Cannapowder 10K 2008 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ______________________________.

Commission File Number: 000-26027

SMART ENERGY SOLUTIONS, INC.

(Exact Name of Registrant as Specified in its Charter)

Nevada		20-3353835
(State or Other Jurisdiction of Incorporation)		(IRS Employer Identification No.)

210 West Parkway, #7, Pompton Plains, NJ 07444

(Address of Principal Executive Offices, Zip Code)

(973) 248-8008

(Registrant’s Telephone Number)

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

Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.001 par value

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨	Small reporting company x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of March 31, 2009 was $3,305,079. [aggregate market value of common stock held by non-affiliates computed by reference to price last sold, or the average bid and ask, as of the last day of 3/331/09

The number of shares outstanding of the Registrant’s common stock as of March 31, 2009 was 112,036,585.

Documents Incorporated By Reference: None

TABLE OF CONTENTS

Need page numbers

	Page
PART I	1
Item 1. Business	1
Item 1A. Risk Factors	5
Item 1B. Unresolved Staff Comments
Item 2. Properties	5
Item 3. Legal Proceedings	5
Item 4. Submission of Matters to a Vote of Security Holders	5

PART II	6
Item 5. Market for Common Equity, Related Stockholder Matters and Purchases of Equity Securities	6
Item 6. Selected Financial Data	13
Item 7. Management’s Discussion and Analysis or Financial Condition and Results of Operations	13
Item 8. Financial Statements and Supplementary Data	16
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	16
Item 9A. Controls and Procedures	16
Item 9A(T). Controls and Procedures	18
Item 9AB. Other Information	19

PART III	19
Item 10. Directors, Executive Officers and Corporate Governance	19
Item 11. Executive Compensation	21
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
Item 13. Certain Relationships and Related Transactions and Director Independence.	29
Item 14. Principal Accountant Fees and Services	32

PART IV
Item 15. Exhibits, Financial Statement Schedules	33

iii

PART I.

As used in this Form 10-K, references to the "Company," the "Registrant," "we," “our” or "us" refer to Smart Energy Solutions, Inc. unless the context otherwise indicates.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking information. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management of the Company and other matters. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. Forward-looking information may be included in this Annual Report on Form 10-K or may be incorporated by reference from other documents filed with the Securities and Exchange Commission by the Company. You can find many of these statements by looking for words including, for example, “believes,” “expects,” “anticipates,” “estimates” or similar expressions in this Annual Report on Form 10-K or in documents incorporated by reference in this Annual Report on Form 10-K. Except as otherwise required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.

The Company has based the forward-looking statements relating to the Company’s operations on management’s current expectations, estimates and projections about the Company and the industry in which it operates. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In particular, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, the Company’s actual results may differ materially from those contemplated by these forward-looking statements. Any differences could result from a variety of factors, including, but not limited to the following:


	-	the Company’s ability to manufacture, market, and price the Battery Brain product;

	-	the Company’s ability to hire and maintain the personnel necessary to run the operations of the Company;

	-	the level of consumer spending for the Company’s product;

	-	the success of the Company’s marketing and promotion programs in obtaining market acceptance for its product;

	-	market conditions affecting the prices of the Company’s product; and

	-	responsiveness of both the trade and consumers to the Company’s new product and marketing and promotion programs.

Item 1. Business

Our History

The Company was initially formed in 1999 as a Utah corporation under the name Datigen.com, Inc. On August 25, 2005, the Company changed its state of incorporation from Utah to Nevada by the merger of the Company with and into its wholly owned subsidiary, Smart Energy Solutions, Inc., a Nevada corporation. As a result of such merger, the Company’s name was changed to Smart Energy Solutions, Inc. in order to better reflect the Company’s business operations.

Until November 24, 2004, the Company had been involved in various activities, including development and marketing of various internet and internet related products and services, investment in trust deed notes secured by real property, and providing concrete cutting and finishing services to persons seeking to comply with certain provisions of the American Disability Act of 1991 that require the removal of “trips hazards” from public sidewalks and ramps. On November 24, 2004, a majority of the Company’s outstanding common stock was purchased by Amir Uziel and six unaffiliated foreign individuals from certain of the Company’s shareholders, including its then Chief Executive Officer, Joseph Ollivier.

Following such change in control, the Company ceased all of its prior business operations. From November 24, 2004 until March 23, 2005, the Company did not have any business operations.

On March 23, 2005, the Company acquired from Purisys, Inc., a New Jersey corporation, the intellectual property rights and certain other assets relating to a product known as the Battery Brain. The Battery Brain is a device that is attached to a motor vehicle battery for the purpose of protecting the vehicle from battery failure and theft. On such date, the Company, Purisys and Aharon Y. Levinas executed an Asset Purchase Agreement (the “Agreement”) pursuant to which the Company purchased all the intellectual property relating to the Battery Brain product and the goodwill associated therewith and certain of the equipment relating to the product. The purchased assets did not include the inventory which existed as of March 23, 2005 or the molds for the Battery Brain (which were located in Italy and China), which were purchased by us for $66,487.

The consideration paid by the Company for the Battery Brain assets included (i) the issuance to Mr. Levinas, the sole shareholder of Purisys, of shares of our common stock representing twenty (20%) percent of the issued and outstanding shares of common stock, assuming new investments in the Company in the aggregate amount of $1,000,000, and (ii) a payment of $100,000. Pursuant to the Agreement, 10,421,750 shares of our common stock were issued to Mr. Levinas in August 2005. Pursuant to the Agreement, we agreed that if we raised $400,000 prior to June 23, 2005 we would issue to Mr. Levinas additional shares of our common stock in an amount equal to 20% of the issued and outstanding shares of the Company; and if less than $400,000 is raised, then such share amount shall be pro rated based on the actual amount invested. Since we successfully raised more than the $400,000 in a private placement of units of our securities we were not required to issue additional shares to Mr. Levinas. Pursuant to the Agreement, we also agreed to use our best efforts within the next two years to (a) consummate an equity raise of not less than $1,500,000 dollars at a post-money valuation of not less than $12,000,000; provided, that all equity raises within 120 days after March 23, 2005 which are based on a post-money valuation which is $10,500,000 or greater, shall be counted toward the $1,500,000; or (b) generate revenue from the Battery Brain product in an aggregate amount of at least $2,000,000. If we failed to achieve either (a) or (b) at any time on or prior to March 23, 2007, then Mr. Levinas would be entitled to receive additional shares of common stock equal to 20% of the outstanding share capital on a fully-diluted basis (calculated as of said date). As further discussed below, by November 2005 we had raised an aggregate of $2,749,000 in a private placement of units of our securities; therefore, we achieved our obligation to consummate an equity raise of not less than $1,500,000 and Mr. Levinas is no longer entitled to receive the additional shares pursuant to the Agreement.

We agreed with Mr. Levinas to negotiate, in good faith, an agreement regarding the registration rights associated with the shares issued to Mr. Levinas pursuant to the Agreement, providing that Mr. Levinas is entitled to equal registration rights with our controlling shareholders, pro rata in accordance with their holdings, subject to a lock-up agreement, but have not executed a registration rights agreement with Mr. Levinas with respect to these shares as of the date of this report.

Pursuant to the terms of our March 23, 2005 asset purchase agreement with Purisys, Inc. and Mr. Levinas, our Board of Directors shall consist of five (5) members, and Mr. Levinas is entitled to appoint 40% of the directors. If for any reason we cease to manufacture, sell or otherwise cease to be involved in the Battery Brain product, then Mr. Levinas shall have the right to purchase the Battery Brain product from us; the price and other terms of such right shall be negotiated.

The only liabilities we assumed in the transaction are (i) the warranties and service of any Battery Brain products sold prior to the execution and delivery of the Agreement, (ii) any potential claims made by a person who alleges that he assisted in developing the Battery Brain product and (iii) any taxes incurred as a result of the Agreement.

Following the purchase of the Battery Brain assets, the Company focused on building a management team, establishing operations, and entering into contractual arrangements for the manufacture and distribution of Battery Brain products. The Company presently engages in the manufacturing, distribution, and sale of Battery Brain products.

Our Principal Products and Markets

The Company’s only products are its Battery Brain products. The Battery Brain is a small, box-shaped device, whose size and weight is comparable to that of a cellular phone. It is attached to the battery of a motor vehicle and performs two principal functions for the motor vehicle: prevention of battery failure and protection from theft. If the Battery Brain is attached to a car battery, and the car’s operator leaves the lights on while the car is turned off, the Battery Brain will prevent the battery from failing, so that the car can be started again without having to recharge its battery. It works by preventing a battery from becoming drained below the level necessary for it to function. The Battery Brain is able to detect when the battery has reached such point and, upon such detection, it automatically disconnects the power from the battery so that the battery will not be drained any further. In addition, the Battery Brain protects the vehicle from being stolen by stopping the battery from powering the engine while the car is turned off, thereby preventing a potential thief from “hot wiring” the engine, a procedure commonly used by thieves to turn on the vehicle’s engine without an ignition key.

Different versions of the Battery Brain are available, each of which is intended to be used with a different type of motor vehicle. As a result, the Battery Brain can be used on all types of motor vehicles, from passenger cars to light trucks to heavy trucks, buses, tractors, RVs, motorcycles, boats, handicap vehicles or any other motor vehicles that rely on batteries.

Our R&D has develop software and switching applications that can be used to monitor energy storage for alternative energy applications in wind, solar and hydrogen generation as well as a controlled interface to the power grid. This application uses our processor and high capacity switching technology to provide a intelligent switching capability for energy storage and generation.

