relationships and transactions. In the future based on available financing, we may develop additional safety and security products and bring them to market.

In February 2002 Invisa acquired Radio Metrix, Inc. (“RMI”) thereby obtaining ownership of the patent held by RMI. Prior to acquiring ownership of the patent, Invisa was selling safety sensors for gates (principally, automobile parking facility gates) under a sub-licensing arrangement with RMI for safety products only. Acquiring RMI, and thus the patent, was a business decision as it enabled Invisa to gain access to universal use of the patent technology, including not only safety but security and other products.

Through October 2003, we planned to develop, manufacture and sell sensor devices for use not only in parking facility gates, where we already had developed commercial products but in other safety and security devices. In October 2003, we hired a new CEO who, shortly after his employment, revised our strategy to focus more on selling licenses rather than manufacturing and selling devices. Because of the constraints on our finances, we did not believe that we had the available resources to market, manufacture and sell closure, security and other devices. The licensing of our technology, although reducing our ability to enjoy the full value of the patent, was to provide us with an inflow of funds without our having to expend significant resources. In April 2005 the CEO’s employment was terminated and we have reinstated our original sales strategy. In addition to continuing to sell our precuts to manufacturers, dealers, distributors and customers, we plan to continue to seek to have manufacturers (OEM’s) in embedded our patented sensors in their closure devices and to develop cooperative marketing and sales programs with the OEM’s.

    We have continued to attempt to enhance our patent position.  In 2006 and early 2007, we received notification of the issuance of three new patents all of which were issued in 2007.

Invisa generated sales of parking automated sensors in 2006 and 2007 of $136,980 and $124,986, respectively

Limited Operating History

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

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2007

Net Sales - During the years ended December 31, 2006 and 2007, product sales totaled $136,980 and $124,986, respectively. The Company's sales to date have continued to be limited and constrained by lack of capital and have been largely limited to filling orders as the Company lacks any formal sales effort.  We had a gross profit of $42,782 for the year ended December 31, 2006 and gross profit of $51,036 for the year ended December 31, 2007. Gross margin was 31and 41 percent during 2006 and 2007, respectively.

6

Research and Development Expenses - During the years ended December 31, 2006 and 2007, research and development expenses totaled $119,937 and $0.00, respectively. The decrease was due principally to our decision to temporarily hold ongoing research and development activities in abeyance due to cash constraints. In the fourth Quarter of 2006, employment of our in-house engineer and his assistant was terminated. These former employees are currently considered outside consulting resources on an as requested/as available basis. To date, we have not requested significant access to this consulting resource and accordingly have experienced a reduction in research and development expenses.

Selling, General and Administrative Expenses - During the years 2006 and 2007, selling, general and administrative expenses totaled $1,420,743 and $581,993, respectively. .  The decrease principally resulted from a reduction in rent, staffing, compensation and related payroll expenses.   Marketing activities have been severely limited due to cash constraints with ongoing marketing activities largely limited to filling unsolicited orders.

Amortization and Impairment of Patent - During the year 2003, the Company decreased the carrying amount of its patent costs of $12,217,808 by $5,517,808 to $6,700,000 to reflect the fair value as determined by the Company’s management. In 2003 the Company revised its strategy to focus more on selling licenses rather than manufacturing and selling devices. The patent impairment resulted principally from the Company’s forecast of reduced expected discounted future cash flows associated with the licensing business model. Realization of the patent’s carrying value would require substantial annual revenue growth through 2012, which was consistent with the Company’s then current internal budgets and projections over that period.

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

Interest (expense) and other, Net - During 2006 interest income totaled $2,585 which was offset by $27,703 interest expense. The expense during 2007 relates primarily to interest of  $45,685 and a charge of$60,000 related to the modification of a warrant and the loss on abandonment of furniture, equipment and leasehold improvements, net of a disposition gain totaling $23,817. 

Net Loss applicable to Common Stockholders and Net Loss Per Share applicable to Common Stockholders - The Company’s net loss applicable to Common Stockholders and net loss per share applicable to Common Stockholders for these periods increased from $2,400,949 and $0.10 in 2006 to $5,083,587 and $0.20 in 2007respectively, as a result of the matters described above.

Plan of Development and Operations
     
     We obtained funding of $231,300, in the form of short-term debt financing in 2007, which together with our limited cash from sales supported our operations at a low level. Due to the limited amount of financing available to us in 2007, we reduced our staff to one part-time person who is supported by consultants, hired on an as needed basis. During 2007 we relocated our offices and reduced our leased space to approximately 1,500 feet. Unless we obtain additional financing, we plan to continue to operate at this reduced level.  Additional financing or increased cash from sales will be necessary to continue our operations at their current level . We do not plan to engage in additional technology or product development until we are able to secure sufficient financing to conduct our operations and fund such research and development.  .  
   
We limited our focus to the parking facility gate market in 2007 and we expect to continue to limit our efforts to this market for the foreseeable future.  As part of our continuing efforts to cut costs and to work within our available financial resources,  Mr. Carl Parks, our President was terminated as an employee in late 2006.  The Company continued to engage Mr. Parks as a consultant (retaining the title of President, on an as requested and available basis through the fourth quarter 2006).  In January 2007, Mr. Parks was rehired as an employee and served as such until March 31, 2007 where he was again terminated.  We continued to work with Mr. Parks on a consulting basis through December 31, 2007..  As part of additional staff reductions, our in-house engineer and his assistant were also terminated in 2006.  We consider our former employees outside consulting resources on an as requested/as available basis and may engage such persons from time to time as consultants.  At December 31, 2007, we had no full time employees and our CFO, who also serves as our Acting President, serves on a part-time basis. 

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

From inception through December 31, 2007 we raised cash of approximately $16.1 million net of issuance costs, principally through private placements of short term debt and common and preferred stock financings. At December 31, 2007, we had cash and cash equivalents totaling $2,281.

In August 2005, we entered into a Preferred Stock placement whereby we received $878,000, net of transaction expenses. In 2006 we raised additional capital through the sale of 716,670 shares of Common Stock for cash totaling $68,250, net of transaction expenses. Further in 2006, we raised $30,500 through the issuance of unsecured short term debt and in the fourth quarter of 2006, we entered into three credit facility agreements to borrow up to $135,446 under secured notes to use for corporate expenses of which $128,337 was borrowed through December 31, 2007 (the “2006 Financing”). In connection with the issuance of these secured notes, the Company issued to an advisor warrants to purchase 150,000 shares of the Company’s common stock at an exercise price of $0.04 per share. The warrants have a 10-year term.  The 2006 Financing was secured by a first priority security interest in all of the assets of the Company.  The 2006 financing has matured; however the lender has extended the maturity date until May 31, 2008.
 
On February 28, 2007, the 2006 Financing was subordinated to the security interest granted by the Company pursuant to the terms of a Senior Secured Promissory Note pursuant to which the Company may borrow up to $150,000  (the “$150,000 Note”).  The $150,000 Note bears interest at a rate of 10% per annum and matured on August 28, 2007.  In addition to having a first security interest in all of the Company’s assets as set forth in a General Security Agreement (the “Security Agreement”), the $150,000 Note is further secured by twenty million shares of newly issued  common stock of the Company which was deposited into an escrow account for such purposes  . Through December 31, 2007, $150,000 had been borrowed under the $150,000 Note and remains outstanding.  
 
On July 25, 2007 the Company executed a subsequent senior secured promissory note, payable to the same lender to borrow up to $50,000 (the “2 nd Note”).  The 2 nd Note has similar terms as the $150,000 Note,  bears interest at the same rate and also matured on August 28, 2007.  The 2 nd Note is secured by the assets of the Company as set forth in the Security Agreement  plus a security interest in 6,666,666 shares of new common stock of the Company which were  deposited into the escrow account holding the initial 20 million shares.  Through December 31, 2007, the Company has borrowed $50,000 under the 2 nd Note.
 
    On July 27, 2007 the Company entered into a Forebearance Agreement  with the lender whereby the lender agreed to forebear declaring any event of default on the $150,000 Note and the 2 nd Note until on or after October 15, 2007.  As consideration for lender’s forebearance, the Company paid and extension fee of $2,000 and all accrued interest to date on each of the notes.
 
On October 23 rd , 2007, the Company executed a third note with the same lender to borrow up to an additional $50,000 (the “3 rd Note”), of which $32,300 had been borrowed at December 31, 2007.. The 3 rd Note has similar terms to the $150,000 Note, bears interest at the same rate and matured on December 31, 2007.  The 3rd Note is secured by the assets of the Company as set forth in the Security Agreement  plus a security interest in an additional 6,666,666 shares of new common stock of the Company which were deposited into the escrow account holding the approximately  26.6 million shares securing the prior notes.   The aggregate amount borrowed at December 31, 2007 from this lender under the $150,000 Note, the 2 nd Note and the 3 rd Note was $231,300.  The Company also entered into a subsequent forebearance agreement  with the lender whereby the lender agreed to forebear declaring any event of default on the $150,000 Note and  the 2 nd Note until on or after December 31, 2007.  As consideration for lender’s forebearance,  the Company paid and extension fee of $2,000 and all accrued interest to date on each of the notes.
 
Subsequent to December 31, 2007, the Company obtained additional financing from the lender by executing an additional note to borrow up to an additional $150,000 (the “4 th Note”). The 4 th Note has similar terms to the $150,000 Note, bears interest at the same rate and matures on May 31, 2008 (the “4 th Note”). The 4 th Note is secured by the assets of the Company as set forth in the Security Agreement plus a security interest in an additional 20 million shares of new common stock of the Company which the Company is required to deposit into the escrow account holding the additional shares securing the $150,000 Note, the 2 nd Note and the 3 rd Note.  All of the shares collateralizing these four notes were deposited in an escrow account and will only be delivered to such lender in the event of a default under or non payment of  the notes. Upon full repayment of the notes, said shares will be returned to the Company.   The shares delivered to the escrow agent as security for the notes are not being treated as outstanding and will only be considered as being issued and outstanding if and when the shares are released by the escrow agent and delivered to the lender as a result of a default under the promissory notes and related security agreement.  In addition, the Company entered into another forebearance agreement whereby the lender agreed to forebear declaring any event of default on the $150,000 Note 2 nd Note and 3 rd Note until on or after May 31,  2007.  As consideration for lender’s forebearance, the Company paid an extension fee of $6,000 and all accrued interest to date on each of the notes.

From inception (February 12, 1997) through December 31, 2007, we were largely focused on technology and product development. The estimated dollar amount spent during this period on company-sponsored research and development was $3,471,292. The direct research and development expenses that we incurred from inception have been directed principally toward our InvisaShield technology and safety products, and to a lesser extent, our security products. Management estimates that sixty (60%) percent was expended toward the development of our core presence-sensing technology, twenty (20%) percent was expended in the miniaturization of our circuitry, fifteen (15%) percent was expended in the design and development of safety products, and five (5%) percent was expended in the design and development of additional products for the security sector of our business. Because of the Company’s net losses (which aggregate $32,844,074 from inception through December 31, 2007), limited capital, and ongoing product development expenses, the Company’s consolidated financial statements report that substantial doubt exists regarding the Company’s ability to continue as a going concern. 
 
     The Company had negative working capital at December 31, 2007, totaling $1,245,031. At December 31, 2007 the Company had $2,281 in cash and cash equivalents to fund its operations. To finance planned operations through at least the next 12 months the Company will continue to depend upon its existing current assets, which are limited, together with any proceeds from sales of products and net proceeds from financing arrangements which may include, additional borrowing, private placements of equity or debt, and potential license fees or similar arrangements.  Management is uncertain as to the source of additional cash that is anticipated to be required to maintain the Company’s current level of operations.   Management's plan is to access all additional cash required from a variety of potential  sources, including:  short term debt, private equity financing, licenses, joint ventures, partnership or other business relationships  and from the potential sale of Company's technology or interest therein.  As an additional way to access to potential capital, the Company is also exploring the potential for corporate mergers or other forms of business combinations or sale transactions.  There can be no assurances that these plans will be successful.  Failure to secure additional financing in a timely manner and on favorable terms when needed will have a material adverse effect on the Company's ability to continue as a going concern.   

Additional funding may not be available when required or it may not be available on favorable terms. Without adequate funds, we may need to significantly reduce or cease our operations or obtain funds through arrangements that may require us to relinquish rights to certain or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional funding is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders.
 
  Risk Factors
 
You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties occurs, our business, financial condition or operating results could be materially harmed. In that case the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we may face. Risks related to our business we have historically incurred losses and losses are expected to continue in the future, which means that we may not be able to continue operations unless we obtain additional funding. Our auditors have qualified their audit opinion with regard to our ability to continue as a going concern.

We have historically incurred losses.

From inception through December 31, 2007, we have sustained aggregate net losses of $32.8 million. In the twelve months ended December 31, 2007, we sustained a net loss of $4.99 million which of consisted of a loss of $1,446,528 from operations and a non-cash accounting entry of $3,547,059 which we made to reflect the write-off of patent cost as of December 31, 2007. (See Year Ended December 31, 2006 Compared to the Year Ended December 31, 2007- Amortization and Impairment of Patent.)

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


7

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

Our operations have relied almost entirely on external financing to fund our operations. In the past, s uch financing has primarily come from the sale of stock to third parties and to a lesser degree from borrowings and revenue from product sales and license fees.   During 2007 we funded our operations with a funds borrowed under short term notes which, for the most part, were secured with the Company’s assets.  We anticipate, based on our current proposed plans and assumptions relating to our operations, that we will need additional debt or equity funding to continue to operate our business. We may seek to access required capital through potential strategic or business relationships or business combinations which may be dilutive to our current stockholders. We will need to raise additional capital to fund our anticipated operating expenses and future expansion. Among other things, external financing will be required to cover our operating costs. We cannot assure you that financing whether from external sources or related parties will be available if needed or on favorable terms. If additional financing is not available when required or is not available on acceptable terms, we may be unable to support our secured debt, fund our operations and planned growth, develop or enhance our technology, take advantage of business opportunities or respond to competitive market pressures, any of which could raise doubt as to the Company’s ability to continue as a going concern. Any reduction in our operations may result in a lower stock price.

Our financing requirements could result in dilution to existing stockholders.

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

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

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

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

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

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

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

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

8

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

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

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

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

We have issued patents and have filed patent applications with respect to various aspects of our technology. The pending patent applications may not be issued to us, and if issued, may not protect our intellectual property from competition which could seek to design around or invalidate these patents. Our failure to adequately protect our proprietary rights in our products, services and technology could harm our business by making it easier for our competitors to duplicate our services. We may have to resort to litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others, or defend ourselves from claims of infringement, invalidity or unenforceability. Litigation may be expensive and divert resources even if we win. This could adversely affect our business, financial condition and operating results such that it could cause us to reduce or cease operations.
 
We do not expect we will be able to recover the costs invested in our patents and we have written off our patent costs as of December 31, 2007.

.  Because of our limited financing resources, our inability to obtain long-term financing, our belief that the capital markets may be further deteriorating for companies in positions similar to ours, and our continued uncertainty regarding access to additional long-term funding, coupled with our current level of staffing and technical capability which cannot be increased without funding, we have concluded that recovery of the deferred patent cost over the foreseeable future is unlikely.  Additionally, since the technology is pledged as security for our short-term loan obligations, it would interfere with our attempting to sell it separately to raise capital as well our ability to comply with our loan obligation.  As a result, we have written off our patent cost as of December 31, 2007 in the amount of $3,547,059.

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

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

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

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

9

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

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

We are thinly staffed.

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

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

In order to fund our operations, we have entered into promissory notes payable that are secured by all of our assets and in some instances by shares of our common stock that were issued to secure the promissory notes. The promissory notes are short term obligations and we currently do not have the available cash or other financing resources to pay the interest or principal there under. Default under these promissory notes could result in the loss of all of our assets and business opportunity.
 
Item 7 - Financial Statements

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

Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 8a - Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
 
            The Company maintains “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President,  Chief Financial Officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
 
 
            Our management, including our President and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007 and concluded that our disclosure controls and procedures were effective as of December 31, 2007.
 

10

 
Management’s Annual Report on Internal Control over Financial Reporting
 
 
            Our management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 
Our management, including our President and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.
 
 
This Form 10-KSB does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
 
 
Changes in Internal Controls over Financial Reporting
 
 
                During the quarter ended December 31, 2007, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d–15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Item 8b - Other Information
 
None.


11

PART III

Item 9 - Directors and Executive Officers of the Registrant

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

The directors, executive officers, and significant employees of the Company at December 31, 2007 are as follows:

 
 
 
 
Positions and Offices Presently
Name
 
Age
 
Held with the Company
Edmund C. King
 
73
 
Director, Acting President, COO, Chief Financial Officer, Treasurer
Gregory J. Newell
 
58
 
Director
John E. Scates
 
50
 
Director
 
EDMUND C. KING has served as our Chief Financial Officer and Director since February 9, 2000. In 2007, Mr. King began serving as our Acting President and Acting COO.  Until October 1, 1991, Mr. King was a partner in Ernst & Young, an international accounting and consulting firm. While at Ernst & Young, Mr. King was that firm’s Southern California senior healthcare partner and prior to that directed the Southern California healthcare practice for Arthur Young & Company, one of the predecessor firms of Ernst & Young. During his 30 years with Ernst & Young, Mr. King counseled clients in structuring acquisitions and divestitures; advised on the development of strategic plans; directed the preparation of feasibility studies; assisted with operational and financial restructuring; directed and supervised audits of client financial statements; and provided expert witness testimony and technical SEC consultation. Commencing in 1999, Mr. King became a financial consultant to SmartGate, L.C. that we acquired in February 2000. Mr. King has served as Chief Financial Officer and Director of SmartPlug, Inc. since November 2000 and Chief Financial Officer and Director of FlashPoint International, Inc. since October 2001. From January 1992, Mr. King has been a general partner of Trouver, an investment banking and financial consulting partnership. Mr. King is also a member of the Board of Directors of LTC Properties, Inc., an NYSE listed real estate investment trust. Mr. King is a graduate of Brigham Young University, having served on the National Advisory Council of that school’s Marriott School of Management, and has completed a Harvard University management course sponsored by Ernst & Young. Mr. King also has served as Chairman of the HFMA’s Long-Term Care Committee (Los Angeles Chapter) and is a past member of the National Association of Corporate Directors. He holds CPA certificate in the state of California.

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

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

Significant Employees  

At December 31, 2007 we had no full time employees.  Our CFO, who also serves as our Acting President and COO, is employed on a part-time basis.  We support operations by using consultants as we can afford or as required. 

12

Compensation Committee and Compensation of Directors

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

Report of the Audit Committee
 
The Audit Committee is composed of two independent directors and operates under a written charter adopted by the Board of Directors. A copy of the Audit Committee Charter (as amended) is filed herewith as exhibit 10.58.  As described above, the Audit Committee is responsible for appointing and replacing our independent accountants; reviewing the results and scope of the independent accountants’ audit and the services provided by the independent accountants; reviewing compliance with legal and regulatory requirements; evaluating our audit and internal control functions; and ensuring the integrity of our financial statements. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
 
The Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of our accounting principles, and such other matters as are required to be discussed with the Committee in accordance with the standards of the Public Company Accounting Oversight Board (United States). In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from management and the Company, including the matters in the written disclosures required by the Independence Standards Board and considered compatibility of non-audit services with the auditors’ independence.
 
The Audit Committee discussed with our independent auditors the overall scope and plans for their audit. The Committee meets with the independent auditors, with and without management present, to discuss the results of their examination, and the overall quality of our financial reporting. The Audit Committee held 4 meetings during 2007.
 
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to our Board of Directors, and the Board approved, that the audited financial statements be included in our Annual Report on Form 10-K for the 2007 fiscal year for filing with the Securities and Exchange Commission. The Audit Committee and the Board of Directors have also recommended the selection of our independent auditors.
 
 
THE AUDIT COMMITTEE
 
Gregory Newell, Chairman
John Scates
 
Board Meetings and Independence
 
During the year ended December 31, 2007, the Board of Directors of the Company held 15 telephonic meetings.   Each director attended at least 75% of the aggregate of (1)  the total number of meetings of the Board (held during the period for which he has been a director) and (2)  the total number of meetings held by all committees of the Board on which he served (during the periods that he served).
 
Compliance with Section 16(a) of the Exchange Act

 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers to send reports of their ownership of the equity securities of the Company and of changes in such ownership to the SEC. SEC regulations also require the Company to identify in this Annual Report on Form 10-KSB any person subject to this requirement who failed to file any such report on a timely basis.  Mr. Stephen A. Michael was not timely in filing certain Form 4 reports, but such filings were completed prior to December 31, 2007.

Code of Ethics

Our board of directors has adopted a Code of Business Conduct and Ethics and Compliance Program which is applicable to Invisa, Inc. and to all our directors, officers and employees, including Invisa, Inc.’s principal executive officer and principal financial officer, principal accounting officer or comptroller, or other persons performing similar functions.
 
A copy of the Company’s Code of Ethics may be obtained free of charge by making the request to the Company in writing.

13

Director Compensation

We do not have a formal plan for compensating our directors and during the 2007 fiscal year our Directors were paid no compensation.
 
Our bylaws provide for us to indemnify our directors and officers to the extent permitted by Nevada law, with respect to actions taken by them on our behalf. We maintain a policy of directors’ and officers’ liability insurance for this purpose.
 
Compensation Committee Interlocks and Insider Participation
 
We have no interlocking director relationships. None of our executive officers is a member of the Compensation Committee of any company in which any director or executive officer is a member of our board of directors.
 
Item 10.
EXECUTIVE COMPENSATION
 
Compensation Discussion & Analysis
 
Overview.
 
This Compensation Discussion and Analysis is intended to describe the material factors underlying the compensation policies and decisions of the Company with regard to compensation paid to our executive officers in FY 2007. The Compensation Committee oversees the Company’s executive compensation in accordance with its Charter and recommends to the Board of Directors compensation for the named executive officers. The Compensation Committee receives input and recommendations when requested from our executive officers.
 
While we have historically used executive compensation as a tool to retain and motivate our executive officers, however, during , our financial condition prevented the Company from paying usual and customary compensation. Our only named executive officer at the end of fiscal 2007, Mr. Edmund King, does not have a written employment agreement and works on a part-time basis for the Company. Mr. King received no salary or other cash compensation during fiscal 2007; however, during fiscal 2007 Mr. King was granted options under our Incentive Stock Option Plan to purchase up to 500,000 shares of our common stock. From January 1, 2007, through August 2007, Mr. Carl Parks served as our President. Mr. Parks was paid a salary of $10,000 per month from January 1, 2007 through March 31, 2007 when he was terminated as an employee. Under Mr. Parks’ employment agreement, as a result of his termination, we have accrued a severance payment of $30,000.  This amount at December 31, 2007, was accrued and unpaid. On April 1, 2007 Mr. Parks was engaged as a consultant for the Company and during this period Mr. Parks was paid an aggregate of $ 45,450 as consulting compensation. Additionally, during fiscal 2007 Mr. Parks was granted an option under our Incentive Stock Option Plant to purchase up to 300,000 shares of our common stock.
 
Compensation paid to our named executive officers in fiscal 2007 consisted of:
 
 
•
Base salary;
 
 
•
Long-term equity incentive in the form of stock options under the Company’s Incentive Stock Option Plan;
 
 
•
Special benefits and perquisites; and
 
 
•
Severance compensation.
 
Our compensation philosophy for our executive officers has been shaped by our lack of long-term financing and our sever shortage of operating capital. Accordingly, our compensation decisions and particularly our approach to allocating compensation between cash and non-cash elements of the compensation package reflect our goal to preserve cash whenever possible. In fiscal 2007 our compensation decisions for our executive officers emphasized option grants which we believe supports our goals with regard to both retention and motivation of our executive officers. In making our compensation decisions, we strive to be aware of the level of compensation which is paid to executive officers of various companies that we consider to be comparable to us in size. Our goal is for the compensation paid to our named executive officers to be at or below the fiftieth percentile of the companies that we have identified as being comparable companies.
 
Base Salaries .
 
Mr. King did not receive any base salary in fiscal 2007. Mr. Parks had, during his employment term, a base salary of $10,000 per month ($120,000 per annum); however, Mr. Parks was an employee for only approximately three months during fiscal 2007 and was paid an aggregate base salary of $28,000 in fiscal 2007. Mr. Parks’s base salary was established by his employment agreement which existed prior to fiscal 2007. Also during part of fiscal 2007, Mr. Parks served as a non-employee president and consultant under a month to month arrangement. The consulting fees ranged between $1,000 and $10,000 per month and during fiscal 2007 Mr. Parks was paid aggregate consulting fees of $45,450. During fiscal 2007, we did not establish specific performance objectives for these executives and our decisions were based on their overall performances. In establishing the base compensation for Mr. Parks, the Compensation Committee considered Mr. Parks’ experience and capability and sought to establish a base salary which would retain and incent him.

14

 
Option Grants.
 
  In 2007, we granted 500,000 options under our Incentive Stock Option Plan to Mr. King and 300,000 options to Mr. Parks. The option grant had an exercise price that was equal to at least 100% of the closing market price for our common stock on the date of the option grant. Our decision to grant options was based primarily on the recommendation of our Compensation Committee and our desire to retain and motivate our executive employees.
 
Perquisites .
 
Consistent with our philosophy to preserve cash, we have sought to limit perquisites. Perquisites paid to our named executive officers are discussed as footnotes to the following Summary Compensation Table. Our policy for paying medical and dental insurance is to pay 100% of the insurance premium. Our policy is not to pay for life insurance, long-term and short-term disability insurances and accidental death and dismemberment insurance. Our policy with regard to unused vacation for our executive group is to pay at the base salary rate for vacation not used during the calendar year of termination.
 
Change in Control Severance Policy.
 
Prior to fiscal 2007 , Mr. Parks entered into written employment agreements with the Company. As a result of the termination of Mr. Parks employment agreement we have accrued but have not paid a severance payment of $30,000.
 
REPORT OF COMPENSATION COMMITTEE
 
The Compensation Committee of the Board of Directors has reviewed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and discussed it with the Company’s management. Based on the Compensation Committee’s review and discussions with management, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for fiscal 2007.
 
   
John Scates, Chairman
 
 
SUMMARY COMPENSATION TABLE YEAR ENDED 2007
 
                   
Name and principal position
 
 
Year
 
 
Salary
($)
 
 
Bonus
($)
 
 
Stock
Awards
($)
 
 
Option
Awards
($)
 
 
Non-Equity
Incentive Plan
Compensation
($)
 
 
Nonqualified
Deferred
Compensation
Earnings ($)
 
 
All Other
Compensation
($)
 
 
Total ($)
 
 
Carl  Parks – President and COO (2)
2007
28,000
----
----
12,000
----
----
75,450 (1)
115,450
Edmund C. King – CFO and Acting President (3)
2007
----
----
----
20,000
----
----
----
20,000
 
(1) $30,000 has been accrued for severance of employment agreement but not paid as of December 31, 2007. Additionally, Mr. Parks was paid $45,450 in consulting fees.
 
(2) Mr. Parks was terminated as an employee effective March 31, 2007; he was then engaged as a consultant and continued as President and COO until August 2007 at which time he was terminated as President but continued as a consultant.
   (3) Mr. King was appointed Acting President in August 2007; he continues to serve as CFO.