We have also developed an application that allows our technology to used as an intelligent circuit breaker providing enhanced safety against electrical shorts that are responsible for vehicle fires. This application monitors the current being used in vehicles when they are moving or when they are parked and will alert the driver to a short condition immediately or if the vehicle is parked disconnect the source of energy before an electrical fire can start.

Sources and Availability of Raw Materials; Manufacturing Operations;

The Company is not dependent upon a small number of suppliers for the raw materials used in the production of the Battery Brain as it expects to have alternative sources available and not to encounter any difficulties in obtaining such raw materials. The Battery Brain is manufactured on behalf of the Company by third party manufacturers. The Company has expanded its manufacturing capabilities by engaging additional third party manufacturing facilities in China and Israel. Such third party arrangements give the Company access to state of the art manufacturing facilities, they maintain strict protection of our proprietary property, they enable the Company to meet the strictest regulation, and they provide the necessary flexibility to meet the growing demands in each market segment.

Markets; Distribution Methods

We will not be dependent upon a small number of customers, as we intend to market the Battery Brain to all users of motor vehicles. The Company’s activities have been focused on the following nine market segments, each of which have unique requirements: Automotive Retail; Automotive Dealers; Automotive Original Equipment Manufacturers; Automotive Specialty; Fleets; Military; Heavy Truck/Bus; Motor Home/Recreational Vehicle; and Marine.

The Company has contracted with various distributors for distribution of the Battery Brain products in the United States, Canada, United Kingdom, France, Mexico, Asia and Israel.

The Company has been approved as a supplier to the U.S. General Services Administration and was awarded a GSA contract on February 1, 2007. This contract authorizes the Company to sell products electronically via the Internet to all executive agencies of the US government, contractors working for the Federal government, fleet managers and the District of Columbia. On January 31, 2007 the Company and the U.S. Department of Defense announced that the U.S. Army has begun testing the Battery Brain on their Striker Tactical Vehicle. The military designed Battery Brain has passed all phases of testing to date and the U.S. Army is scheduled to complete testing in the 2nd quarter of 2009

On October 25, 2007 the Company executed a distributorship agreement with All Start Battery. Pursuant to this agreement, All Start was appointed as the exclusive distributor of the Battery Brain products to new car dealers located in California. The term of the agreement is for a three year period expiring on October 24, 2010 and may be terminated if minimum sales targets are not achieved. The term shall be automatically renewed for successive two year periods unless terminated by the parties. Either party may terminate the agreement without cause upon 30 days’ prior notice. This agreement is still in effect with 13,000 units scheduled for delivery in April 2009.

On March 17, 2008 we executed a distributorship agreement with OnGuard Dealer Services, LLC. Pursuant to the agreement, OnGuard was appointed as the exclusive distributor of the Battery Brain products to new and used car dealers in all of the United States other than California. The agreement has a term of ten years and renews automatically for successive one year periods. Either party may terminate the agreement in the event of a breach or a change in the majority ownership of the Company. The agreement establishes sales targets and allows us to terminate the exclusivity of the distributorship if these targets are not met and take other remedial actions. The agreement also provides that we will grant OnGuard 1,000,000 warrants at an exercise price of $.50 with a term of five years, if OnGuard achieves the minimum sales threshold of one hundred fifty thousand units in the first year of the term. An additional 1,000,000 warrants will be granted if OnGuard achieves minimum sales threshold of three hundred thousand units over two years from the date of the agreement. OnGuard will be granted a total of 3,000,000 warrants should it achieve a sales threshold of seven hundred fifty thousand units over two years. Agreement is terminated On Guard was unable to make payments on their orders and the produt was returned to Smart Energy Solutions Inc.

The Company also sells units of the Battery Brain to other commercial enterprises, including the following; automotive retail distributors like Keystone, Crutchfield and O’Reilly Auto Parts; marine distributors, including , Overton and Keller Marine; recreational vehicle and motor home distributors, including Coast and Stag Parkway; truck distributors, including Camping World, Truck Pro and ; and international distributors in Italy, Belgium, the Netherlands, Sweden, Mexico, Israel, the Philippines and the United Kingdom.

Competition

The Company believes that it has a competitive advantage over the producers of products which the market might consider similar to the Battery Brain. We feel that the Battery Brain is differentiated from similar products offered by such competitors in various important ways. The Battery Brain is the only product of its kind that will protect vehicles from battery failure due to the operation of any electrical accessory, including headlights, radios, trunk lights, interior lights, door lights, or due to shorts circuits in the electrical system, and also provide vehicle anti-theft capability. Similar products offered by competitors protect vehicles from battery failure due only to the operation of the headlights. The Battery Brain is also easier to install than other competitive products. Further, in order to reset the load (the energy source), most other competitive products require the operator of the vehicle to lift the hood, locate the device, and press a reset knob located on the device. The Battery Brain can be operated via remote control. New products being delivered in the First Quarter 2009 have programmable capability so that unique setting can be set for fleet applications or vehicle specific requirements.

Intellectual Property

Our intellectual property rights in the Battery Brain products are protected by a US patent, which was issued on June 1, 2004 and expires on July 23, 2022. On December 7, 2007 we applied for a provisional patent with respect to our new Battery Switch products, which incorporate electronic circuit technology and will enhance our current product line. We have also applied for provisional patents on additional battery applications and for a World Wide patent covering some of our new proprietary electronic recognition software.

Employees

As of March 25, 2009 the Company had Three employees, of which all are employed full time.

Item 1A. Risk Factors

Smaller reporting companies are not required to provide the information required by this item.

Item 2. Properties

The Company leases its executive offices and warehouse facilities, which together consist of approximately 5,000 square feet, at 210 West Parkway, #7, Pompton Plains, NJ 07444, pursuant to a lease with a term of one year commencing on 1, 2007. The rent due under the lease is $5,500 per month. The initial term of the lease will be automatically renewed for an additional two year term unless, at least 90 days prior to the expiration of the initial term, the Company notifies the landlord that it does not desire to renew the term. The Company believes that its current office and warehouse space will be adequate for the foreseeable future.

Item 3. Legal Proceedings

The Company is not a party to, and the Company’s property is not the subject of, any pending legal proceedings involving claims for damages which, exclusive of interest and costs, exceed 10% of the current assets of the Company. There are no pending legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.

The Company suit against Superior Automotive Company was settled on December 5, 2007. The agreement with Superior was terminated all product held by Superior Automotive was returned and Superior was released from any obligations to pay outstanding charges.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

PART II

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

Market Information

The Company’s common stock has been traded on the Over-The-Counter Bulletin Board sponsored by the Financial Industry Regulatory Authority, Inc., Inc. under the symbol SMGY.OB. The following table sets forth the range of quarterly high and low closing bids for the common stock as reported on http://finance.yahoo.com during the years ending December 31, 2008 and December 31, 2007:

Financial Quarter		Bid Information*
Year	Quarter	High Bid		Low Bid
2008	Fourth Quarter	$	0.10	$	0.01
	Third Quarter	$	0.17	$	0.07
	Second Quarter	$	0.23	$	0.14
	First Quarter	$	0.33	$	0.17
2007	Fourth Quarter	$	0.50	$	0.25
	Third Quarter	$	0.60	$	0.49
	Second Quarter	$	0.62	$	0.54
	First Quarter	$	0.65	$	0.41

*The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Holders

On March 25, 2009, there were approximately 189 holders of record of the Company’s common stock.

Dividends

The Company has not declared or paid any cash dividends on its common stock nor does it anticipate paying any in the foreseeable future. Furthermore, the Company expects to retain any future earnings to finance its operations and expansion. The payment of cash dividends in the future will be at the discretion of its Board of Directors and will depend upon its earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table presents certain information as of the end of December 31, 2008 with respect to compensation plans under which equity securities of the Company are authorized for issuance:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
	(a)		(b)		(c)
Equity Compensation Plans Approved by Security Holders		0		0		0
Equity Compensation Plans Not Approved by Security Holders		11,334,665	$	0.17		1,000,000
Total		11,334,665	$	0.17		1,000,000

2005 Stock Incentive Plan

On November 28, 2005, the board of directors resolved to adopt the 2005 Stock Incentive Plan (the "2005 Stock Plan"). In connection with the adoption of the 2005 Stock Plan, the Company reserved 1,000,000 shares of common stock of the Company for future issuance under the plan. The 2005 Stock Plan superseded all previous equity compensation plans of the Company. No equity compensation was awarded under any previous equity compensation plans.

The purpose of the 2005 Stock Plan is to provide incentives to attract, retain, and motivate eligible persons whose present and potential contributions are important to the success of our Company by offering them an opportunity to participate in our future performance through awards of restricted stock and stock bonuses. The Stock Plan offers directors, officers and selected key employees, advisors and consultants of the Company an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing shares of the Company’s common stock. The 2005 Stock Plan provides both for the direct award or sale of shares.