GRANTS OF PLAN-BASED AWARDS
FOR YEAR ENDED DECEMBER 31, 2007

 
         
Name
 
 
Grant Date
 
 
All Other Option
Awards: Number
of Securities
Underlying
Options (#)
 
 
Exercise or
Base Price of
Option
Awards ($/Sh)
 
 
Grant Date
Fair Value
of Stock
and Option
Awards ($)
 
 
 
 
 
 
 
 
 
 
 
Edmund C. King – CFO  (2)
01/24/2007
500,000
$0.04
20,000
 Carl Parks - President (1)  
01/24/2007
 
300,000
 
$0.04
 
12,000
  (1) Mr. Parks was terminated as an employee effective March 31, 2007; he was then engaged as a consultant and continued as President and COO until August 2007 at which time he was terminated as President but continued as a consultant.
(2) Mr. King was appointed Acting President in August 2007; he continues to serve as CFO.



15


 
OUTSTANDING EQUITY AWARDS AT YEAR-ENDED DECEMBER 31, 2007
 
                     
OPTION AWARDS
Name
 
 
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   
Option
Exercise
Price
($)
 
Option
Expiration
Date
 
 
King, Edmund C., Acting President, CFO and Director
   
1,050,000
     
----
     $
0.085
 
06/15/15
King, Edmund C., Acting President, CFO and Director
   
300,000
     
----
     
0.16
 
08/25/15
King, Edmund C., Acting President, CFO and Director
   
500,000
     
----
     
0.042
 
01/27/17
King, Edmund C., Acting President, CFO and Director
   
50,000
     
50,000
     
0.15
 
01/12/16
Newell, Gregory, Director
   
250,000
     
----
     
0.085
 
06/15/15
Newell, Gregory, Director
   
60,000
     
----
     
0.16
 
08/25/15
Newell, Gregory, Director
   
50,000
     
50,000
     
0.15
 
01/12/16
Scates, John, Director
   
250,000
     
----
     
0.085
 
06/15/15
Scates, John, Director
   
60,000
     
----
     
0.16
 
08/25/15
Scates, John, Director
   
50,000
     
50,000
     $
0.15
 
01/12/16
 
OPTION EXERCISES AND STOCK VESTED
FOR YEAR ENDED DECEMBER 31, 2007
 
         
 
OPTION AWARDS
 
 
STOCK AWARDS
 
 
Name
 
 
Number of
Shares
Acquired
on Exercise
(#)
 
 
Value
Realized
on
Exercise
($)
 
 
Number of
Shares
Acquired
on
Vesting
(#)
 
 
Value
Realized
on
Vesting
($)
 
 
Carl  Parks – President   (1)
----
----
----
----
Edmund C. King – CFO   (2)
----
----
----
----
 
(1) Mr. Parks was terminated as an employee effective March 31, 2007; he was then engaged as a consultant and continued as President and COO until August 2007 at which time he was terminated as President but continued as a consultant.
(2) Mr. King was appointed Acting President in August 2007; he continues to serve as CFO.
 
PENSION BENEFITS
FOR YEAR ENDED DECEMBER 31, 2007
 
         
Name
 
 
Plan
Name
 
 
Number
of
Years
Credited
Service
(#)
 
 
Present
Value of
Accumulated
Benefit
($)
 
 
Payments
During
2007
($)
 
 
Carl  Parks – President   (1)
----
----
----
----
Edmund C. King – CFO   (2)
----
----
----
----
(1) Mr. Parks was terminated as an employee effective March 31, 2007; he was then engaged as a consultant and continued as President and COO until August 2007 at which time he was terminated as President but continued as a consultant.
(2) Mr. King was appointed Acting President in August 2007; he continues to serve as CFO.
 





16

NON-QUALIFIED DEFERRED COMPENSATION
FOR YEAR ENDED DECEMBER 31, 2007
 
           
Name
 
 
Executive
Contributions
in Last FY
($)
 
 
Registrant
Contributions
in Last FY
($)
 
 
Aggregate
Earnings
in Last FY
($)
 
 
Aggregate
Withdrawals/
Distributions
($)
 
 
Aggregate
Balance
at Last FYE
($)
 
 
Carl  Parks – President   (1)
----
----
----
----
----
Edmund C. King – CFO   (2)
----
----
----
----
----
(1) Mr. Parks was terminated as an employee effective March 31, 2007; he was then engaged as a consultant and continued as President and COO until August 2007 at which time he was terminated as President but continued as a consultant.
(2) Mr. King was appointed Acting President in August 2007; he continues to serve as CFO.
 
 
DIRECTOR COMPENSATION
FOR YEAR ENDED DECEMBER 31, 2007
 
               
Name
 
 
Fees
Earned
or
Paid in
Cash
($)
 
 
Stock
Awards
($)
 
 
Option
Awards
($)
 
 
Non-Equity
Incentive
Plan
Compensation
($)
 
 
Change in
Pension
Value and
Non Qualified
Deferred
Compensation
Earnings
($)
 
 
All
Other
Compensation
($)
 
 
Total
($)
 
 
Edmund C. King
----
----
20,000
----
----
----
20,000
Stephen Michael (1)
----
----
----
----
----
----
----
Greg Newell
----
----
----
----
----
----
----
John Scates
----
----
----
----
----
----
----
(1)   Resigned from the Board of Directors effective September 19, 2007.
 

Employment Agreements with Executives
 
We have no written employment agreements .

Equity Incentive Plans
 
We have five stock plans as listed below:
 

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


17

 
All of the Plans have been approved by the Board of Directors and all, except for the 2006 Plan have been approved by the Shareholders.  All of the plans authorize awards of incentive stock options or non-qualified stock options to employees, directors, and consultants of our company and affiliates. The purposes of the Plan are to encourage and enable employees, directors, and consultants to acquire a proprietary interest in the growth and performance of our company, to generate an increased incentive for key employees and directors to contribute to our future success and prosperity, thus enhancing the value of our company for the benefit of our stockholders, and to enhance the ability of our company to attract and retain key employees and directors who are essential to progress, growth, and profitability.
 
The Plans are administered by the Compensation Committee of our Board (the “Administrator”). All members of our Compensation Committee are non-employee directors and outside directors, as defined in the Plans. Subject to the limitations set forth in the Plans, the administrator has the authority to grant options and to determine the purchase price of the shares of our common stock covered by each option, the term of each option, the number of shares of our common stock to be covered by each option, to establish vesting schedules, to designate options as incentive stock options or non-qualified stock options, and to determine the persons to whom grants are to be made.
 
The Administrator establishes the option exercise price, which in the case of incentive stock options, must be at least the market price (as such term is defined in the Plans) of our common stock on the date of the grant or, with respect to optionees who own at least 10% of the total combined voting power of all classes of our stock (a “10% Stockholder”), 110% of the market price on the date of the grant.
 
Options granted under the Plans are generally not transferable by the optionee except by will or the laws of descent and distribution, or pursuant to written agreement approved by the administrator relating to any non-qualified stock options in any manner authorized under applicable law. Except as provided in the applicable stock option agreement, options must be exercised within 90 days of termination for any reason other than disability, retirement, or death, within one year of termination by disability or retirement, or by a designated beneficiary within two years of death.
 
Except as provided to the contrary, in the option agreement options granted under the Plans vest in one-third annual increments, beginning on the grant date of the option. In no event may an incentive stock option be granted more than 10 years from the effective date of the plan, be exercised after the expiration of 10 years from the grant date, or five years from the grant date in the case of a 10% Stockholder.
 
Incentive stock options may not vest for the first time with the respect to any optionee in a calendar year with a market price exceeding $100,000. Any option grants that exceed that amount shall be automatically treated as non-statutory stock options.
 
The Plans may be suspended, terminated, modified, or amended by our board, but no such suspension, termination, modification, or amendment may adversely affect the terms of any option previously granted without the consent of the affected optionee, and any amendment will be subject to stockholder approval to the extent required by applicable law, rules, or regulations.
 
We, from time to time, grant to our directors, executive officers and employees options to purchase our common stock under the Plans. As of December 31, 2007, Invisa had options to purchase shares of common stock outstanding and exercisable at a weighted average price of $0.14 per share.
 
401(k) Savings Plan
 
We do not have a 401(k) savings plan.
 
Limitation of Liability and Indemnification of Officers and Directors; Insurance
 
Our Officers and Directors are indemnified to the fullest extent provided by Nevada law.
 
We maintain a policy of directors’ and officers’ liability insurance to indemnify our directors and officers with respect to actions taken by them on our behalf.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in such Act and is therefore unenforceable.

18

 
Item 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
The following table sets forth the beneficial ownership of shares of our common stock as of December 31, 2007 for:
 
 
•
each person (or group of affiliated persons) known by us to beneficially own more than 5% of our common stock;
 
 
•
each of our directors;
 
 
•
each named executive officer; and
 
 
•
all of our directors and executive officers as a group.
 
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares of common stock underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of December 31, 2007 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.
 
Except as otherwise noted below, and subject to applicable community property laws, the persons named have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
 
       
Name and Address of Beneficial Owner (1)
 
 
Reporting Status
 
 
Aggregate
Number of Shares
Beneficially
Owned (2)
 
 
Percentage
of Shares
Beneficially
Owned
 
 
Michael R. Ries (Trustee)
5% Stockholder
1,864,584
  6.86 %
Kenneth D. Doer (Trustee)
5% Stockholder
1,864,584
      6.86
M.A.G. Capital LLC and Affiliates (4)
5% Stockholder
2,779,878   (1)
  9.99
Asset Manager International Ltd   (5)
5% Stockholder
2,778,878   (1)
      9.99
Stephen A. Michael   (6)
5% Stockholder
3,510,928
12.37
Edmund C. King   (7)
Acting President, CFO, Director
2,345,542   (2)
      8.48
Gregory J. Newell   (8)
Director
   417,732   (2)
   1.51
John E. Scates   (9)
Director
   417,732   (2)
       1.51
Christopher Maggiore
5% Stockholder
2,090,001
   7.63
All officers and directors as a group
 
    3,181,006
   7.66 %
 
(1)
Unless otherwise provided herein all addresses are c/o Invisa, Inc., 290 Cocoanut Avenue Suite 1A, Sarasota, FL 34236. The address for Mr. Ries is 4837 Swift Road, Suite 210, Sarasota, Florida 34231; for Mr. Doerr is 240 South Pineapple Avenue, Sarasota, Florida 34230; for Asset Managers International, Ltd. and for M.A.G. Capital and affiliates is 555 South Flower Street, Suite 4500, Los Angeles, California 90071.

(2)
The percentage calculations are based on 25,066,126 shares that were outstanding as of December 31, 2007 plus the respective beneficial  shares owned by each selling stockholder. Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and includes voting power and/or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of December 31, 2007 are deemed outstanding for computing the number, and the percentage of outstanding shares beneficially owned by the person holding such options, but are not deemed outstanding for computing the percentage beneficially owned by any other person.

 
(4)        Includes M.A.G. Capital, LLC; Mercator Momentum Fund, L.P.; Monarch Pointe Fund, Ltd and Mercator Momentum Fund III, L.P.  David F. Firestone is the managing member of M.A.G. Capital LLC and as such he has beneficial ownership of shares owned by M.A.G. Capital LLC and its affiliated funds. The following table presents the total number of shares held by the respective Funds:

19


 
 
Preferred
 
 
Common
A
B
Warrants
Monarch Point Fund, Ltd.
535,474
9,715
2,000
1,501,364
Mercator Momentum Fund III, LP
----
----
1,000
   247,500
Mercator Momentum Fund, LP
263,953
4,785
----
   501,136
 
799,427
14,500
3,000
                        2,250,000

(*)Each share of Series A Preferred Stock and Series B Preferred Stock may be converted by the holder into that number of shares of common stock as is determined by dividing 100 by .12. The documentation governing the terms of the Series A Preferred Stock, the Series B Preferred Stock and the warrants contains provisions prohibiting any conversion of the Series A Preferred Stock or the Series B Preferred Stock or exercise of the warrants that would result in M.A.G. Capital, LLC, Mercator Momentum Fund, LP, Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, LP and their affiliates, collectively beneficially owning more than 9.99% of the outstanding shares of our common stock as determined under Rule 13d-3 of the Securities Exchange Act of 1934. As a result of these provisions, none of such entities hold beneficial ownership of more than 9.99% of the outstanding shares of our common stock..

 
(5 )        Asset Managers International, Ltd. has 5,833,333 shares of common stock that may be acquired upon the conversion of outstanding Series B Preferred Stock (at an assumed conversion price of $0.12 per share) and 1,750,000 shares of common stock that may be acquired upon the exercise of the immediately exercisable warrants at $0.30 per share. The documentation governing the terms of the Series B Preferred Stock and warrants contains provisions prohibiting any conversion of the Series B Preferred Stock or exercise of the warrants that would result in Asset Managers International, Ltd. and its affiliates collectively beneficially owning more than 9.99% of the outstanding shares of our common stock as determined under Rule 13d-3 of the Securities Exchange Act of 1934. As a result of these provisions, none of such entities hold beneficial ownership of more than 9.99% of the outstanding shares of our common stock. The natural persons who beneficially own the securities held by Asset Managers International Ltd. are the directors of Asset Managers International Ltd, which are Oskar Lewnowski and William Maycock.

 
(6)         Includes 2,280,928 shares owned by Mr. Michael and options to purchase 1,230,000 shares. Of the 1,230,000 currently vested options: 400,000 were granted to Mr. Michael in 2005 with an exercise price of $0.09 per share and an expiration date of June 15, 2015; and 480,000 were granted to Mr. Michael in 2005 with an exercise price of $0.10 per share and an expiration date of August 25, 2015. Mr. Michael also has options to purchase additional 250,000 and 100,000 shares, with the exercise prices of $0.09 and $0.15 and expiration dates of June 15, 2015 and January 12, 2016 respectively.

(7)
Includes 395,542 shares held in Mr. King’s name, 5,000 shares held in the name of the King Family Trust, and Mr. King’s options to purchase 1,950,000 shares.
 

(8)                  Includes options to purchase 410,000 shares.

(9)                  Includes options to purchase 410,000 shares.
 
ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Other than the compensation discussed herein, we had no items to disclose hereunder for 2007 except Mr. King loaned an aggregate of $20,123 to the Company during 2007. The loans were not secured and are interest free; they remain outstanding and unpaid at December 31, 2007 and on the date hereof. In December 2007 Mr. King also returned to the Company 197,040 shares of common stock that he had acquired with a Non Recourse Promissory Note, which had been classified as an offset to equity in the Company’s financial statements.  Under the terms of the Note Mr. King could elect to return the shares to satisfy the Note of $298,904, which includes accrued interest.
 
ITEM 13
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
During 2007 and 2006, annual fees approved for the year-end audit and interim reviews aggregated approximately $73,000 and $64,000 respectively.  In addition, during 2007 and 2006 tax-related fees for compliance aggregated, approximately, $4,000 and $9,075, respectively.

20

 
The Audit Committee has established its pre-approval policies and procedures, pursuant to which the Audit Committee approved the foregoing audit services provided by Aidman, Piser & Company, P.A. in 2007 and 2006. Consistent with the Audit Committee’s responsibility for engaging the Company’s independent auditors, all audit and permitted non-audit services require pre-approval by the Audit Committee. The full Audit Committee approves proposed services and fee estimates for these services. The Audit Committee chairperson or their designee has been designated by the Audit Committee to approve any services arising during the year that were not pre-approved by the Audit Committee. Services approved by the Audit Committee chairperson are communicated to the full Audit Committee at its next regular meeting and the Audit Committee reviews services and fees for the year at each such meeting. Pursuant to these procedures, the Audit Committee approved the foregoing audit services provided by Aidman, Piser & Company, P.A. The audit committee pre-approved audit, audit-related and tax fees for 2007 and 2006.
PART IV
 
ITEM 14
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a) The following documents are filed as part of this Report:
 
Exhibits
 
The following exhibits are filed as part of, or incorporated by reference into, this amendment to annual report on Form 10-K/A:
 

INDEX TO EXHIBITS

ITEM NO.
DESCRIPTION
2.1 1
Agreement of Merger and Plan of Reorganization dated 2/25/02 by and among SmartGate Inc., SmartGate/RadioMetrix Acquisition Corp. and Radio Metrix Inc., Letter of Clarification, and Amendment dated as of April 24, 2003
 
 
10.1 1
Quarterly Revenue Based Payment Agreement by and among the Company and Stephen A. Michael, Spencer Charles Duffey Irrevocable Trust u/a/ d July 29, 1998, Elizabeth Rosemary Duffey Irrevocable Trust u/a/d July 29, 1998, Robert T. Roth, William W. Dolan dated as of February 25, 2002; and Amendment dated as of April 24, 2003
 
 
10.2 1
Promissory Note, Security Agreement, and Escrow Agreement - Re: Daimler Capital Partners, Ltd. - loan and stock options; Stock Option Agreement with Daimler Capital Partners, Ltd. - October 28, 2002; Stock Option Agreement with Daimler Capital Partners, Ltd. - February 28, 2003
 
 
10.3 1
Form of Plan 2003 Option Agreement with Joseph F. Movizzo - May 13, 2003 (including form of Letter of Investment Intent)
 
 
10.4 1
Consulting Agreement - March 2003 between Crescent Fund, Inc. and the Company
 
 
10.5 1
Agreement dated as of April 24, 2003 between Alan A. Feldman and the Company
 
 
10.6 1
Financing Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the Company
 
 
10.7 1
Series 2003A 7% Convertible Note Due June 9, 2004, dated May 9, 2003 from the Company to BarBell Group, Inc.
 
 
10.8 1
Investment Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the Company
 
 
10.9 1
Warrant to Purchase Shares of Common Stock dated as of May 9, 2003, issued by the Company to BarBell Group, Inc.
 
 
10.10 1
Registration Rights Agreement dated as of May 9, 2003 between the Company and BarBell Group, Inc.
 
 
10.11 1
Broker-Dealer Placement Agent Selling Agreement - May 2003 between Capstone Partners LC and the Company
 
 
10.12 2
Amended and Restated Regulation S Subscription Agreement - July 22, 2003 between Capstone Partners LC and the Company
 
 
10.13 2
Amended and Restated Regulation S Subscription Agreement - July 22, 2003 executed by Nautilus Technologies, Ltd. - subscribing for 125,000 Units
 
21
 
 
10.14 2
Amended and Restated Regulation S Subscription Agreement - July 22, 2003 executed by GM Capital Partners, Ltd. - subscribing for 50,500 Units
 
 
10.15 2
Amended and Restated Regulation S Subscription Agreement - July 22, 2003 executed by Kallur Enterprises, Ltd. - subscribing for 50,000 Units
 
 
10.16 2
Publicity Agreement - July 2003 between Capital Financial Media, Inc. and the Company
 
10.17 2
Consulting Agreement - July 2003 between National Financial Communications Corp. and the Company
 
 
10.18 2
Agreement - July 2003 between Brooks Houghton & Company, Inc. and the Company
 
 
10.19 2
Non-Exclusive Financial Advisor Agreement - July 2003 between Source Capital Group, Inc. and the Company
 
 
10.20 2
Consulting Agreement - July 2003 between Patrick W.H. Garrard d/b/a The Garrard Group of West Redding, CT and the Company
 
 
10.21 2
Investment Agreement Modification I dated as of July 21, 2003 by and among Invisa, Inc. and BarBell Group, Inc.
 
 
10.22 2
Joint Development Agreement - July 2003 between Dominator International Ltd. And SmartGate, L.C.
 
 
10.23 3
Engagement Agreement dated September 9, 2003 between G.M. Capital Partners, Ltd and Invisa, Inc.
 
 
10.24 4
Employment Agreement dated November 6, 2003 between Herb Lustig and Invisa, Inc.
 
 
10.25 4
Severance Agreement dated November 13, 2003 between Samuel S. Duffey and Invisa, Inc.
 
 
10.26 4
Agreement dated November 13, 2003 between Invisa, Inc. and the Duffey related shareholders
 
 
10.27 5
SDR Metro Inc. letter extension agreement
 
 
10.28 5
SDR Metro Inc. confirmation letter agreement
 
 
10.29 5
Severance Agreement dated January 26, 2004 between Stephen A. Michael and Invisa, Inc.
 
 
10.30 5
Consulting Agreement dated January 26, 2004 between Stephen A. Michael and Invisa, Inc.
 
 
10.31 5
Severance Agreement dated December 31, 2003 between William W. Dolan and Invisa, Inc.
 
 
10.32 5
Agreement dated February 11, 2004 between The Video Agency, Inc. and Invisa, Inc.
 
 
10.33 5
Employment Agreement dated March 2004 between Charles Yanak and Invisa, Inc.
 
 
10.34 5
2003-A Employee, Director, Consultant and Advisor Stock Compensation Plan.
 
 
10.35 5
First Amendment to Invisa, Inc., 2003 Incentive Plan Date As of November 6, 2003
 
 
10.36 5
Stock Option Agreement for Herb M. Lustig dated November 6, 2003
 
 
10.37 6
Subscription Agreement for issuance of 22,000 shares of Series A Convertible Preferred Stock and Common Stock Warrants
 
 
10.38 6
Registration Rights Agreement

22


 
 
 
10.39 6
Warrants to Purchase Common Stock (Mercator Momentum Fund, LP, Mercator Advisory Group, LLC, and Monarch Pointe Fund, Ltd.)
 
     
  10.40 6
Certificate of Designations of Preferences and Rights of Series A Convertible Preferred Stock.
 
 
10.41 7
Marketing Agreement between Aurelius Consulting Group and Invisa, Inc.
 
 
10.42 7
Lease Agreement among HAR-WAL ASSOCIATES, INC. and WR-I ASSOCIATES, LTD. and Invisa, Inc. dated September dated September 23, 2004
 
 
10.43 11
Business consulting agreement
 
 
10.44 11
Opinion of counsel regarding legality of Common Stock
 
 
10.45 
Consent of Aidman, Piser and Company, PA
 
 
10.46 11
Consent of Legal Counsel
 
 
10.47 11
Power of Attorney relating to subsequent amendments
   
10.48 9
Promissory note agreements dated October 10, 2006 by and between Invisa, Inc. and M.A.G. Capital, LLC; Mercator Momentum Fund III, LP and Monarch Pointe Fund, Ltd. Borrowing Certificates and Forms of Assignments
   
10.49 9
Warrant Agreement dated October 10, 2006 by and between Invisa, Inc. and Ocean Park Advisors, LLP
 
 
 
10.50 9
UCC Financing Statements
 
 
 
 
10.51 9
Schedule of Advances: Permitted Payments
 
 
 
 
10.52 10
Business Consulting Agreement dated August 14, 2006 between Invisa, Inc. and John Anderson
 
 
 
 
10.53 8
Carl A. Parks Employment agreement
 
     
10.54 13
Forbearance and Modification agreement dated July 27, 2007
 
     
10.55 14
Promissory Note dated July 25, 2007
 
     
10.56 15
Promissory Note dated March 6, 2007
 
     
10.57 16
Forbearance and Modification Agreement
 
     
10.58 8
Audit Committee Charter
 
     
10.59 8
Senior Secured Promissory Note date March 28, 2008
 
     
10.60 8
Forbearance and Modification Agreement dated March 28, 2008
 
     
10.61 8
Extension of Promissory Note dated April 11, 2008
 
     
31.1 8
Chief Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
31.2 8
Chief Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
32.1 8
Certification Pursuant to 18 U.S.C. Section 1350.
 
 
 
 
32.2 8
Certification Pursuant to 18 U.S.C. Section 1350.
 
 
 
 
1
Previously filed on June 23, 2003 with Invisa’s Form 10-KSB for the year ended December 31, 2002 and are incorporated by reference.
 


23


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

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

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

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

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

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

Filed herewith.
   
9
Previously filed on October 10, 2006 with Invisa Form 8-K/A dated October 10, 2006 and are incorporated by reference.
   
10
Previously filed on August 17, 2006 with Invisa Form 8-K dated August 14, 2006 and are incorporated by reference.
   
11
Previously filed on August 14, 2006 with Invisa Form S-8 dated August 14, 2006 and are incorporated by reference
   
12
Previously filed on April 14, 2007 with Invisa For 10-KSB and incorporated herein by reference.
 
 
13
Previously filed on August 1, 2007 with Invisa’s Form 8-K and incorporated herein.
   
14
Previously filed on July 26, 2007 with Invisa’s Form 8-K and incorporated herein.
   
14   1
Code of Business Conduct and Ethics and Compliance Program
   
15
Previously filed on March 6, 2007 with Invisa’s Form 8-K and incorporated herein.
   
16
Previously filed on November 9, 2007 with Invisa Form 10-QSB and incorporated herein by reference.


24

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, thereonto duly authorized.
 
 
 
 
 
INVISA, INC.
 
 
 
 
 
 
Dated:  April 14, 2008
By:  
/s/ Edmund C. King
 
 
Edmund C. King
 
Acting President and Acting Chief Operating Officer
 
 
 
 
 
 
 
 
 
 
 
Dated:  April 14, 2008
By:  
/s/ Edmund C King
 
Edmund C King
 
Chief Financial Officer


25

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

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


Dated:  April 14, 2008
/s/ Edmund C. King
 
 
Edmund C. King, Acting President and Acting Chief Operating Officer
 
 
Dated:  April 14, 2008
/s/ Edmund C. King
 
 
Edmund C. King, Chief Financial Officer, Director
 
 
Dated:  April 14, 2008
/s/ Gregory J. Newell
 
 
Gregory J. Newell, Director
 
 
Dated:  April 14, 2008
/s/ John E. Scates
 
 
John E. Scates, Director

 

26


Report of Independent Registered Certified Public Accounting Firm


Board of Directors and Stockholders
Invisa, Inc.

We have audited the accompanying balance sheet of Invisa, Inc. (the “Company”) as of December 31, 2007 and the related statements of operations, stockholders’ equity (deficit) , and cash flows for each of the years in the two-year period then ended, and for the period from February 12, 1997 (inception) through December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Invisa, Inc. as of December 31, 2007 and the results of its operations and its cash flows for each of the years in the two-year period then ended, and for the period from February 12, 1997 (inception) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has incurred significant losses and used cash in operating activities during the years ended December 31, 2007 and 2006 and expects that additional capital will be required in order to continue operations in 2008. These factors, among others, as discussed in Note B, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
/s / Aidman , Piser & Company , P.A.
Tampa, Florida
April 14, 2008
 


F-1

Invisa, Inc.
(A Development Stage Enterprise)
BALANCE SHEET


 
 
December 31,
 
 
 
2007
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
 
$
2,281
 
Accounts receivable
 
 
19,324
 
Inventories
 
 
20,678
 
Prepaids and other assets
 
 
 4,298
 
Total current assets
 
 
46,581
 
 
 
 
 
 
Furniture, fixtures and equipment, net of $39,286 accumulated depreciation
 
 
 3,212
 
Total assets
 
$
49,793
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable, trade
 
$
291,085
 
Accrued expenses
 
 
205,926
 
Due to stockholders and officers
 
 
364,551
 
Notes Payable
   
231,300
 
Preferred dividends payable
 
 
198,750
 
 
 
 
 
 
Total current liabilities
 
 
1,291,612
 
 
 
 
 
 
Commitment (Note I)
 
 
-----
 
 
 
 
 
 
Stockholders’ Deficit
 
 
 
 
Convertible Preferred Stock, 5 million shares authorized ($0.001 par value):
 
 
 
 
Series A, 14,500 shares issued and outstanding
 
 
1,277,000
 
Series B, 10,000 shares issued and outstanding
 
 
1,000,000
 
Common Stock; 95,000,000 shares authorized ($.001 par value), 25,066,126 shares issued and outstanding
 
 
 
25,066
 
Additional paid-in capital
 
 
31,797,807
 
Deficit accumulated during the development stage
 
 
(35,341,692
)
 
 
 
 
 
Total stockholders’ deficit
 
 
(1,241,819
  )
 
 
 
 
 
Total liabilities and stockholders’ equity
 
$
49,793
 
 
 
 
 
 

 
See notes to financial statements.
 

F-2

Invisa, Inc.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
 
 
 
 
 
 
February 12, 1997
 
 
 
 
 
 
(Date of inception)
 
 
 
 
Years Ended December 31,
 
Through
 
 
 
 
2006
 
2007
 
December 31, 2007
 
 
 
 
 
 
   
 
 
 
Net sales
 
$
136,980
 
$
124,986
 
$
1,459,317
 
 
Other operating revenues
 
 
----
 
 
----
 
 
300,000
 
 
Costs and expenses:
 
 
 
 
     
 
 
 
 
Cost of goods sold (exclusive of patent amortization shown separately below)
 
 
94,197
 
 
73,992
 
 
1,022,316
 
 
Research and development costs
 
 
119,937
 
 
---
 
 
3,471,292
 
 
Selling, general and administrative expenses
 
 
1,420,442
 
 
581,993
 
 
15,782,351
 
 
Patent amortization
 
 
788,235
 
 
788,235
 
 
4,646,599
 
 
Impairment of patent
 
 
----
 
 
3,547,059
 
 
9,064,867
 
 
 
 
 
 
 
     
 
 
 
 
Loss from operations
 
 
(2,285,831
)
(
4,866,293
)
 
(32,231,108
  )
 
 
 
 
 
 
     
 
 
 
 
Other income (expense):
 
 
 
 
     
 
 
 
 
   Interest (expense)and other, net
 
 
(25,118
)
(
129,402
)
 
(975,074
)
 
   Debt extinguishment gain
 
 
 ----
   
----
 
 
360,000
 
 
 
 
 
 
(25,118
 
 
         (
                    129,402)
 
 
(615,074
)
   
Loss before income tax            
 
 
(2,310,949
)
(
4,995,695
)
 
(32,846,182
)
Income tax
 
 
----
 
 
----
 
 
-----
 
 
 
 
 
 
     
 
 
 
Net loss
 
 
(2,310,949
)
(
4,995,695
)
 
(32,846,182
)
 
 
 
 
 
     
 
 
 
Non-cash constructive dividend related to Convertible Preferred
 Stock accretions
 
 
----
 
 
----
 
 
 
(2,296,640
 
)
Preferred Stock dividends
 
 
(90,000
)
(
90,000
)
 
(198,750
)
Net loss applicable to Common Stockholders
 
$
(2,400,949
)
$
(5,085,695
)
$
(35,341,572
)
 
 
 
 
 
     
 
 
 
Net loss per share applicable to Common Stockholders:
 
 
 
 
     
 
 
 
Basic and diluted
 
$
(0.10
)
$
(0.20
)
 
 
 
 
 
 
 
 
     
 
 
 
Weighted average Common Stock shares outstanding:
Basic and diluted
 
 
24,529,553
 
 
25,355,659
 
 
 
 


See notes to financial statements.

F-3

Invisa, Inc.
 (A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


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


See notes to financial statements.


F-4

(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
 
 
Years Ended December 31,
 
February 12, 1997 (date of inception) Through
 
 
2006
 
2007
 
December 31, 2007
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net loss
 
$
(2,310,949
)
$
(4,995,695
)
$
(32,846,182
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
     
 
 
 
Patent impairment
 
 
-----
 
 
3,547,059
 
 
9,064,867
 
Depreciation and amortization
 
 
804,670
 
 
791,168
 
 
5,203,442
 
Modification of Warrants
   
----
   
60,000
   
60,000
 
Common Stock and options exchanged for services/settlements
 
 
465,113
 
 
-----
 
 
3,028,164
 
Share Based Compensation
   
-----
   
165,410
   
363,499
 
Abandonment loss on furniture equipment and leaseholds, net of disposition gain
   
-----
   
23,817
   
23,817
 
Debt extinguishment gain
 
 
----
 
 
-----
 
 
(360,000
)
Changes in operating assets and liabilities:
 
 
 
 
     
 
 
 
Accounts receivable
 
 
15,618
 
 
(7,674
)
 
(166,038
)
Inventories
 
 
(24,364
)
 
51,161
 
 
(20,678
)
Prepaids and other assets
 
 
(6,874
 
 
15,935
 
 
(4,299
)
Accounts payable, trade
 
 
224,573
)
 
22,962
 
 
291,085
 
Accrued expenses
 
 
22,563
 
 
60,414
 
 
155,918
 
Net cash used in operating activities
 
 
(809,650
)
 
(265,443
)
 
(15,206,405
)
 
 
 
 
 
     
 
 
 
Cash flows from investing activities:
 
 
 
 
     
 
 
 
Patent acquisition
 
 
----
 
 
-----
 
 
(550,000
)
Transaction costs in connection with RMI business combination
 
 
----
 
 
-----
 
 
(121,475
)
Purchases of furniture, fixtures and equipment
 
 
----
   
-----
 
 
(238,846
)
Net cash used in investing activities
 
 
----
   
-----
 
 
(910,321
)
 
 
 
 
 
     
 
 
 
Cash flows from financing activities:
 
 
 
 
     
 
 
 
Proceeds from notes payable
 
 
128,337
 
 
231,300
 
 
409,637
 
Proceeds from notes payable and redeemable Common Stock
 
 
----
 
 
-----
 
 
908,000
 
Payment of notes payable
 
 
----
   
-----
 
 
(520,800
)
Collection of stock subscriptions
 
 
----
 
 
----
 
 
36,500
 
Stockholder Advances
 
 
30,500
 
 
33,524
 
 
1,585,007
 
Proceeds from sale of convertible Preferred Stock
 
 
----
 
 
----
 
 
2,815,000
 
Proceeds from sale of Common Stock
 
 
68,250
 
 
----
 
 
10,631,413
 
Proceeds from the exercise of stock options`
   
----
   
----
   
24,250
 
Cash received with combination transaction
 
 
`---
 
 
----
 
 
230,000
 
Net cash provided by financing activities
 
 
227,087
 
 
264,824
 
 
16,119,007
 

See notes to financial statements.


F-5


Invisa, Inc.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (CONTINUED)

 
 
 
 
 
 
     
 
 
 
Net (decrease) increase in cash
 
 
(582,563
)
 
(619)
 
 
2,281
 
Cash at beginning of period
 
 
585,463
 
 
2,900
 
 
----
 
Cash at end of period
 
 $
2,900
 
 $
2,281
 
 $
2,281
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to financial statements.
(Continues)

F-6

(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS - CONTINUED


 
 
 
 
 
 
February 12,
 
 
 
 
 
 
 
1997 (Date of
 
 
 
 
 
 
 
inception)
 
 
 
 
 
 
 
Through
 
 
 
Year Ended December 31,
 
December 31,
 
 
 
2006
 
2007
 
2007
 
 
 
 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
 
 
 
 
Cash paid during the period for interest
 
$
-----
 
$
42,534
 
$
271,696
 
 
 
 
 
 
 
 
 
 
 
 
Non-cash financing and investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
-----
 
$
-----
 
$
1,300,000
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable canceled in connection with merger transaction
 
$
-----
 
$
-----
 
$
337,489
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock issued in connection with merger transaction (3,685,000 shares)
 
 
$
 
-----
 
 
$
 
-----
 
 
$
 
11,272,500
 
 
 
 
 
 
 
 
 
 
 
 
Due to employees in connection with merger transaction
 
$
----
 
$
----
 
$
175,000
 
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses assumed in connection with merger transaction
 
$
----
 
$
----
 
$
50,000
 
 
 
 
 
 
 
 
 
 
 
 
Exchange of liabilities for Common Stock
 
$
----
 
$
----
 
$
857,057
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock issued representing stock offering commitment (200,000 shares)
 
 
$
 
-----
 
 
$
 
-----
 
 
$
 
554,000
 
 
 
 
 
 
 
 
 
 
 
 
Preferred dividends accrued as liabilities
 
$
90,000
 
$
90,000
 
$
198,750
 
 
 
 
 
 
 
 
 
 
 
 
Non-cash preferred stock accretions
 
$
----
 
$
----
 
$
2,296,640
 
                     
Subscription receivable redeemed for stock originally issued
 
 
$
 
-----
 
 
$
 
298,904
 
 
$
298,904
 
                     
Stockholder forgiveness of debt
 
 
$
 
-----
 
 
$
 
221,810
 
 
$
221,810
 
 


See notes to financial statements.

F-7

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS

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

NOTE B - LIQUIDITY AND MANAGEMENT’S PLANS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended December 31, 2007 and since the date of inception, the Company has had net losses applicable to Common Shareholders of $5.1 million and $35.3 million, respectively. As of December 31, 2007, the Company has not emerged from the development stage and has negative working capital of $1.3 million. Since inception, the Company has financed its operations principally from the sale of equity securities and, to a lesser extent, debt, as the Company has not generated significant revenues from the sales of its products. Continuation of the Company as a going concern is dependent upon additional external funding and, ultimately, a substantial increase in sales volume and achievement of profitable operations. The Company has substantially reduced its operations because of a current lack of available external funding.  The Company intends to finance its future development activities and its working capital needs largely from additional debt and the issuance of equity securities with some additional funding from other traditional financing sources, including term notes and proceeds from licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements. There can be no assurance in that such financing will be available at acceptable terms, if at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.   Continuation of the company as a going concern is dependent upon additional external funding and, ultimately, a substantial increase in sales volume and achievement of profitable operations.
 
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

F-8

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

  Cash and Cash Equivalents

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



Accounts Receivable, Major Customer Information and Export Sales

Accounts receivable are due primarily from companies in the gate manufacturing industry located throughout the United States and the United Kingdom. Credit is extended based on an evaluation of the customers’ financial condition and, generally, collateral is not required. Account balances are evaluated for collectibility based on the condition of the customers’ credit including repayment history and trends and relative economic and business conditions. Bad debts have not been significant.  During 2006, Magnetic Automation Corp. was our largest customer, comprising approximately 11% of our product revenues. During 2007, Magnetic Automation Corp. was again our largest customer, comprising approximately 29% of our product revenues.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using a method with approximates the first-in, first-out method.

Furniture, Fixtures and Equipment

Furniture, fixtures, and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives, principally five years. Leasehold improvements are amortized over the term of the lease or the estimated useful lives, whichever is shorter.   Depreciation expense was $15,621 and $2,933for 2006and 2007 respectively.

 
Patent

The patent for the Company’s underlying technology was amortized on a straight-line method over 10 years, which represented the remaining useful life of the patent. At December 31, 2003, the Company recorded an impairment charge of $5,517,808 that was included in the statement of operations to reflect the fair value as determined by the Company’s management. The 2003 patent impairment resulted principally from perceived shifts in markets and our approach to such markets requiring more reliance on our patents applied for and less on the original patent.
At December 31, 2007 the remaining balance of the deferred patent costs totaling $3,547,659 was determined to be impaired and written off (See Note C – Impairment of Long-Lived Assets.)
 
Revenue

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

Licensing agreement

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

F-9

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Shipping costs

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

Research and Development Costs

Research and development costs consist of direct costs that are associated with the development of the Company’s technology. These costs are expensed as incurred.

Advertising Costs

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

Warranty Costs

The Company warrants its products for ninety days. Estimated warranty costs are recognized in the period product is shipped. However, there have been no significant warranty costs incurred through December 31, 2007, nor are any significant amounts expected to occur subsequently. Accordingly, no warranty liability has been recognized for any period presented.

Income Taxes

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

Financial Instruments

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

Derivative Financial Instruments

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


F-10

Impairment of Long-Lived Assets

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

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

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

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

Earnings per Common Share

Basic and diluted earnings per share are computed based on the weighted average number of Common Stock outstanding during the period. Common Stock equivalents are not considered in the calculation of diluted earnings per share for the periods presented because their effect would be anti-dilutive.

 

F-11


Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS


New Accounting Pronouncements
 

The Financial Accounting Standards Board (“FASB”) has recently announced a new interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which will be effective for years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition , classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 did not have any impact on the Company’s financial position, results of operations or cash flows in 2007.

In February 2007, the Financial Accounting Standards Board issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159), which includes an amendment to FASB Statement No. 115. The Statement permits entities to choose, at specific election dates, to measure eligible financial assets and financial liabilities at fair value (referred to as the “fair value option”) and report associated unrealized gains and losses in earnings. Statement 159 is effective for years beginning after November 15, 2007. As of December 31, 2006 the Company has not determined the effect that the fair value option, if elected, will have on the financial position or results of operations.


F-12


Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE D - INVENTORIES


Inventories consist of the following at December 31, 2007:

Finished goods
 
 $
1,879
 
Raw materials
 
 
18,799
 
 
 
 $
20,678
 
NOTE E - ACCRUED EXPENSES

Accrued expenses consist of the following at December 31, 2007

Interest Expense
 
$
34,881
 
Derivative liability
 
 
15,000
 
Accrued compensation, severance and related taxes
 
 
156,045
 
 
 
$
205,926
 

NOTE F - LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share:

 
 
December 31,
 
 
 
2006
 
2007
 
Numerator:
 
 
 
 
 
Net loss applicable to Common Stockholders
 
$
(2,400,949
)
$  
(5,085,695
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
For basic loss per share - weighted average shares
 
 
24,529,553
 
 
25,355,659
 
Effect of dilutive securities - stock options
 
 
-----
 
 
-----
 
For diluted loss per share
 
 
24,529,553
 
 
25,355,659
 
 
 
 
 
 
 
 
 
Net loss per share - applicable to Common Stockholders basic and diluted
 
 
$
 
(0.10
 
)
 
$
(.20
 
)

Options and warrants to purchase 14,536,042 and 12,989,167 shares of Common Stock as of December 31, 2006 and 2007, respectively, are not considered in the calculation of diluted loss per share because the effect would be anti-dilutive.  At December 31, 2007 the preferred stock was convertible into 12,733,333 shares of common stock, which has also not been considered in the calculation of diluted loss per share since the effect would be anti-dilutive.