The 2005 Stock Plan is to be interpreted and applied by a committee of our Board of Directors. The Board’s principal responsibilities are the following: (i) designate participants; (ii) determine the type or types of stock awards to be granted to an eligible employee or other individual under the 2005 Stock Plan; (iii) determine the number of common shares to be covered by awards; (iv) determine the terms and conditions of any award; (v) determine whether, to what extent, and under what circumstances awards may be settled or exercised, or canceled, forfeited or suspended, and the method or methods by which awards may be settled, exercised, canceled, forfeited or suspended; (vi) determine requirements for the vesting of awards or performance criteria to be achieved in order for awards to vest; (vii) determine whether, to what extent and under what circumstances common shares payable with respect to an award under the 2005 Stock Plan shall be deferred either automatically or at the election of the holder thereof or of the Board; (viii) interpret and administer the 2005 Stock Plan and any instrument or agreement relating to, or award made under, the 2005 Stock Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the 2005 Stock Plan; and (x) make any other determination and take any other action that the Board deems necessary or desirable for the administration of the 2005 Stock Plan. Unless otherwise expressly provided in the 2005 Stock Plan, all designations, determinations, interpretations and other decisions under or with respect to the 2005 Stock Plan or any award shall be within the sole discretion of the Board, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, any affiliate, any participant, any holder or beneficiary of any award, any stockholder and any employee. No awards under the 2005 Stock Plan shall be granted after December 31, 2014.

The 2005 Stock Plan provides that 1,000,000 shares of the Company’s common stock are reserved for stock awards thereunder. Stock awards may be granted only to employees or independent contractors (including, officers and directors who are also employees) of the Company or of an affiliate of the Company. How many currently issued, vested, etc?

Individual Equity Compensation Arrangements

Pursuant to a Consulting Agreement, dated October 3, 2005 and amended on October 3, 2006, between the Company and Peter Mateja, our Chief Executive Officer and Director, the Company granted to Mr. Mateja 3,000,000 stock options, each of which gives Mr. Mateja the right to purchase one share of the Company's common stock for $0.15. Such stock options shall vest pro ratably every three months over the three year period commencing three months from October 3, 2005. The vested stock options shall be exercisable until the earlier of five years after vesting or 365 days after Mr. Mateja's termination. All remaining stock options shall automatically vest upon the Company's change in control. In lieu of a $50,000 cash bonus he was entitled to pursuant to the consulting agreement, the Company agreed, on October 3, 2006, to issue to Mr. Mateja 150,000 shares of common stock and 66,666 stock purchase options, each of which entitles the holder thereof to purchase one share of common stock at $0.45. On July 3, 2008 the company signed a termination agreement with Peter Mateja that terminated the company’s obligations to Mr. Mateja at the end of his contract term October 2008. Mr. Mateja would be paid his salary,expenses and retain his contract options.

On July 29, 2005, the Company issued options to each of its directors - Joseph Bahat, Jacob Enoch, Amir Uziel, Tamir Levinas, and Aharon Y. Levinas. Such options were issued pursuant to a separate letter agreement entered into between the Company and each director on July 29, 2005. The terms of each letter agreement are identical. Pursuant to the Letter Agreements, each director agreed to serve as a director of the Company until the next Annual Meeting of Shareholders. As compensation for his services, each director received options to purchase 345,000 shares of the common stock of the Company for a price of $0.15 per share, exercisable for three years after the date that the stock options vest. Such stock options shall vest quarterly over the three year period commencing three months from the date of the Letter Agreement, so that 28,750 stock options shall vest every three months. In addition, each director shall be paid $4,000 for each year that he serves as director, payable quarterly in arrears. Each director also shall be paid $1,000 for each board or committee meeting at which he is physically present.

On November 9, 2006, the Company granted an additional 195,000 stock options, subject to vesting as described below, to each of the following directors: Aharon Y. Levinas, Tamir Levinas, Jacob Enoch, Joseph Bahat, and Amir Uziel. Each such stock option entitles the holder thereof to purchase one share of common stock for a price of $0.15, exercisable for three years after the date that the stock option vests. Such stock options shall vest quarterly over three years, commencing on November 9, 2006. Mr. Bahat and Mr. Enoch resigned from the Board of Directors on January 12, 2009 due to time constraints and other obligations.

Pursuant to an Employment Agreement, dated May 24, 2005 and amended and restated on October 25, 2006, between the Company and Edward Braniff, our Chief Financial Officer, the Company issued to Mr. Braniff options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share. Such options shall vest pro ratably every three (3) months over three (3) year period commencing on May 24, 2005. The vested options shall be exercisable until the earlier of 5 years after vesting or 365 days after termination of Mr. Braniff’s employment with the Company. In addition, during the fiscal year ended December 31, 2006, Mr. Braniff received a bonus consisting of the following awards: 100,000 shares of common stock, granted on October 25, 2006; 50,000 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.30), granted on October 25, 2006; and 33,333 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.45), granted on December 31, 2006. Mr. Braniff was also granted 50,000 stock options a month, (each entitling Mr. Braniff to purchase one share of common stock for $0.25), as an extension of his employment contract from June 1, 2008.

Pursuant to an employment agreement, dated March 23, 2005, between the Company and Aharon Y. Levinas, our Chief Technology Officer, as amended on April 18, 2005 and May 18, 2005, the Company issued to Mr. Levinas 2,650,000 shares of common stock, which shall vest pro ratably every 3 months over a 3-year period commencing on April 4, 2005. Upon a change of control of the Company, all such shares shall automatically be issued simultaneously upon the effective date of the change of control. The agreement is for a 4-year term, with a base salary of $160,000, $200,000 and $240,000 for each year of the term. All benefits to be granted to the individual who will be appointed as our Chief Executive Officer shall be granted to Mr. Levinas as well, including bonuses and stock options. The agreement with Mr. Levinas provides that if Mr. Levinas is terminated during the 4-year term, or is no longer employed by us for any reason during said period, including termination for cause or death, we remain obligated to pay the full amount of payment due Mr. Levinas thereunder.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

Between December 21, 2006 and January 3, 2007, the Company executed subscription agreements with eight non-US investors providing for the issuance of 4,453,410 shares of common stock, at a purchase price of $0.30 per share for aggregate consideration of $1,336,023. In addition the Company issued 500,000 shares of common stock to a non-US person as payment of commissions earned in connection with the sale of these shares. The shares were offered and sold pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) under Regulation S promulgated under the Securities Act. The Company did not make any offers in the United States, each of the purchasers was outside the United States, and there were no selling efforts in the United States.

In August and September of 2006, the Company issued and sold 184,458 shares of common stock to non-US investors at a purchase of $0.35 per share for aggregate consideration of $225,000. No commissions were paid in connection with the sale of these shares. The shares were offered and sold pursuant to an exemption from the registration requirements of the Securities Act under Regulation S promulgated under the Securities Act. The Company did not make any offers in the United States, each of the purchasers was outside the United States, and there were no selling efforts in the United States.

During the three months ended September 30, 2006, the Company issued 142,857 shares of common stock to EGFE, Ltd. These shares were issued in connection with the promissory note, dated May 22, 2006 and amended on March 6, 2007, in the principal amount of $500,000. The shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Regulation D promulgated under the Securities Act. EGFE represented that it was an accredited investor, as defined in Regulation D, and made customary representations regarding its intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On September 14, 2006, the Company issued a promissory note to EGFE in the principal amount of $500,000. The note is payable on demand and accrues interest at the rate of 12% per annum. On March 6, 2007 this note was amended to provide that the entire outstanding principal and all accrued interest would be repaid on September 30, 2007. The note was offered and sold pursuant to an exemption from the registration requirement of the Securities Act under Regulation D promulgated under the Securities Act. EGFE represented that it was an accredited investor, as defined in Regulation D, and made customary representations regarding its intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

In May 2006, the Company issued and sold 1,357,142 shares of common stock to non-U.S. investors, at a purchase price of $0.35 per share for aggregate consideration of $475,000. No commissions were paid in connection with the sale of these shares. The shares were offered and sold pursuant to an exemption from the registration requirements of the Securities Act under Regulation S promulgated under the Securities Act. The Company did not make any offers in the United States, each of the purchasers was outside the United States, and there were no selling efforts in the United States.

In May 2006, the Company issued and sold 100,000 units, each consisting of one share of common stock, one class A warrant and one class B warrant, at a purchase price of $0.25 per unit for aggregate consideration of $25,000. Each class A warrant entitles the holder to purchase one share of common stock at a purchase price of $0.45 at any time on or before the first anniversary of the date on which the warrant was issued. Each class B warrant entitles the holder to purchase one share of common stock at a purchase price of $0.75 at any time on or before the third anniversary of the date on which the warrant was issued. No commissions were paid in connection with the sale of the units. The units were offered and sold pursuant to an exemption from the registration requirement of the Securities Act under Regulation S promulgated under the Securities Act. The Company did not make any offers in the United States, each of the purchasers was outside the United States, and there were no selling efforts in the United States.

On May 22, 2006, the Company issued two convertible promissory notes to EGFE, each in the principal amount of $500,000. One of these notes is payable June 4, 2008 and the other is payable on May 24, 2008. Both notes accrue interest at the rate of 15% per annum. Both notes and all accrued and unpaid interest are convertible into shares of the Company’s common stock, at the holder’s option, at a conversion price equal to 95% of the average of the closing bid and ask prices for the common stock as quoted on the Over-The-Counter-Bulletin-Board for the five trading days preceding conversion. If the Company is in default under the terms of the notes the conversion price shall be 50% of the average of the closing bid and ask price for of the common stock for the five trading days preceding conversion. The notes were issued pursuant to an exemption from the registration requirements of the Securities Act under Regulation D promulgated the Securities Act. EGFE represented that it was an accredited investor, as defined in Regulation D, and made customary representations regarding its intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

In March 2006, the Company issued 200,000 shares of common stock upon the exercise of warrants, at an exercise price of $0.45 per share for aggregate proceeds of $90,000. No commissions were paid in connection with the exercise of the warrants. The shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Regulation S promulgated under the Securities Act. The Company did not make any offers in the United States, each of the purchasers was outside the United States, and there were no selling efforts in the United States.

On January 24, 2006, the Company issued 60,000 shares to each of Amir Uziel, Tamir Levinas, Shiri Levinas, Yoram Drucker, Lavi Krasney and David Lubin. These shares were issued as consideration for consulting services provided to the Company. The shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Regulation D promulgated under the Securities Act. The recipients of these shares were our officers, directors and consultants and each represented that he or she was an accredited investor, as defined in Regulation D, and made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On January 9, 2006, the Company issued 26,250 shares of common stock to Yair Alon, 50,000 shares to Guy Bahat, 40,000 shares to Daniel Levi and 143,750 shares to Dov Resnik. These shares were issued as consideration for services provided to the Company. The shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Regulation D promulgated under the Securities Act. The recipients of these shares were our officers, directors and consultants and each represented that he was an accredited investor, as defined in Regulation D, and made customary representations regarding his intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On January 24, 2007, the Company issued 250,000 shares of common stock to Joseph Oliver in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On March 9, 2007, the Company issued 25,000 shares of common stock to Richard Wexler in exchange for corporate advisory services provided by Mr. Wexler to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On March 14, 2007, the Company issued 166,000 shares of common stock to BR Eood in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On March 20, 2007, the Company issued 350,000 shares of common stock to Lion Partners Ltd. in exchange for Investor Relations services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On May 11, 2007, the Company issued 40,000 shares of common stock to Stern/Ferbman in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On May 17, 2007, the Company issued 1,333,333 shares of common stock to Michael Ben-Ari, a director of the Company, in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On May 23, 2007, the Company issued 350,000 shares of common stock to Joji Mangubat in exchange for Investor Relation services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On June 19, 2007, the Company issued 350,000 shares of common stock to American Cap in exchange for Investor Relations services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On July 2, 2007, the Company issued 45,000 shares of common stock to Michael Ben-Ari, a director of the Company. These shares were issued upon exercise of options granted to Mr. Ben-Ari, as consideration for his service on the Company’s board of directors, for an aggregate exercise price of $15,750. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipient of these shares made customary representations regarding his intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On August 17, 2007, the Company issued 100,000 shares of common stock to Edward Braniff, a bonus granted on October 25, 2006. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On August 17, 2007, the Company issued 35,000 shares to Amir Uziel and 35,000 share to Lavi Krasney for consulting services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On September 23, 2007, the Company issued 31,000 shares of common stock to Friedland Corporate Investor Services LLC, in connection with the settlement of a dispute relating to a consulting agreement between the Company and Friedland Corporate Investor Services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On September 23, 2007, the Company issued 750,000 shares of common stock to Eyal Gohar in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On September 27, 2007, the Company issued 300,000 shares of common stock to TENA Holdings and 300,000 shares of common stock to Black Velvet Ltd. in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On October 1, 2007, the Company issued 110,000 shares of common stock to Lieber McDonald in exchange for public relations services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On October 15, 2007, the Company issued 250,000 units, each consisting of one share of common stock and one warrant, to Lighthouse Capital Insurance Company for total consideration of $100,000. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.75 until August 1, 2009. These units, the shares of common stock and the warrants included in the units were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On October 15, 2007, the Company issued 168,750 units, each consisting of one share of common stock and one warrant, to Ofliam LLC for total consideration of in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

On December 10, 2007, the Company issued 151,937 shares of common stock to Strauss/Shinder in exchange for consulting services provided to the Company. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act under Section 4(2) thereof. The recipients of these shares made customary representations regarding his or her intention to acquire the shares for investment only and not with view to or for sale in connection with any distribution thereof.

May 19, 2008 EGFE converted three, (3) notes of convertible debt and accrued interest, each for $500,000 plus interest into 19,852,271 shares at $.11 per share.

During the year ended December 31, 2008, the Company issued 3,736,363 shares of its common stock to unrelated investors for an aggregate cash inflow of $775,000. The Company also issued 19,852,271 shares of common stock in the conversion of $2,183,750. Additionally, the Company issued 1,565,282 shares of common stock as payment for $242,311 of services rendered.

Purchases of equity securities by the issuer and affiliated purchasers.

None.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with our audited financial statements and notes thereto contained elsewhere in this report.

Results of Operation

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

The Company recorded revenues of $1,272,810 in 2008, compared to $1,244,108 in 2007. Cost of sales was $879,842 in 2008, compared to $933,836 in 2007. The Company expects to continue to expand its customer base in 2009 as a result of its extensive marketing programs, including its participation in trade shows and private label programs.

The Company's 2008 general and administrative expenses of $1,659,943 consisted primarily of bad debt expenses of $146,538, travel costs of $200,178, research and development of $394,188 and administrative payroll of $433,246. The Company paid or accrued professional fees, including legal and accounting fees, of $194,375 in connection with audits and SEC reporting. The Company incurred consulting fees of $2,731,083 in connection with the development of its business strategy, recruiting of key executives and interim managers and completing the roll out of the Battery Brain products. The Company also paid $144,802 in marketing and advertising expenses during the year. The marketing and advertising costs were related to the development of a marketing plan and marketing materials for the Company.

The Company's 2007 general and administrative expenses of $2,687,557 consisted primarily of bad debt expenses for Superior Automotive Company and Carter Group Inc. of $253,163, travel costs of $439,837, and administrative payroll of $800,987. The Company paid or accrued professional fees, including legal and accounting fees, of $350,190 in connection with audits and SEC reporting. The Company incurred consulting fees of $4,644,482 in connection with the development of its business strategy, recruiting of key executives and interim managers and completing the roll out of the Battery Brain products. The Company also paid $350,190 in marketing and advertising expenses during the year. The marketing and advertising costs were related to the development of a marketing plan and marketing materials for the Company. The Company cut administrative staff, travel, Marketing and consulting services in 2008 by 45% and spent more on research and development. We changed our distribution model starting in July to work with strong partners in target segments using their existing sales and distribution systems rather then incurring the cost of our own.

The Company recorded a net loss of $5,544,232 or $0.06 per share for the year of 2008, compared to a net loss of $7,896,679 or $0.10 per share in 2007. Excluding non-cash expenses incurred through common stock and option grants, the Company would have incurred a net loss of $3,097,698 or $0.03 per share, and $3,660,888, or $0.05 per share, in 2008 and 2007, respectively. The Company expects to continue granting common stock and options as consideration for services in 2009.

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

The Company recorded revenues of $1,244,108 in 2007, compared to $1,818,973 in 2006. Cost of sales was $933,836 in 2007, compared to $1,184,889 in 2006. In 2006 one transaction accounted for 42% of total sales, while the Company’s sales in 2007 were to a broader base of customers.

The Company's 2006 general and administrative expenses of $1,520,223 consisted primarily of research and development expenses of $128,296, travel costs of $401,734, and administrative payroll of $500,714, incurred in connection with the Company’s efforts to increase public awareness of its products and prepare for increased sales. The Company incurred consulting fees of $3,517,992 in 2006 in connection with the development of its business strategy, recruiting key executives and interim managers and completing the roll out of the Battery Brain products. These consulting fees are primarily paid in shares of the Company’s common stock or in stock purchase options because the Company has limited cash for such expenditures. The Company also paid $437,125 in marketing and advertising expense in 2006. The marketing and advertising costs were related to development of a marketing plan and marketing materials for the Company.

The Company recorded a net loss of $7,896,679 or $0.10 per share for the year of 2007, compared to a net loss of $5,162,631 or $0.08 per share in 2006. Excluding non cash expenses incurred through common stock and option grants, the Company would have incurred a net loss of $3,660,888, or $0.05 per share, and $2,189,849, or $0.04 per share, in 2007 and 2006, respectively.

Liquidity and Capital Resources

The Company believes that it will need approximately $2,000,000 to fund its operations through December 31, 2009. As of December 31, 2008, the Company had $132,687 in cash and believes that such funds will not be sufficient to satisfy the Company's cash requirements for the next twelve (12) months.

Between January 21, 2008 and March 6, 2008, we issued and sold an aggregate of 2,600,000 shares of our common stock and warrants to purchase 2,600,000 additional shares of our common stock, at $0.40 per share at any time on or before January 30, 2011. The aggregate consideration paid to the Company for these securities was $650,000 and they were sold to one accredited investor (as that term is defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”)) and seven non-US investors, in a private placement that was exempt from the registration requirements of the Securities Act pursuant to Regulation D and Regulation S promulgated thereunder.

On May 19, 2008 we executed an agreement providing for the conversion of five outstanding promissory notes into an aggregate of 19,852,271 shares of our common stock and 4,963,068 common stock purchase warrants. The aggregate principal amount of the promissory notes was $2 million and $183,750 in interest was accrued and unpaid at the time of conversion. The conversion price was $0.11 for each share and one-quarter warrant. Ever Green Fields Enterprises, Ltd. was the holder of three of the notes with an aggregate principal amount of $1.5 million, Bank Julius Baer & Co. Ltd. held the fourth note with an aggregate principal amount of $250,000, and five individuals held the fifth note with an aggregate principal amount of $250,000. The warrants issued upon conversion of the notes have a term of five years and an exercise price per share of $0.11. The securities were issued in a private transaction exempt from registration under the Securities Act of 1933, in reliance of Section 4(2) and Regulation D of that Act. The individual subscribers represented that they are accredited investors, as defined in Regulation D, that they acquired the securities for their own accounts as principals, not as nominees or agents, for investment purposes only and not with a view to or for resale or distribution.