F-13

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE G - COMMON AND PREFERRED STOCK

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

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

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

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

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

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

·
Detachable warrants to acquire up to 2,500,000 shares of the Company’s Common Stock at $0.30 per share. The warrants expire on August 31, 2010 and are subject to call by the Company upon the Common Stock trading at a price of $0.60, a minimum trading volume of 60,000 shares for 20 consecutive days and the registration statement being effective.
   
·
In addition to the transaction costs referred to above, the Company granted warrants to acquire up to 666,667 shares of the Company’s Common Stock at $0.16 per share to a broker. The term of the warrants is three years.
   
The Preferred Stock is non-voting and is entitled to receive dividends at an annual rate equal to the lower of the Prime Rate plus 3.5% or 9%. The dividend may either be paid in cash or registered shares of the Company’s Common Stock, subject to certain limitations. The Preferred Stock is convertible into Common Stock at the option of the holder. The conversion price is equal to 80% of the market price at the time of conversion, subject to a floor of $0.12 per share and a ceiling of $0.275 per share.
 
The Series B Preferred Stock and Series A Preferred Stock as amended permit the Company, in its discretion, to redeem part or all of the outstanding Preferred A and B Stock at 125 percent of par value per share until August 2007 and thereafter at 150 percent of par value, plus any accrued dividends.

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


F-14

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE G - COMMON AND PREFERRED STOCK - Continued

In 2006 the Company issued 400,000 shares of common stock for cash of $44,000 and issued 316,670 shares of common stock in connection with the exercise of options for cash of $24,250. The Company also issued 981,800 shares of common stock for services totaling $133,634.

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

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

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

NOTE H- STOCK OPTION AND WARRANT ACTIVITY

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

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


F-15

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE H- STOCK OPTION AND WARRANT ACTIVITY (Continued)

Activity with respect to the stock-based compensation plans is summarized as follows:
 
 
 
 
 
 
 
Shares
 
Range of Exercise
Prices
 
Weighted-average Option price per share
 
Outstanding at December 31, 2005
 
 
6,971,834
 
 
 
 
$
0.85
 
Options granted
 
 
1,300,000
 
$
0.15-0.26
 
$
0.23
 
Options exercised
 
 
(50,000
)
$
0.09
 
$
0.09
 
Options canceled/expired
 
 
(1,221,834
)
$
0.00
 
$
1.39
 
Outstanding at December 31, 2006
 
 
7,000,000
         
 0.65
 
Options Granted                                                    
   
800,000
 
 0.04
   
0.04
 
 Options canceled/expired    
 1,960,000
   
 0.26-3.85
   
 0.26
 
 Outstanding at December 31, 2007    
 5,840,000
         
0.11
 
 Options exercisable at December 31, 2007    
5,640,000
         
 0.11
 

Aggregate intrinsic value of options outstanding at December 31, 2007 is $0.00 as market value was less than option price.

The total intrinsic value of options exercised during 2006 and 2007 was $765 and $0.00, respectively.

Activity with respect to warrants for common stock is as follows:
 
 
 
 
 
 
 
Shares
 
Range of Exercise
Prices
 
Weighted-average Option price per share
 
Outstanding at December 31, 2005
 
 
6,102,712
 
 
 
 
$
0.74
 
Warrants granted
 
 
2,150,000
 
$
0.010-0.70
 
$
0.42
 
Warrants exercised
 
 
(266,670
)
$
0.08
 
$
0.08
 
Warrants canceled/expired
 
 
( 450,000
)
$
1.00-$4.50
 
$
1.61
 
Outstanding at December 31, 2006
 
 
7,536,042
         
 0.62
 
Warrants canceled/expired
 
 
(386,875
)   
0.10-5.50
   
0.68
 
Outstanding at December 31, 2007
 
 
7,149,167
              
0.62
 
Warrants exercisable
   
7,149,167
       
0.62
 

F-16

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE H- STOCK OPTION AND WARRANT ACTIVITY (Continued)

The fair value of the options granted in 2007 and 2006 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the above years:

 
2006
2007
Dividend yield
 0.0%
 0.00%
Expected volatility
 209%-228%
 161%-228%
Risk free interest rates
 2.00%
 4.04%-5.03%
Expected lives
 3 years
3 - 10 years

The weighted-average grant date fair value for options granted during 2006 and 2007 was approximately $0.12 and $0.04, respectively.

As of December 31, 2007, there was unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plans.

NOTE I - COMMITMENT

Operating Leases

For the previous two years, the Company has occupied space in a building in Sarasota, Florida under a lease with a five year term expiring December, 2009 and annual lease payments of approximately $50,000. In the second quarter of 2007, the Company has assigned this lease to a new tenant and moved to space with less square footage (1,500 square feet) and occupancy costs in the same business center which is occupied on a month to month basis.  Rent expense for the years ended December 31, 2006 and 2005 was $52,625 and $33,294, respectively.
 
NOTE J - DUE TO STOCKHOLDERS AND OFFICERS

Due to stockholders and officers consists of the following at December 31, 2007:

                                           
 M.A.G. Capital, LLC and Affiliates 1                
 
$
128,337
 
 Friday Harbour, LLC 2                                                                                     
    39,091  
 Stephen A. Michael 3                                                                                    
    157,000  
 John E. Scates 4                                                                                                
    10,000  
 Gregory J. Newell 4                                                                                           
    10,000  
 Edmund C. King 5    
    20,123  
Total                                                                                                              
   $ 364,551  
                                                                  
 
(1)   
During 2006 the stockholders advanced $128,337 to the Company.  It was due May 15, 2008 and bears 10% interest which totals $15,717 and is included in Accrued expense in the accompanying balance sheet.  Interest expense related to this advance was $2,884 and $12,883 in 2006 and 2007, respectively.
(2)   
During 2005, 2006 and 2007 a stockholder advanced $110,900 (under an agreement whereby up to $150,000 could be advanced) to the Company.  The advance can be converted into shares of common stock at a conversion price of $0.075.  During 2007 $71,810 was forgiven by the stockholder and has been recorded as a capital contribution.  The note is currently due and bears 10% interest which totals $19,164 and is included in Accrued expense in the accompanying balance sheet.  Interest expense related to this advance was $8,758 and $10,406 in 2006 and 2007, respectively.
(3)   
Relates to accrued compensation from 2004.  The Company has agreed to pay certain tax liabilities, if any, which may be incurred in connection with this transaction.
(4)   
Unpaid director fees.
(5)   
Advances made to the Company and currently due.

During 2007 a stockholder forgave $150,000 related to compensation from 2004 that had previously been accrued.  This transaction has been recorded as a capital contribution.
 
NOTE K - LINES OF CREDIT

The Company has three lines of credit with a private investor.  The credit facilities allow for advances up to $250,000, bear interest at 10% and have a first security interest in all of the Company’s assets.  Additionally the credit facilities are secured by a security interest in 26,666,666 shares of the Company’s common stock which are held in escrow.  Because the credit facilities are not in default the shares are not treated as issued and outstanding.  At December 31, 2007, $231,300 is outstanding and due May 15, 2008.


NOTE L - INCOME TAXES

Deferred taxes are recorded for all the tax effects of existing temporary differences in the Company’s assets and liabilities for income tax and financial reporting purposes. Due to the valuation allowance for deferred tax assets, as noted below, there was no net deferred tax benefit or expense for the years ended December 31, 2006 or 2007.

Reconciliation of the federal statutory income tax rate of 34.0% to the effective income tax rate is as follows at December 31:
 
 
2006
 
2007
 
Federal statutory income tax rate
 
 
(34.0)
%
 
(34.0)
%
State income taxes, net of federal tax benefit
 
 
( 3.5)
%
 
( 3.5)
%
Deferred tax asset valuation allowance
 
 
37.5
%
 
37.5
%
 
 
 
-0-
%
 
-0-
%

Deferred tax asset and liability components were as follows:
 
 
2006
 
2007
 
Deferred tax assets:
 
 
 
 
 
Compensation payable
 
$
16,527
 
$
46,939
 
Net operating loss
 
 
6,186,778
 
 
6,445,630
 
Patent
   
----
   
569,595
 
Other
 
 
253,749
 
 
305,074
 
 
 
6,457,054
 
 
7,367,238
 
Patent
 
 
1,056,054
 
 
----
 
Basis difference in assets
 
 
2,287
 
 
1,204
 
Net deferred tax assets
 
 
5,398,713
 
 
7,366,034
 
Less valuation allowance
 
 
(5,398,713
)
 
(7,366,034
)
 
 
 
 
 
   
 
Net deferred tax asset
 
$
-----
 
$
----
 
 
 
 
 
 
   
 
 
SFAS No. 109 Accounting for Income Taxes requires that a deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. As a result the Company recorded a valuation allowance with respect to all the Company’s deferred tax assets.

F-17

Invisa, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS

NOTE L - INCOME TAXES- CONTINUED

The Company has a federal net operating loss carryforward of approximately $16.9 million as of December 31, 2007. Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a “loss corporation”, as defined, there are annual limitations on the amount of the net operating loss and other deductions which are available to the Company. The Company has not determined the impact of these limitations at this time.

NOTE M - SUBSEQUENT EVENTS
 
Subsequent to December 31, 2007, the Company entered into a promissory note permitting the Company to borrow up to an additional $150,000 at an interest rate of 10% per annum and maturing on May 31, 2008. The promissory note is secured by all of the Company’s assets plus a security interest in 20 million shares of new common stock of the Company which the Company is required to deposit into an escrow arrangement. The shares delivered to the escrow agent as security for the promissory note are not being treated as outstanding and will only be considered as being issued and outstanding if and when the shares are released by the escrow agent and delivered to the lender as a result of a default under the promissory note. In March 2008, Mr. Michael exchanged amounts due him (see Note J) for 1,308,333 shares of Invisa common stock.

F-18
CERTIFICATIONS

I, Edmund C. King, certify that:

1.     I have reviewed this Annual Report on Form 10-KSB of Invisa, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of and for the periods presented in this report;

4.      The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent quarter (the small business issuer’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting.

5.    The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting; and


 
 
Dated:  April 14, 2008
  
/s/ Edmund C. King
 
Acting President and Acting Chief Operating Officer


F-19


  EXHIBIT 31.2
CERTIFICATIONS

I, Edmund C. King, Chief Financial Officer, certify that:

1.     I have reviewed this Annual Report on Form 10-KSB of Invisa, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of and for the periods presented in this report;

4.      The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent quarter (the small business issuer’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting.

5.    The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting; and
 
 
Dated:  April 14, 2008
  
/s/ Edmund C. King  
Edmund C. King, Chief Financial Officer

 

F-20

EXHIBIT 32.1

INVISA, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of Invisa, Inc. (the “Company”) on Form 10-KSB for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edmund C. King, Acting President and Acting Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Edmund C. King
________________________________
Edmund C. King
Acting President and Acting Chief Operating Officer
April 14, 2008
 
F-21
EXHIBIT 32.2

INVISA, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of Invisa, Inc. (the “Company”) on Form 10-KSB for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edmund C. King, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ Edmund C. King
__________________________________
Edmund C. King
Chief Financial Officer
April 14, 2008

F-22

AUDIT COMMITTEE CHARTER
 
Purpose
 
 
 
     The Audit Committee shall assist the Board of Directors of the Company with the oversight of the Company’s financial reports and accounting practices to ensure that they are in compliance with legal and regulatory requirements and are within acceptable limits of sound practice.  The Audit Committee shall also prepare any and all reports required to be prepared and/or disclosed by the Audit Committee pursuant to the rules of the Securities and Exchange Commission, the listing standards of any exchange or national market system upon which the Company’s securities are listed for trading, or any other applicable laws or regulations. 
 
Composition and Term of Office
 
     The Audit Committee shall be composed of at least three non-affiliated, independent directors appointed by the Board of Directors, provided if the Board is composed of less than three independent members, then the Audit committee shall be composed of all independent members of the Board.  Directors who have served as officers or employees of the Company at any time within the past three years or who have participated in the preparation of the Company’s financial statements at any time during the past three years are ineligible to be on the Audit Committee. Audit Committee members shall not simultaneously serve on the audit committees of more than two other public companies.  All members of the Audit Committee must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement.  The Board of Directors shall appoint at least one member to the Committee who is deemed an “audit committee financial expert” as defined by the SEC and demonstrates “financial sophistication” as defined in NASDAQ Rule 4350(d)(2)(A).  The Board of Directors shall designate one of the Audit Committee members as the Committee Chairperson.
 
     Each of the members of the Audit Committee shall be elected for a one year term.  The election of members of the Audit Committee shall be held each year at the first meeting of the Board of Directors following the annual meeting of shareholders.  Any member of the Audit Committee may be removed from the Audit Committee by the Board of Directors at any time, with or without cause, and with or without prior notice.  Any vacancy in the Audit Committee created by removal or resignation of a member shall be filled by the Board of Directors. 
 
Frequency of Meetings
 
     The Audit Committee shall meet as often as Committee Chairperson determines, but not less frequently than quarterly.  The Audit Committee shall meet periodically with management, the internal auditors and the independent auditor in separate executive sessions.  The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditor to attend a meeting of the Audit Committee.  The Audit Committee shall maintain minutes of meetings of the Audit Committee.  Members of the Audit Committee may participate in a meeting by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.
 
Committee Authority and Responsibilities
 
     The Audit Committee shall have the sole authority to appoint or replace the independent auditor.  The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work.  The independent auditor shall report directly to the Audit Committee.
 
     The Audit Committee shall pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act of 1934 which are approved by the Audit Committee prior to the completion of the audit.
     The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors.  The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee.
 