The Company has an aggregate of 11,334,675 options outstanding, with an aggregate exercise price of $ $2,036,699. However, there can be no assurance that the outstanding option will be exercised or that the required funds will be raised. In order to raise the funds required in order to pursue our business plan we may raise additional capital through the issuance of our securities or enter into a strategic alliance with a third party. There can be no assurance that we will be successful in raising additional capital or creating a strategic alliance. There can be no assurance that we will be able to obtain additional financing if and when needed or that, if available, financing will be on acceptable terms. Additional equity financings may be dilutive to holders of our common stock and debt securities, if available, and may involve significant payment obligations and covenants that restrict how we operate our business.

On March 9, 2009, the board of directors of the Company determined that it was in its best interest to raise up to $1,000,000 in fund by effectuating a private placement of the issuance of secured convertible promissory notes. In accordance with the authorization given by the board, the Company entered into subscription agreements with each of Aharon Levinas, Edward Braniff and Tamir Levinas and EGFE, for the purchase and sale of Secured Convertible Promissory Notes of the Company.

The Notes to Aharon Levinas, Edward Braniff and Tamir Levinas for the purchase price of $291,767, 103,985 and $72,376, respectively, represent prior salaries owed that have been deferred pending available funds. On March 9, 2009, the Company entered into another subscription Agreement with Edward Braniff for the purchase and sale of a Note in the amount of $50,000 and on March 13, 2009, the Company entered into Subscription Agreements with EFGE and Aharon Levinas for each for the purchase and sale of a Note in the amount of $50,000.

The principal amount of each Note bears an interest rate of 15% per annum, calculated on a 365 day calendar year. The accrued interest on the outstanding balance is due and payable on August 3, 2009 and the maturity date, which is December 31, 2009. Each Note contains default events which, if triggered and not timely cured the purchaser may declared the outstanding principal and all accrued interest thereon due and payable immediately.

All principal and accrued interest on the Notes is convertible into shares of our common stock at the election of the purchasers or the Company at any time at the conversion price of $0.05 per share.

On January 18, 2009, the Company issued 2,000,000 shares to consultants for investor relation services to be performed.

Going Concern

The Company has incurred a net loss of $ 5,544,232. The Company has incurred significant losses and had negative cash flow from operations and has an accumulated deficit of $ 22,039,294 at December 31, 2008. In addition, as of December 31, 2008, the Company has working capital deficiency of $186,603. These factors raised substantial doubt about the Company’s ability to continue as going concern.

There can be no assurance that sufficient funds will be generated during the next twelve months or thereafter from the Company’s current operations, or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital could force the Company to curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.

There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Off Balance Sheet Arrangements

None

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The financial statements are set forth immediately following the signature page and are incorporated herein by reference.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive, principal operating and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, 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 because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the framework in “Internal Control – Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on the assessment performed, management believes that as of December 31, 2008, the Company’s internal control over financial reporting was effective based upon the COSO criteria. Additionally, based on management’s assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2008.

This annual report 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

During the year ended December 31, 2008, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

The Company’s management, including the chief executive officer and chief financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of the control. The design of any systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined. Management is aware of the risks associated with the lack of segregation of duties at the Company due to the small number of employees currently dealing with general administrative and financial matters. Although management will periodically reevaluate this situation, at this point it considers the risks associated with such lack of segregation of duties and that the potential benefits of adding employees to segregate such duties do not justify the substantial expense associated with such increases. It is also recognized Pay88 has not designated an audit committee and no member of the board of directors has been designated or qualifies as a financial expert. The Company should address these concerns at the earliest possible opportunity.

Item 9A(T) Controls and Procedures

Pursuant to SEC rules implementing Section 404(a) of the Sarbanes-Oxley Act of 2002, non accelerated filers with fiscal years ending on or after December 15, 2007 must begin to comply with the management report requirement in Item 308(a) of Regulation S-K. Under this rule, management is responsible for establishing and maintaining adequate internal control over financial reporting, as well as an assessment of the effectiveness of those internal controls.

An overall purpose of internal control over financial reporting is to foster the preparation of reliable financial statements. Reliable financial statements must be materially accurate. Therefore, a central purpose of the assessment of internal control over financial reporting is to identify material weaknesses that have, as indicated by their very definition, more than a remote likelihood of leading to a material misstatement in the financial statements. While identifying control deficiencies and significant deficiencies represents an important component of management's assessment, the overall focus of internal control reporting should be on those items that could result in material errors in the financial statements.

Management is not required by Section 404 of Sarbanes-Oxley to assess other internal controls, such as controls solely implemented to meet a company’s operational objectives. Further, “reasonable assurance” does not mean absolute assurance. ICFR cannot prevent or detect all misstatements.

The assessment of internal control over financial reporting will be more effective if it focuses on controls related to those processes and classes of transactions for financial statement accounts and disclosures that are most likely to have a material impact on the company's financial statements. Employing such a top-down approach requires that management apply in a reasonable manner its cumulative knowledge, experience and judgment to identify the areas of the financial statements that present significant risk that the financial statements could be materially misstated and then proceed to identify relevant controls and design appropriate procedures for documentation and testing of those controls. For instance, the application of judgment by management and the auditor will typically impact the nature, extent and timing of control testing such that the level of testing performed for a low risk account will likely be different than it will be for a high risk account. In performing these steps, management and auditors should keep the "reasonable assurance" standard in mind.

Based on the top down approach mentioned above and performed within the internal control framework set out by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), we identified the following business cycles for internal control evaluation:

Financial Reporting, which covers the entire process from data capturing to financial statement preparation and reporting;

Purchase and disbursement, which covers the purchase of inventory, the approval process, the payment and any related liabilities accrued;

Revenue Recognition, which covers the sales to the receivable to the cash cycles;

Payroll cycle, which covers employee hiring and termination, time sheet submission and payroll calculation;

Fraud: this is a pervasive risk, not associated with any particular business cycle, but rather associated with embezzlement of firm assets and fraudulent financial reporting; and

Entity level control, which covers the control environment from firm culture and management integrity and styles, codes of ethics etc.

Tax compliance, which covers the capturing of tax related data, preparation of tax returns and compliance with regulatory tax rules.

Chisholm, Bierwolf, Nilson & Morrill advised the Board of Directors that the lack of sufficient resources to identify and properly address technical SEC and reporting issues is a material weakness.

We understand control assurance is not absolute assurance; rather it is “reasonable” assurance. Management firmly believes in setting up proper control and complying with regulatory requirements. However due to the nature of small business, certain control will not be implemented due to constraints of costs.

Item 9B. Other Information

None.

PART III

Item 10.

Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

Directors, Executive Officers, Promoters, and Control Persons

The following table sets forth the names, ages, and positions with the Company for each of the current directors and officers of the Company.

Name	Age	Positions and Offices

Edward Braniff	59	Interim CEO and CFO

Aharon Y. Levinas	62	CTO and Director

Tamir Levinas	37	Director

Michael Ben-Ari	49	Director

Guy Moshe	57	Director

The directors of the Company have been elected to serve until the next annual meeting of stockholders and until their successor(s) have been elected and qualified. Officers are appointed by the Board of Directors and serve at the discretion of the Board. Aharon Y. Levinas is the father of Tamir Levinas. There are no proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. None of our directors or officers has been affiliated with any company that has filed for bankruptcy within the last five years.

The following is a brief account of the education and business experience of each of our directors and executive officers, including any other directorships held by our directors in other companies that file reports with the SEC pursuant to the Exchange Act:

Edward Braniff. Mr. Braniff has been our Chief Financial Officer since May 24, 2005. He worked for AT&T for 27 years, he has a strong operational background, having held finance positions in Regulatory reporting, Assistant Treasurer, Assistant Controller and the CFO for International and Operational Divisions. Since leaving AT&T in 1998 Mr. Braniff has worked as a consultant to major corporations. He has been the CFO and then the COO for The Global TeleExchange in Virginia, (1999-2000). The Cedar Group PLC (2001-2003), a British based Public Company providing global software and consulting services.

Aharon Y. Levinas. Mr. Levinas was appointed as the Chief Technology Officer and a director of the Company as of March 23, 2005. Mr. Levinas is the sole shareholder of Purisys, Inc., a New Jersey corporation which Mr. Levinas established over 10 years ago. Mr. Levinas’ sole business activity for the last 10 years has been the development and establishment of the Battery Brain product.

Tamir Levinas. Mr. Levinas was appointed as a director of the Company as of March 23, 2005. Since 1998 he has been the head of Technical Development of Internet Gold (Nasdaq: IGLD), where he is responsible for managing all aspects of the technical department activities, project management and engineering, as well as being responsible for technical vendor relations and procurement. Mr. Levinas received a B.A. in Business and Information Technology Management from Inter-Disciplinary Center in Herzelia, Israel in 2004.

Guy Moshe. Mr. Moshe was appointed as our director on February 26, 2007. He obtained his BSC in Electrical Engineering from Technion, Israel Institute of Technology in Haifa, Israel. From 2004 until 2007, he served as the Executive Director of Mentor Graphics, based in Wilsonville, Oregon. Mr. Moshe also served as Executive Director for the Mentor Development Center in Israel, where he established the Mentor Design Center and managed the ESL business in the DCS division. From 2002 until 2004, he was President and CEO of Summit Design, Inc., of Burlington, MA, and General Manager of Summit Israel and Acting Vice President for World Wide Sales.

Michael Ben-Ari. Mr. Ben-Ari was appointed as our director on February 26, 2007. He holds an MBA in finance and marketing from Tel Aviv University and a BA from Brandeis University. He has over 15 years experience in the international financial services industry, and brings extensive management experience, including financing, banking and marketing skills developed in previously held positions. Mr. Ben-Ari is presently a director of Brainstorm Cell Therapeutics Inc., an SEC reporting company. In 1999, he established EGFE, Ltd., a company specializing in alternative investments for international clients, and has been its sole owner and manager since such date. Prior to founding EGFE, he held management positions in Bank Leumi, Israel's second largest bank, and in Supersol, Israel's second largest supermarket chain.

Audit Committee Financial Expert

The Board of Directors has not established an audit committee and does not have an audit committee financial expert. The entire Board of Directors acts as the Company’s audit committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership and changes in their ownership with the Securities and Exchange Commission, and forward copies of such filings to the Company. We believe, based solely on our review of the copies of such forms and other written representations to us, that during the fiscal year ended December 31, 2008, all reporting persons complied with all applicable Section 16(a) filing requirements.

Code of Ethics

The Company has not adopted a code of ethics.

Item 11. Executive Compensation

Summary Compensation

Pete Mateja

Pete Mateja served as our Chief Executive Officer from October 3, 2005 through July 3, 2008, and as a director from February 26, 2007 until July 3,2008. The terms of his compensation are set forth in his consulting agreement, dated October 3, 2005, which was renewed and amended upon its expiration as of October 3, 2006. Prior to the renewal of such consulting agreement, Mr. Mateja was entitled to the following as compensation for his services: an annual base salary of $150,000; an annual bonus of up to $50,000 based on the Company's performance and meeting established objectives; and 3,000,000 stock options, each of which gives Mr. Mateja the right to purchase one share of the Company's common stock for $0.15. Such stock options shall vest pro ratably every three months over the three year period commencing January 3, 2006. The vested stock options shall be exercisable until the earlier of five years after vesting or 365 days after Mr. Mateja's termination. All remaining stock options shall automatically vest upon the Company's change in control.

Following the renewal and amendment of the consulting agreement on October 3, 2006, Mr. Mateja’s annual base salary has been increased to $170,000. In addition, commencing as of October 3, 2006, he is entitled to $700 per month as reimbursement for accommodation expenses incurred by him. The Company also agreed that, if the Company terminates Mr. Mateja’s engagement without cause it will continue to pay him under normal payroll practices for the six months immediately following such termination. Mr. Mateja’s consulting agreement expired on October 2, 2007.

During the fiscal year ending December 31, 2008, Mr. Mateja received $150,000

During the fiscal year ending December 31, 2007 Mr. Mateja received $170,000. In addition, 1,000,000 of the stock options granted to him pursuant to the consulting agreement dated October 3, 2005 vested during the fiscal year ending December 31, 2007. During the fiscal year ended December 31, 2006, Mr. Mateja received $155,000 in salary. He also received $2,100 as reimbursement for accommodation expenses. In lieu of the $50,000 cash bonus he was entitled to pursuant to the consulting agreement, the Company agreed, on October 3, 2006, to issue to Mr. Mateja 150,000 shares of common stock and 66,666 stock purchase options, each of which entitles the holder thereof to purchase one share of common stock at $0.45 until 2011. In addition, 1,000,000 of the stock options granted to him pursuant to the consulting agreement dated October 3, 2005 vested during the fiscal year ended December 31, 2006.

During the fiscal year ended December 31, 2005, Mr. Mateja received $37,500 in salary. He received no other compensation during such fiscal year.

Edward Braniff

During the fiscal year ending December 31, 2008 Mr. Braniff received $160,000. From July 3, 2008 until the present Mr. Braniff has served as the acting CEO. Mr. Braniff‘s employment agreement has been extended from May 2008. Mr. Braniff will receive 50,000 stock options a month with a strike price of $.25.

During the fiscal year ending December 31, 2007 Mr. Braniff received $145,000. From June 27, 2005 until October 2, 2005, the Company did not have a Chief Executive Officer and Edward Braniff, our Chief Financial Officer, was the most senior executive officer of our Company. Mr. Braniff has been serving as our Chief Financial Officer since May 24, 2005 pursuant to an Employment Agreement, dated May 24, 2005 and amended and restated as of October 25, 2006. Prior to the amendment and restatement of such employment agreement, Mr. Braniff was entitled to the following as compensation for services: $140,000, as base salary; an annual bonus of $50,000 based on performance; and options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share. Such options shall vest shall vest pro ratably every three months over three year period commencing on May 24, 2005. The vested options shall be exercisable until the earlier of 5 years after vesting or 365 days after the termination of Mr. Braniff’s employment with the Company.

Following the amendment and restatement of Mr. Braniff’s employment agreement on October 25, 2006, his salary has been increased to $145,000. Mr. Braniff continues to be entitled to a bonus of up to $50,000 based on performance. In addition, Mr. Braniff is entitled to an additional bonus as follows: for each $1,000,000 in revenues above $1,200,000 earned by the Company during the fiscal year ended December 31, 2006, the Company shall pay to Mr. Braniff the following: (a) 50,000 stock options, each of which shall give him the right to purchase one share of common stock for $0.45; (b) a cash payment equal to $10,000; and (c) a cash payment equal to 2.5% of the Company’s EBIT for the fiscal year ending December 31, 2006. Mr. Braniff’s consulting agreement expired on May 23, 2008.

During the fiscal year ended December 31, 2006, Mr. Braniff received $143,000 in salary and a bonus consisting of the following awards: 100,000 shares of common stock, granted on October 25, 2006; 50,000 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.30), granted on October 25, 2006; and 33,333 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.45), granted on December 31, 2006. In addition, during the fiscal year ended December 31, 2006, 333,333 of the stock options granted on May 24, 2005 vested.

Aharon Y. Levinas

Aharon Y. Levinas has been our Chief Technology Officer since March 23, 2005 pursuant to an employment agreement, dated as of such date, as amended on April 18, 2005 and May 18, 2005. The agreement is for a 4-year term, with a base salary of $160,000, $200,000, $240,000 and $240,000 for each year of the term. In addition, the Company granted to Mr. Levinas 2,650,000 shares of common stock, which shall vest pro ratably every 3 months over a 3-year period commencing on April 4, 2005. Upon a change of control of the Company, all such shares shall automatically be issued simultaneously upon the effective date of the change of control. All benefits to be granted to the individual who will be appointed as our Chief Executive Officer shall be granted to Levinas as well, including bonuses and stock options. The agreement with Levinas provides that if Levinas is terminated during the 4-year term, or is no longer employed by us for any reason during said period, including termination for cause or death, we remain obligated to pay the full amount of payment due Levinas thereunder. During the fiscal year ended December 31, 2006, Mr. Levinas received $190,000 in salary and 66,666 stock options (each entitling the holder thereof to purchase one share of common stock for $0.45). In addition, during the fiscal year ended December 31, 2006, 833,333 shares of common stock granted to Mr. Levinas on April 4, 2005 vested. During the fiscal year ending December 31, 2007 Mr. Levinas received $230,000 in salary. In addition, during the fiscal year ended December 31, 2007, 833,333 shares of common stock which were granted to Mr. Levinas on April 4, 2005 vested. Mr. Levinas has also been a Director of the Company since March 23, 2005 and has received additional compensation for his services rendered in his capacity as Director, as discussed below in the section entitled “Compensation of Directors.” During 2008 Mr. Levinas received $252,000 in compensation per his contracts as CTO and Director.

The following table sets forth information concerning the compensation paid or earned during the fiscal years ended December 31, 2008 and 2007 for services rendered to our Company in all capacities by the following persons: (i) all individuals who served as the principal executive officer or acting in a similar capacity during the fiscal year ended December 31, 2008, regardless of compensation level; (ii) our two most highly compensated executive officers other than our principal executive officer, who were serving as executive officers at the end of 2008; and (iii) up to two additional individuals who have served as the Company’s highest paid executives but were not serving as such at the end of 2007.

SUMMARY COMPENSATION TABLE
Name and principal position (a)	Year (b)	Salary ($) (c)		Bonus ($) (d)		Stock Awards ($) (e)		Option Awards ($) (f)			Non-Equity Incentive Plan Compensation ($) (g)		Nonqualified Deferred Compensation Earnings ($) (h)		All Other Compensation ($) (i)		Total ($) (j)
Pete Mateja,	2008		150,000		0		0		431,264			0		0		0		581,264
CEO(1)	2007		170,000		0		0		517,042	(4)		0		0		0		687,042
Edward Braniff,	2008		160,000		35,000		0		109,333			0		0		0		304,333
CFO(5)	2007		145,000		0		0		134,379	(7)		0		0		0		279,379
Aharon Y. Levinas,	2008		252,000		0				205,434			0		0		0		457,434
CTO(8)	2007		230,000				0		379,042	(10)		0		0		0		609,042

(1) Mr. Mateja has been serving as our Chief Executive Officer since October 3, 2005.

(2) Represents the value of 150,000 shares of common stock and 66,666 stock purchase options (each of which entitles the holder thereof to purchase one share of common stock at $0.45), which were granted to Mr. Mateja in lieu of a cash bonus on October 3, 2006. The value of such shares and stock options was based on the following assumptions: $.30 per share on the share grant and a Black-Scholes Model value of $19,025.

(3) Pursuant to Mr. Mateja’s consulting agreement, from and after October 3, 2006, he is entitled to $700 per month as reimbursement for accommodation expenses incurred by him.