     The Audit Committee shall make regular reports to the Board of Directors.  The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board of Directors for approval.  The Audit Committee shall annually review the Audit Committee’s own performance.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
 
Financial Statement and Disclosure Matters
 
1.                   Review and discuss with management and the independent auditor the annual audited financial statements for the year, including proposed footnotes, and disclosures made in management’s discussion and analysis, and recommend to the Board of Directors whether the audited financial statements should be included in the Company’s Form 10-K. Review and discuss with management and the independent auditor reports to be included in the Company’s proxy statement.
2.                   Review and discuss with management and the independent auditor the Company’s quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent auditor’s review of the quarterly financial statements.
3.                   Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls and any special steps adopted in light of material control deficiencies.
 
4.                   Review and discuss quarterly reports from the independent auditors on:
(a)                                         All critical accounting policies and practices to be used.
(b)                                        All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor.
(c)                                         Other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences. 
5.                   Discuss with management the Company’s earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.  Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made).
6.                   Discuss with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.
7.                   Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.
8.                   Review and report to the board of directors any changes in accounting policies and accounting and reporting proposals made by the independent auditors.
9.                   Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
10.               Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls.
Oversight of the Company’s Relationship with the Independent Auditor
 
11.               Review and evaluate the lead partner of the independent auditor team.
12.               Obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent auditor and the Company.  Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, and taking into account the opinions of management and internal auditors.  The Audit Committee shall present its conclusions with respect to the independent auditor to the Board of Directors.
13.               Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law.  Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
14.               Recommend to the Board of Directors policies for the Company’s hiring of employees or former employees of the independent auditor who participated in any capacity in the audit of the Company.
15.               Discuss with the national office of the independent auditor issues on which they were consulted by the Company’s audit team and matters of audit quality and consistency. 
16.               Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
Oversight of the Company’s Internal Audit Function
 
17.               Review the appointment and replacement of the senior internal auditing executive.
18.               Review the significant reports to management prepared by the internal auditing department and management’s responses.
19.               Discuss with the independent auditor and management the internal audit department responsibilities and processes, budget and staffing and any recommended changes in the planned scope of the internal audit. 
Compliance Oversight Responsibilities
 
20.               Obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act of 1934 has not been implicated.
21.               Obtain reports from management, the Company’s senior internal auditing executive and the independent auditor that the Company and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Conduct and Ethics.  Review reports and disclosures of insider and affiliated party transactions.  Advise the Board of Directors with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Business Conduct and Ethics.
22.               Establish and review the adequacy of procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.  Review, assess and report to the Board of the Directors any such complaints.
23.               Discuss with management and the independent auditor any correspondence with regulators or governmental agencies or independent auditors, and any published reports which raise material issues regarding the Company’s financial statements or accounting policies. 
24.               Discuss with the Company’s legal advisors legal matters that may have a material impact on the financial statements or the Company’s compliance policies.
 
Limitations
 
The Audit Committee is responsible for the duties set forth in this Charter but is not responsible for either the preparation of the financial statements or the auditing of the financial statements.  Management has the responsibility for preparing the financial statements and implementing internal controls and the independent accountants have the responsibility for auditing the financial statements and monitoring the effectiveness of the internal controls. 
 
Amendment
 
Any amendment or other modification of this Charter shall be made and approved by the Board of Directors of the Company.
 
Disclosure of Charter
 
This Charter shall be made available to the public on the Company’s web site or as an exhibit to the Company’s filings with the SEC.
 



 
SENIOR SECURED PROMISSORY NOTE
 
$ 150,000.00 March 28, 2008
Sarasota, Florida
 
FOR VALUE RECEIVED, the undersigned, INVISA, INC. , a Nevada corporation (“ Borrower ”) having an address at 290 Cocoanut Avenue, Sarasota, Florida, 34236 promises to pay to the order of Centurian Investors, Inc, a Delaware corporation (“ Lender ”), having an office at 290  Cocoanut Avenue, Sarasota, Florida 34236, or such other place as the Lender may designate inwriting, the principal amount up to and not to exceed ONE HUNDRED FIFTY THOUSAND United States Dollars (U.S. $150,000.00), to the extent advanced hereunder and then outstanding, with interest on the unpaid principal balance from the date of this Senior Secured Promissory Note (this “ Promissory Note ”), until paid, at the Interest Rate (as hereinafter defined) provided herein.
 
1.            Rate of Interest .  The outstanding principal balance of this Promissory Note shall bear interest at ten percent (10%) per annum (the “ Interest Rate ”).
 
                      2.            Date and Time of Payment .  The outstanding principal balance of this Promissory Note, together with all accrued and unpaid interest,  shall be paid in full on earlier to occur of (a) the Maturity Date or (b) the date of termination of this Promissory Note, whether by its terms, by prepayment, or by acceleration.  All amounts outstanding hereunder shall constitute Borrower’s obligations hereunder, and such obligations include without limitation all principal, interest (including all interest which accrues after the commencement of any case or proceeding by or against Borrower in bankruptcy whether or not allowed in such case or proceeding), expenses, attorneys’ fees and any other sum chargeable to Borrower hereunder and owing to Lender under this Promissory Note (all such obligations and all other obligations of Borrower under this Promissory Note ,(the “ Obligations ”).  No principal amount of this Note paid or prepaid may be reborrowed.
 
                      3.            Default Rate .  Notwithstanding Section 1 , after the occurrence of any Event of Default and for so long as such Event of Default continues, and in any event from and after the Maturity Date, all principal, interest and other amounts payable under this Promissory Note shall bear interest until paid in full at a rate of interest equal to four percent (4%) above the per annum rate otherwise applicable hereunder (the “ Default Rate ”).
 
                      4.            Computation of Interest .  Interest on the principal amount hereof and all other Obligations shall be computed on the basis of a 360-day year, and shall be charged for the actual number of days elapsed during any month or other accrual period.
 
                      5.            Manner of Payment .  All payments by Borrower in respect of any Obligations shall be made without deduction, defense, set off or counterclaim, free and clear of all taxes delivered to Lender.
 
                      6.            Maturity .  To the extent not sooner due and payable in accordance with this Promissory Note, the Obigations  shall be due and payable on December 31, 2007 (the “ Maturity Date ”).
 
7.            Application of Payments .  All payments shall be applied to amounts then due and payable in the following order:  (a) to Lender’s costs and expenses reimbursable in connection herewith; (b) to interest accrued on the outstanding principal balance of this Promissory Note; (c) to the principal amount hereof; and (d) to all other Obligations, or in such other manner as Lender shall determine in its sole and exclusive discretion.
 
8.            Procedure for Borrowing and Use of Proceeds . The proceeds of this Promissory Note shall be funded in multiple advances (each, an “ Advance ”) by Lender to Borrower in the amounts and on such dates as determined by Lender based on requests from Borrower.  Borrower shall give Lender notice requesting that Lender make an Advance in accordance herewith specifying (a) the Borrowing Date, (b) the amount requested and (c) a detailed, itemized list of the use of such Advance.  Upon receipt of such notice from Borrower, Lender shall determine, in its sole and exclusive discretion, whether it shall make such amount available to Borrower on the Borrowing Date.  Upon each Advance, Lender shall record each Advance on Schedule I to this Promissory Note.  For purposes of this Section 8, the Borrowing Date shall mean any business day specified in the notice pursuant to this Section 8 as a date on which Borrower requests Lender to make a loan hereunder.    The obligation of Lender to make each subsequent Advance following the initial Advance hereunder is subject to the Lenders approval of the loan request made by Borrower in accordance with this Section 8 and shall be funded in the sole and exclusive discretion of Lender.  As of the date hereof, Borrower has received an aggregate Advance of Thirty Thousand Three Hundred ($30,300.00) Dollars  under this Note.
 
9.            Security .   This Promissory Note shall be secured by (i) Twenty Million (20,000,000) shares of common stock of Borrower to be issued as of the date hereof and held in escrow and a continuing first priority security interest in all of Borrower’s right, title, and interest in and to, all property of Borrower (collectively, the “ Collateral ”), as more specifically set forth in the Security Agreement executed by Borrower in favor of Lender dated as of February 28, 2007.  (the “Security Agreement”).
 
10.            Priority   This Promissory Note shall be a senior obligation of Borrower, and for so long as this Promissory Note shall be outstanding, (i) Borrower shall be prohibited from incurring any and all future indebtedness without the prior written consent of Lender and (ii) any and all future indebtedness approved by Borrower in writing shall be deemed subordinate and inferior to, all respective right, title and interest of Lender, in, to and under this Promissory Note, this Security Agreement and any and all documents and instruments evidencing, securing or otherwise relating to this Promissory Note.
 
                      11.            Representations and Warranties .   Borrower makes the following representations and warranties to Lender, which representations and warranties shall be true, correct, and complete as of the date hereof and shall survive the execution and delivery of this Promissory Note.
 
(a)    Due Organization and Qualification .  Borrower is duly organized and validly existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any jurisdiction where it is required to be so qualified, and has all requisite power and authority to (i) own its assets and carry on its business, and (ii) execute, deliver and perform its Obligations.
(b)    Due Authorization; No Conflict .  The execution, delivery, and performance by Borrower of this Promissory Note has been duly authorized by all necessary action on the part of Borrower.  This Promissory Note has been duly executed and delivered by Borrower.  The execution, delivery, and performance by Borrower of this Promissory Note and the consummation of the transactions contemplated hereby, do not and will not (i) violate in any material respect any provision of federal, state, provincial or local law or regulation applicable to Borrower, its organizational documents, or any order, judgment, or decree of any court or other governmental authority, (ii) conflict with, result in a breach or termination of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any lien of any nature whatsoever upon any properties or assets of Borrower, other than liens or security interests in favor of Lender, or (iv) require any approval of any of Borrower’s stockholders or any approval or consent of any other person or entity, other than consents or approvals that have been obtained and that are still in force and effect.  The execution, delivery, and performance by Borrower of this Promissory Note do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any governmental authority, other than consents or approvals that have been obtained and that are still in force and effect.  This Promissory Note when executed and delivered by Borrower will be the legally valid and binding obligation of Borrower, enforceable against Borrower in accordance with its term, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.
(c)    No Litigation .  No litigation, investigation or proceeding of or before any arbitrator or government authority is (i) pending or, to the knowledge of Borrower, threatened with respect to this Promissory Note or the Collateral or any of the transactions contemplated hereby or (ii) pending or, to the knowledge of Borrower, threatened by or against Borrower, its properties or revenues which, if adversely determined, would have a material adverse effect on its business, operations, property or financial condition, when taken as a whole.
(d)    No Default .  Borrower is not in default under or with respect to any contractual obligation and no event of default has occurred or is continuing with respect to Borrower.
(e)    Taxes .   Borrower has filed or caused to be filed all tax returns required to be filed by it and has paid all taxes due and payable on said returns or on any assessments made against Borrower or any of its property.   All other taxes, fees or other charges on Borrower or any of its property by any governmental authority have been paid and no tax liens have been filed.
12.   Covenants of Borrower.   As of the date hereof and so long as the Obligations hereunder shall be outstanding:
 
(a)  Borrower will preserve and keep in force and effect, its corporate existence and all licenses and permits necessary to the proper conduct of its business;

(b)  Borrower will promptly pay and discharge, all lawful taxes, assessments, charges or levies imposed upon Borrower, or upon or in respect of all or any part of the property or business of Borrower, all trade accounts payable in accordance with usual and customary business terms and all claims for work, labor or materials, which if unpaid might become a lien or charge upon any property of Borrower; provided , Borrower shall not be required to pay such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate action or proceeding which will prevent the forfeiture or sale of any property of Borrower, and (ii) Borrower shall set aside on its books, reserves deemed by it to be adequate with respect thereto;

(c)  Borrower will promptly comply with all laws, ordinances or governmental rules and regulation to which it is subject, the violations of which would materially or adversely affect its properties, business, prospects, profits or condition or would result in any material lien or charge upon any property of Borrower;

(d)  Borrower will maintain, preserve and keep its properties which are used or useful in the conduct of its business in good repair and working order;

(e)  Borrower will not create, assume or incur or in any manner become liable with respect of any indebtedness except this Promissory Note and any indebtedness of Borrower incurred prior to the date hereof.

(f)  Borrower will not create or incur any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (a “Lien”) on its or its property or assets, whether now owned or hereinafter acquired, or upon any income or profits therefrom  except

(i)           Liens for property taxes and assessments or levies and liens that are not yet due and payable;

(ii)           Liens of or resulting from any judgment or award, the time for appeal or petition for rehearing of which shall not have expired or in respect of which the Company shall in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; or

(iii)           Liens or priority claims (A) incidental to the conduct of business, (B) created by any material agreement of Borrower entered into prior to and currently in effect as of the date hereof or (C) the ownership or lease of properties and assets and not in connection with the borrowing of money, provided , in each case, the obligation secured is not overdue, or if overdue, is being contested in good faith by appropriate actions or proceedings and provided , further that Borrower shall have received the prior written consent of Lender to any Lien described in (A) or (C) above; or

13.            Events of Default; Remedies; Acceleration .  (a) The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an “ Event of Default ” hereunder:
 
                      (i) Borrower fails to make any payment of outstanding principal balance of this Promissory Note , or interest thereon, or any of the other Obligation when due and payable;
 
                      (ii) Any representation or warranty of Borrower made in this Promissory Note, the Security Agreeent,  or any other document made by or on behalf of Borrower in connection herewith and the transactions contemplated hereby proves to have been false or incorrect in any material respect or Borrower shall fail to comply in all respects with any covenant herein or therein;
 
(iii) Borrower shall violate any provision of this Promissory Note, the Security Agreement or any other document made by or on behalf of Borrower in connection herewith and the transactions contemplated hereby, including, without limitiation, failure to comply with the terms and provisions of Section 8 of this Promissory Note;
 
                      (iv) A case or proceeding is commenced against Borrower seeking a decree or order (i) under Title 11 of the United States Bankruptcy Code (11 U.S.C. §§101 et seq. , as amended, and any successor statute, the “ Bankruptcy Code ”), or any other applicable federal, state or foreign bankruptcy or other similar law, rule or regulation, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for Borrower or for any substantial part of Borrower’s assets, or (iii) ordering the winding-up or liquidation of the affairs of s Borrower, and such case or proceeding shall remain undismissed or unstayed for sixty (60) days or more or a decree or order granting the relief sought in such case or proceeding shall be entered by a court of competent jurisdiction;
 
                      (v) Borrower, without the prior written consent of Lender (A) files a petition seeking relief under the Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or other similar law, rule or regulation, (B) consents to or fails to contest in a timely and appropriate manner the institution of proceedings thereunder or the filing of any such petition or the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for Borrower or for any substantial part of Borrower’s assets, (C) makes an assignment for the benefit of creditors, (D) takes any action in furtherance of any of the foregoing; or (E) admits in writing its inability to, or is generally unable to, pay its debts as such debts become due;
 
                      (vi)  If this Promissory Note, the Security Agreement, or any financing statement, document or other instrument executed, delivered or filed in connection herewith or with the security interest granted to Lender hereunder, shall, for any reason, fail or cease to create a valid and perfected lien on or security interest in any or all of the Collateral or the Collateral shall be compromised, encumbered or, in the case of the common stock, invalid, cancelled or otherwise rescinded;
 
(vi) If Borrower shall default on any material obligations of Borrower or an event of default shall occur with respect to any material agreement of Borrower, whether such agreement shall be in effect or effective subsequent to this Promissory Note.
 