(4) Represents the value of 3,000,000 stock options granted to Mr. Mateja on October 3, 2005, subject to vesting as described below. Each option gives Mr. Mateja the right to purchase one share of the Company's common stock for $0.15. Such stock options shall vest pro ratably every three months over the three year period commencing three months from October 3, 2005. The vested stock options shall be exercisable until the earlier of five years after vesting or 365 days after Mr. Mateja's termination. All remaining stock options shall automatically vest upon the Company's change in control. The value of such stock options was based on the following assumptions: a Black-Scholes Model value of $517,515.

(5) Mr. Braniff has been serving as our Chief Financial Officer since May 24, 2005.

(6) During the fiscal year ended December 31, 2006, Mr. Braniff received a bonus consisting of the following awards: 100,000 shares of common stock, granted on October 25, 2006; 50,000 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.30), granted on October 25, 2006; and 33,333 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.45), granted on May 31, 2006. The value of such shares and stock options was based on the following assumptions: $.30 per share on the share grant and a Black-Scholes Model value of $ 9,513.

(7) Represents the value of 1,000,000 stock options granted to Mr. Braniff on May 24, 2005, subject to vesting as described below. Each stock option entitles Mr. Braniff to purchase one share of the Company’s common stock at an exercise price of $0.05. Such options shall vest pro ratably every three months over a three year period commencing on May 24, 2005. The vested options shall be exercisable until the earlier of 5 years after vesting or 365 days after the termination of Mr. Braniff’s employment with the Company. The value of such stock options was based on the following assumptions: a Black-Scholes Model value of $ 134,390.

(8) Mr. Levinas has been serving as our Chief Technology Officer since March 23, 2005.

(9) Represents the value of 66,666 stock options (each entitling the holder thereof to purchase one share of common stock for $0.45), which were granted to Mr. Levinas on October 3, 2006. The value of such stock options was based on the following assumptions: a Black-Scholes Model value of $ 19,025.

(10) Represents the value of 2,650,000 shares of common stock granted to Mr. Levinas, which vest pro ratably every 3 months over a 3-year period commencing on April 4, 2005. Such shares were issued in consideration for services rendered by Mr. Levinas pursuant to his employment agreement with the Company, dated March 23, 2005, as amended on April 18, 2005 and May 18, 2005. The value of such shares was based on the following assumptions: a Black-Scholes Model value of $ 379,042.

Outstanding Equity Awards

The table set forth below presents certain information concerning unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer above outstanding as of December 31, 2008.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS													STOCK AWARDS
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)			Number of Securities Underlying Unexercised Options (#) Unexer- cisable (c)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)		Option Exer- cise Price ($) (e)		Option Expira- tion Date (f)			Number of Shares or Units of Stock That Have Not Vested (#) (g)			Market Value of Shares or Units of Stock That Have Not Vested ($) (h)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j)
Pete		3,000,000	(1)		0		0		0.15		*	(1)		1,000,000		__			0		0
Mateja		66,666	(2)		0		0		0.45	—				0			0		0		0
Edward		1,000,000	(3)		0		0		0.05		*	(3)		166,667			0		0		0
Braniff		50,000	(4)		0		0		0.30	—				0			0		0		0
		33,333	(5)		0		0		0.45	—				0			0		0		0
		350,000	(6)		0		0		0.25					0			0		0		0
Aharon Y.		66,666	(7)		0		0		0.45		0			0			0		0		0
Levinas		2,650,000			0		0		0		0			441,666	(8)

(1) Pursuant to an Employment Agreement, dated October 3, 2005 and amended on October 3, 2006, between our Company and Pete Mateja, our Chief Executive Officer and Director, we granted to Mr. Mateja 3,000,000 stock options, subject to vesting as described below. Each option gives Mr. Mateja the right to purchase one share of the Company's common stock for $0.15. Such stock options vest pro ratably every three months over the three year period commencing January 3, 2006 and are exercisable until the earlier of five years after vesting or 365 days after Mr. Mateja's termination. All remaining stock options shall automatically vest upon the Company's change in control. As of December 31, 2007, 2,000,000 of such stock options had vested.

(2) On October 3, 2006, the Company granted to Mr. Mateja 66,666 stock purchase options, each of which entitles the holder thereof to purchase one share of common stock at $0.45.

(3) Pursuant to an Employment Agreement, dated May 24, 2005, between our Company and Edward Braniff, our Chief Financial Officer, we granted to Mr. Braniff 1,000,000 stock options, subject to vesting as described below. Each stock option entitles Mr. Braniff to purchase one share of the Company’s common stock at an exercise price of $0.05. Such options shall vest pro ratably every three months over a three year period commencing on May 24, 2005. The vested options shall be exercisable until the earlier of 5 years after vesting or 365 days after the termination of Mr. Braniff’s employment with the Company. All remaining stock options shall automatically vest upon the Company's change in control. As of December 31, 2007, 843,333 of the stock options had vested.

(4) On October 25, 2006, we issued 50,000 stock options to Mr. Braniff (each entitling Mr. Braniff to purchase one share of common stock for $0.30) in lieu of a cash bonus.

(5) On December 31, 2006, we issued 33,333 stock options to Mr. Braniff (each entitling Mr. Braniff to purchase one share of common stock for $0.45) as a bonus pursuant to his employment agreement, dated May 24, 2005 and amended and restated on October 25, 2006.

(6) On June 1, 2008 50,000 monthly stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.24) were granted to Mr. Braniff.

(7) On October 3, 2006, the Company granted to Mr. Levinas 66,666 stock options (each entitling the holder thereof to purchase one share of common stock for $0.45).

(8) Pursuant to an Employment Agreement, dated March 23, 2005, between our Company and Aharon Y. Levinas, our Chief Technology Officer, as amended on April 18, 2005 and May 18, 2005, we granted to Mr. Levinas 2,650,000 shares of common stock, which shall vest pro ratably every 3 months over a 3-year period commencing on April 4, 2005. Upon a change of control of the Company, all such shares shall automatically be issued simultaneously upon the effective date of the change of control. As of December 31, 2007, 2,208,333 of such shares had vested.

Compensation of Directors

The terms of the compensation paid to each director of the Company are set forth in a letter agreement which is separately entered into between the Company and each of its directors. All of the following individuals, who served as a director of the Company during the fiscal year ended December 31, 2006, entered into their letter agreements on July 29, 2005: Aharon Y. Levinas, Tamir Levinas, Jacob Enoch, Joseph Bahat, and Amir Uziel. The terms of each such letter agreement are identical. Pursuant to such letter agreement, each director agreed to serve as a director of the Company until the next Annual Meeting of Shareholders. The director may be removed from his position at any time by the affirmative vote of the majority of the directors or the affirmative vote of the majority of the Company's shareholders. The director may resign at any time. As compensation for his services, each director shall be paid $4,000 for each year that he serves as director, payable quarterly in arrears. In addition, each director shall be paid $1,000 for each board or committee meeting at which he is physically present. Each director shall also receive options to purchase 345,000 shares of the common stock of the Company for a price of $0.15 per share, exercisable for three years after the date that the stock options vest. Such stock options shall vest quarterly over three years, commencing from the date of the letter agreement, so that 28,750 stock options shall vest every three months. If the Company undergoes a change in control, all stock options shall vest automatically upon the date of such change in control.

Each of the following directors entered into their letter agreements on February 26, 2007, the date that they were appointed as directors: Pete Mateja, Guy Moshe, and Michael Ben-Ari. Pursuant to their letter agreements, each director agreed to serve as a director of the Company until the next annual meeting of the Company’s shareholders. As compensation for his services, each such director shall be paid $4,000 for each year that he serves as director. In addition, he shall be paid $1,000 for each board or committee meeting at which he is physically present. He shall also receive 540,000 common stock purchase options, which shall vest in quarterly increments of 45,000 over a three year period. Each such common stock purchase option shall entitle the holder thereof to purchase one share of the common stock of the Company for a price of $0.35 per share, and it shall be exercisable for three years after the date of vesting. If the Company undergoes a change in control, all stock options shall vest automatically upon the date of such change in control.

On November 9, 2006, we also granted an additional 195,000 stock options, subject to vesting as described below, to each of the following directors: Aharon Y. Levinas, Tamir Levinas, Jacob Enoch, Joseph Bahat, and Amir Uziel. Each such stock option entitles the holder thereof to purchase one share of common stock for a price of $0.15, exercisable for three years after the date that date of vesting. Such stock options shall vest quarterly over three years, commencing on November 9, 2006.

The following table sets forth certain information regarding the compensation paid to our Directors during the fiscal year ended December 31, 2007. In determining the value of the stock options described below, we made the following assumptions: The value of the stock options shares was based on a Black-Scholes Model value of $ 168,203 for each Director.

COMPENSATION OF DIRECTORS

Name (a)	Fees Earned or Paid in Cash ($) (b)		Stock Awards ($) (c)		Option Awards ($) (d)		Non-Equity Incentive Plan Compensation ($) (e)		Non-Qualified Deferred Compensation Earnings ($) (f)		All Other Compensation ($) (g)		Total ($) (j)
Aharon Y. Levinas		12,000		0		71,982		0		0		0		83,982

Joseph Bahat		12,500		0		71,982		0		0		0		79,48284,482
Jacob Enoch		12,500		0		71,982		0		0		0		84,482
Tamir Levinas		72,000		0		71,982		0		0		0		142,982
Peter Mateja		4,000		0		86,176		0		0		0		90,176
Mike Ben Ari		12,000		0		75,436		0		0		0		87,436
Guy Moscha		12,000		0		75,436		0		0		0		87,436

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table lists, as of March 26, 2009, the number of shares of Common Stock beneficially owned by (i) each person or entity known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of the Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.