(b)  Immediately upon the occurrence of any Event of Default, all of the Obligations of Borrower hereunder shall become immediately due and payable to Lender and the Obligations shall thereafter accrue interest at the Default Rate from the date of any Event of Default until such Obligations are paid in full (an “Accelleration”).  Promptly upon the occurrence of an Acceleration, Lender shall send Borrower written notice of the date upon which the Acceleration is effective and the names of  two (2) representatives of Lender (“Lender Nominees”) to be immediately appointed to the Board of Directors of Borrower (the “Default Notice”).  The Lender Nominees shall be appointed to the Board of Directors of Borrower not less than five days following the date of the Default Notice.  Except with respect to an Event of Default  under Section 13(a)(iv) and (v), Borrower shall have forty five (45) days (the forty fifth day hereinafter being the “Final Payment Date”) from the date of the Default Notice to pay Lender the total amount of the Obligations due and owning under this Promissory Note.  In the event that Borrower shall fail to satisfy in full all of the outstanding Obligations under this Promissory Note on or before the Final Payment Date, then Lender may (i) proceed to protect and enforce Lender’s rights by suit in equity, action at law and/or other appropriate proceeding, either for specific performance of any covenant or condition contained in this Promissory Note, the Security Agreement, or in any instrument or document delivered to Lender pursuant to this Promissory Note , or in aid of the exercise of any power granted in this Promissory Note or any such instrument or document, and (ii) proceed to enforce payment of the Obligations in such manner as Lender may elect, including the foreclosure of the Collateral in accordance with the terms of the Security Agreement, and to realize upon any and all rights of Lender hereunder.  Upon the occurrence of any Event of Default under Section 13(a)(iv) and (v), Lender shall have a right to immediately enforce its rights hereunder and proceed against or foreclose upon the Collateral without regard to the 45 day period set forth in this Section 13(b) To the extent not prohibited by applicable law which cannot be waived, all of Lender’s rights hereunder shall be cumulative.  Lender shall have all other rights and remedies not inconsistent herewith as provided under applicable law or in equity, and no exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver.   No delay by Lender shall constitute a waiver, election or acquiescence by it.
 
(c) In the event that the Obligations hereunder shall be paid in full by or on behalf of Borrower, after the Acceleration of this Promissory Note but prior to the Final Payment Date, then this Promissory Note shall be deemed paid in full, Lender shall promptly release any lien of Lender on the Collateral, and each Lender Nominee shall immediately resign from the Board of Directors of Borrower.   
 
                      14.   Certain   Rights and Waivers .  To the extent not prohibited by the provisions of applicable law, Borrower hereby expressly waives: (a) all presentments, demands for performance, notices of nonperformance (except to the extent required by this Note), protests, notices of protest and notices of dishonor; (b) any requirement of diligence or promptness on the part of Lender in the enforcement of its rights under this Note; (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law; and (d) any defense (other than indefeasible payment in full) which it may now or hereafter have with respect to its liability under this Note.
 
15.    Assignments .  Borrower may not assign or transfer any of its rights or obligations hereunder without the express, written consent of Lender.  Any such purported assignment or transfer by Borrower without the express, written consent of Lender shall be null and void ab initio .
16.    Costs and Expenses .  Borrower agrees to pay all costs and expenses of Lender, including without limitation all fees and disbursements of counsel, advisors, consultants, examiners and appraisers for Lender, in connection with (a) the issuance of this Promissory Note and advancement of principal amount hereunder (which fees and disbursements associated with the origination of this Promissory Note shall not exceed $3,500.00), (b) any enforcement (whether through negotiations, legal process or otherwise) of this Promissory Note, (c) any workout or restructuring of this Promissory Note during the pendency of one or more Events of Default, (d) any bankruptcy case or proceeding of Borrower or any appeal thereof, and (e) upon the occurrence and during the continuance of an Event of Default, any efforts to verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral.
           17.   CHOICE OF LAW .   THE VALIDITY OF THIS NOTE, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE BORROWER AND LENDER WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA,   WITHOUT REFERENCE TO CONFLICTS OF LAW PRINCIPLES EXCEPT TO THE EXTENT NECESSARY TO ENFORCE THIS CHOICE OF LAW PROVISION.
 
18.   Notices .  All communications hereunder shall be in writing and shall be deemed to be duly given and received (a) upon delivery if delivered personally or upon confirmed transmittal if by facsimile, (b) on the next Business Day if sent by overnight courier, or (c) four (4) Business Days after mailing if mailed by prepaid registered mail, return receipt requested, in each case to the appropriate notice address or facsimile number.
 
19.   Independent Arms Length Transaction .  It is understood and agreed that this Promissory Note, the Security Agreement and the transactions contemplated hereby and thereby were negotiated in an arms length transacton separate and distinct from any other transaction or contractual obligations and are independent of any transaction or transactions between Borrower, on the one hand, and Lender and any of its affilates or related entitles on the other hand.   Borrower further agrees that the contractual obligations of Borrower hereunder are in no way dependent or conditioned upon any other agreements, contracts or transactions whatsoever unless expressly stated herein.
 
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of the date first written above.
 
 
INVISA, INC.
 
By:  /s/Edmund C. King__________________________
Name:   Edmund C. King
Title:   Chief Financial Officer
 
    



FOREBEARANCE AND MODIFICATION AGREEMENT 

This Forbearance and Modification Agreement (this "Agreement") by and between Invisa, Inc., a Nevada corporation, having a business at 290 Cocoanut Avenue, 

Sarasota Florida 34236 (the “Borrower”), and Centurian Investors, Inc., a Delaware corporation, having an address at 290 Cocoanut Avenue, Suite 1A, Sarasota, 

Florida 34236 (the “Lender”) is entered into as if this  28th day of March , 2008 and shall be effective as of the date hereof (the “Effective Date”).  

 

RECITALS:

 

               WHEREAS, Lender and Borrower are parties to a certain Promissory Note, dated February 28, 2007, in the principal amount of up to One Hundred Fifty Thousand 

    ($150,000.00) (the “First Note”), that certain Promissory Note, dated July 25, 2007 in the principal amount of Fifty Thousand ($50,000) dollars (the “Second Note”), 

    that certain Promissory Note, dated October 23, 2007 in the principal amount of Fifty Thousand ($50,000) dollars (the “Third Note”) and that certain Promissory 

    Note, dated March 28, 2008 in the principal amount of One Hundred Fifty Thousand ($150,000.00) dollars (the “Fourth Note”; the First Note, Second Note,

     Third Note and the Fourth Note being hereinafter collectively referred to as the “Notes”); and 

                WHEREAS, the Notes are secured by (a) an aggregate of  Fifty Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Eight (59,999,998 ) shares of common

     stock of Borrower and (b) a first priority lien on all of the assets of Borrower as more specifically described in the Notes and that certain General Security Agreement,

     dated February 28, 2007 (the “Security Agreement” the Notes and the Security Agreement, together with all documents executed in connection therewith being 

    hereinafter referred to collectively as the “Loan Documents”); and 

                WHEREAS, Borrower hereby requests Lender’s forbearance with respect to certain provisions of the Notes; and 

                WHEREAS, Borrower and Lender desire to modify certain of the provisions of the Notes as more specifically set forth herein.

                NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

                1.            Terms used herein which are defined in the Loan Documents shall have the same meanings when used herein unless otherwise provided herein.

                2.            Without in any way waiving any existing Event of Default and at the request of the Borrower, Lender hereby agrees forbear from exercising any remedy available to 

    Lender upon the occurrence of an Event of Default under paragraph 13(a)(i) of each of the First Note and Second Note from the Effective Date hereof and until 

    the earlier of May 31, 2008 or an Acceleration under any provision other than paragraph 13(a)(i) under such Notes (the “Forbearance Period”).

                3.            The interest rate payable during the Forbearance Period shall be the Interest Rate.  

                4.            Borrower understands and agrees that the remaining provisions of the Notes shall remain in full force and effect without any changes or modification except as expressly

    stated herein; including, without limitation, the cure periods set forth in paragraph 13(b) of the Notes.   Borrower further agrees that in the event that all principal and

`    interest payments due and owing to Lender under the Notes are not paid in full on or before the Maturity Date, then, for purposes of paragraph 13(b) of the Notes, 

    an Acceleration event shall be deemed to have occurred on the Maturity Date.  Borrower hereby waives any requirement by Lender to deliver to Borrower a Default 

    Notice under paragraph 13(b) of the Notes and agrees that the Maturity Date shall be deemed the date of the Default Notice for purposes of calculating the cure and

     other time periods set forth in paragraph 13(b) of the Notes.  

                5.            The provisions set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition 

    of the Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Lender may now have or may have in the future under or in 

    connection with the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments

     thereof, the terms and provisions of the Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain

     in full force and effect. In the event of a conflict between this Agreement and any of the foregoing documents, the terms of this Agreement shall be controlling. The

     representations and warranties made in each Loan Document are true and correct in all material respects on and as of the date of this Agreement.

               

 6.            To induce the Lender to execute and deliver this Agreement (which representations shall survive the execution and delivery of this Agreement), Borrower represents 



    and warrants to the Lender that:



          (a) this Agreement has been duly authorized, executed and delivered by it and constitutes the legal, valid and binding obligation, contract and 



            agreement of the Borrower enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, 



            reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; and 



 



                       (b) the execution, delivery and performance by the Borrower of this Agreement (i) has been duly authorized by all requisite corporate action, 



             (ii) does not require the consent or approval of any governmental or regulatory body, agency, or other party and (iii) will not (A) violate 



            (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation 



         or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other 



         instrument to which it is a party or by which its properties or assets are or may be bound.  


      

    
        (c) pay to Lender a forbearance fee in the amount Two Thousand ($4,000.00) dollars which is equal to 1% of the aggregate principal amount 

         of the Notes.  

                                    (d) Borrower shall pay all costs and expenses of Lender in connection with this Agreement, including, without limitation, reasonable attorneys

                        fees of Lender.     

   7.            As a condition to and as consideration for the agreements of Lender set forth herein, Borrower shall: 



                (a) pay to Lender  all  accrued but unpaid interest on the Notes.; 



      (b) prepay any and all remaining interest on the Notes from the date hereof  through March 31, 2008.



                                                                (c) pay to Lender a forbearance fee in the amount Two Thousand ($4,000.00) dollars which is equal to 1% of the aggregate principal amount 



          of the Notes.  



                                     (d) Borrower shall pay all costs and expenses of Lender in connection with this Agreement, including, without limitation, reasonable attorneys 



                                                                                     fees of Lender.     



.



 .               8.            None of the provisions of this Agreement shall inure to the benefit of Borrower or any person other than Lender. Consequently, Borrower shall not be, and no person


    
     other than the Lender shall be, entitled to rely upon or raise a claim or defense, in any manner whatsoever, the failure of Lender to comply with the provisions of this 

    Agreement.  Lender shall not incur any liability to Borrower or any other person for any act or omission  whatsoever.  

                9.            This Agreement and the rights and obligations of the parties hereunder and under the Forbearance Agreement shall be construed in accordance with and be governed 

    by the laws of the State of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Florida.

                10.          This Agreement and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all

     prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof.

                11.          This Agreement may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute 

    one and the same instrument. Complete sets of counterparts shall be lodged with the Borrower and the Lender.

                IN WITNESS WHEREOF, this Agreement is executed as of the date first written above and shall be effective as of the Effective Date.

 INVISA, INC.                                                                    CENTURIAN INVESTORS, INC.

 __________________________                                        ______________________________

Name:                                                                                  Name:

Title:                                                                                    Title:

                

 
EXTENSION OF PROMISSORY NOTE

Comes now MAG Capital, LLC, Monarch Pointe Fund,  Mercator Momentum Fund III and Asset Managers International  (the “MAG Group”) and for good and valuable consideration, the receipt and sufficiency is hereby acknowledged, agrees as follows:

1.   MAG Group Loan . The MAG Group hereby extends the Maturity Date of the promissory note entered into between Invisa, Inc (“Invisa”) and the MAG Group on October 4, 2006 (the “MAG Group Note”) until May 31, 2008 (the “Extended Maturity Date”).

The parties have signed this Agreement on April 11, 2008.




Invisa, Inc.

BY: ____________

MAG Affiliated Entities:

MAG Capital, LLC


BY: ____________

Monarch Pointe Fund

BY: ______________


Mercator Momentum Fund III

BY: _________________


Asset Managers International

BY: _________________