The percentages below are calculated based on 112,036,595 shares of Common Stock issued and outstanding as of March 26, 2009. Unless otherwise provided, the address of each person listed in the following table is c/o Smart Energy Solutions, Inc., 210 West Parkway, #7, Pompton Plains, NJ 07444.

Name of Beneficial Owner	Title Of Class	Amount and Nature of Beneficial Ownership			Percent of Class

5% Owners:

EGFE, Ltd.	Common		18,378,490	(1)		16.4	%

Directors and Executive Officers:

Peter Mateja	Common		3,756,666	(2)(3)(4)		4.9	%

Edward Braniff	Common		2,295,282	(5)(6)(7)		2.0	%

Michael Ben-Ari	Common		6,413,824	()(8)(9)(10)		8.3	%

Moshe Guy	NA		540,000	(9)(10)	Less than 1		%

Joseph Bahat	Common		655,000	(9)(10)	Less than 1		%

Jacob Enoch	Common		655,000	(9)(10)	Less than 1		%

Aharon Y. Levinas	Common		13,678,466	(9)(11)(12)		17.8	%

Tamir Levinas	Common		2,600,000	(9)(10)		3.4	%

All directors and executive officers as a group (6 persons)	Common		30,594,238	(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)		27.3.4	%

(1) Includes 15,306,818 shares of common stock issued upon conversion of three convertible promissory notes issued in 2006 by the Company to EGFE, Ltd., each in the principal amount of $500,000. The sole owner and manager of EGFE, Ltd. is Michael Ben-Ari, our director. In consideration therefor, EGFE agreed to pay to the Company an aggregate of $1,500,000. Pursuant to each promissory note, EGFE has the right, at its option, to convert the outstanding principal and interest due under the promissory notes to shares of the Company's common stock. The number of shares of common stock were issued upon conversion at a price of $.11 per share

(2) Includes 3,000,000 shares of common stock issuable upon exercise of 3,000,000 stock options granted to Mr. Mateja pursuant to a Consulting Agreement, dated October 3, 2005, between the Company and Peter Mateja. Each stock option provides to Mr. Mateja the right to purchase one share of the Company's common stock for $0.15. Such stock options shall vest pro ratably every three months over the three year period commencing three months from October 3, 2005.

(3) Includes 150,000 shares and shares of common stock issuable upon exercise of 66,666 stock purchase options, each of which entitles the holder thereof to purchase one share of common stock at $0.45, which were granted to Mr. Mateja on October 3, 2006.

(4) Includes shares of common stock issuable upon exercise of 540,000 stock options granted to Mr. Mateja pursuant to a letter agreement, dated February 26, 2007, as partial compensation for services rendered by such person in his capacity as a director of the Company. Each option entitles the holder thereof to purchase one share of common stock of the Company for a price of $0.35 per share. The options are exercisable for three years after the date that the stock options vest. Such stock options shall vest quarterly over the three year period commencing on the date of the letter agreement.

(5) Includes 1,000,000 shares of common stock issuable upon exercise of 1,000,000 stock options granted to Mr. Braniff pursuant to an Employment Agreement, dated May 24, 2005, between the Company and Edward Braniff. Each stock option provides to Mr. Braniff the right to purchase one share of the Company’s common stock at an exercise price of $0.05 per share. Such options shall vest shall vest pro ratably every three months over three year period commencing on May 24, 2005. The vested options shall be exercisable until the earlier of 5 years after vesting or 365 days after termination of Mr. Braniff’s employment with the Company. The options were issued in consideration for Mr. Braniff’s services rendered to the Company in his capacity as Chief Financial Officer.

(6) Includes 100,000 shares and 50,000 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.30), granted on October 25, 2006, and 33,333 stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.45), granted on May 31, 2006.

(7) Includes 350,000 stock options issued to Mr. Braniff in 2008 as an extention of his employment agreement.

(8) Includes 3,320,802 shares of common stock issuable upon conversion of three convertible promissory notes issued in 2006 by the Company to EGFE, Ltd., each in the principal amount of $500,000. The sole owner and manager of EGFE, Ltd. is Michael Ben-Ari, our director. See Note 1 above.

(9) Includes shares of common stock issuable upon exercise of 345,000 stock options granted to such person pursuant to a letter agreement entered into with such person on July 29, 2005, as partial compensation for services rendered by such person in his capacity as a Director of the Company. Each option entitles the holder thereof to purchase one share of common stock of the Company for a price of $0.15 per share. The options are exercisable for three years after the date that the stock options vest. Such stock options shall vest quarterly over the three year period commencing three months from the date of the Letter Agreement, so that 28,750 stock options shall vest every three months.

(10) Includes shares of common stock issuable upon exercise of 195,000 stock options granted to such person pursuant to a Board Meeting on November 9, 2006, as partial compensation for services rendered by such person in his capacity as a Director of the Company. Each option entitles the holder thereof to purchase one share of common stock of the Company for a price of $0.35 per share. The options are exercisable for three years after the date that the stock options vest. Such stock options shall vest quarterly over the three year period commencing three months from the date of the board meeting, so that 16,250 stock options shall vest every three months.

(11) Includes 2,650,000 shares of common stock granted to Mr. Levinas, which shall vest pro ratably every 3 months over a 3-year period commencing on April 4, 2005. Such shares were issued in consideration for services rendered by Mr. Levinas pursuant to his employment agreement with the Company, dated March 23, 2005, as amended on April 18, 2005 and May 18, 2005.

(12) Includes 66,666 stock options (each entitling the holder thereof to purchase one share of common stock for $0.45) granted to Mr. Levinas on October 3, 2006.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Related Transactions

On May 19, 2008 the company executed an agreement providing for the conversion of three outstanding promissory notes with Ever Green Fund, EGFE. The conversion price was $0.11 for each share and one-quarter warrant. Ever Green Fields Enterprises, Ltd. was the holder of three of the notes with an aggregate principal amount of $1.5 million The warrants issued upon conversion of the notes have a term of five years and an exercise price per share of $0.11. The securities were issued in a private transaction exempt from registration under the Securities Act of 1933, in reliance of Section 4(2) and Regulation D of that Act. The individual subscribers represented that they are accredited investors, as defined in Regulation D, that they acquired the securities for their own accounts as principals, not as nominees or agents, for investment purposes only and not with a view to or for resale or distribution.

During the three months ended September 30, 2006, the Company issued 142,857 shares of common stock to EGFE, Ltd. EGFE is the beneficial owner of more than 5% of the Company’s outstanding common stock, and its sole owner and manager is Michael Ben-Ari, who has been our director since February 26, 2007. Such shares were issued in connection with the promissory note, dated May 22, 2006 and amended on March 6, 2007, in the principal amount of $500,000, issued by the Company to EGFE.

On September 14, 2006, the Company issued to EGFE a demand promissory note, in the principal amount of $500,000. In consideration therefor, EGFE loaned $500,000 to the Company. Interest on such promissory note will accrue at the rate of 12% per year. On March 6, 2007, such note was amended and restated for the purpose of providing that the entire principal sum and all accrued interest due under the promissory note shall be paid on September 30, 2007.

On May 22, 2006, the Company issued to EGFE two convertible promissory notes, each in the principal amount of $500,000. In consideration therefor, EGFE agreed to pay to the Company an aggregate of $1,000,000. Interest on each note will accrue at the rate of 15% per annum. The entire principal sum and all accrued interest due under each note shall be paid on the maturity date of the respective note. The maturity date of one of the notes was originally June 4, 2007, but such note was amended on March 6, 2007 for the purpose of extending the maturity date to June 4, 2008. The maturity date of the other Note was originally May 24, 2007, but such note was amended on March 6, 2007 for the purpose of extending the maturity date to May 24, 2008. Pursuant to each promissory note, EGFE has the right, at its option, to convert the outstanding principal and interest due under the promissory notes to shares of the Company's common stock. The number of shares of common stock that shall be issued upon conversion will be calculated by dividing the amount of outstanding principal and interest that EGFE elects to convert by the conversion price specified therein. The conversion price will be calculated as follows: (1) if the Company is not in default under the terms of the note, the conversion price shall be equal to 95% of the average of the last bid and ask price of the common stock as quoted on the Over-The-Counter-Bulletin - -Board or such other exchange where the common stock is quoted or listed for the five trading days preceding EGFE's election to convert; or (2) if the Company is in default under the terms of the Note, the conversion price shall be equal to 50% of the of the average of the last bid and ask price of the common stock as quoted on the Over-The-Counter-Bulletin -Board or such other exchange where the common stock is quoted or listed for the five trading days preceding EGFE, Ltd.'s election to convert.

As of March 6, 2006, the Company has received a lock-up agreement from each of 29 shareholders with respect to an aggregate of 37,029,528 shares (representing 51%) of the Company's outstanding common stock. Each lock-up agreement prohibits the shareholder from selling the shares which are specified in such shareholder's lock-up agreement until April 2008, except as follows: (1) after April 2006, the shareholder may sell 20% of the shares specified in such shareholder's lock-up agreement; (2) after April 2007, the shareholder may sell 30% of the shares specified in such shareholder's lock-up agreement; (3) after April 2008, the balance remaining may be sold by the shareholder. Notwithstanding the foregoing, the shares held by the shareholder may be sold at anytime as long as such sale does not involve the shares being sold on the Over-The-Counter Bulletin Board (or any other exchange or medium where the securities of the Company are listed or quoted), provided that any transferee agrees to be bound by the terms of the lock-up agreement.

On February 1, 2006, the Company entered into a consulting agreement with Shiri Levinas. Ms. Levinas is the daughter of Aharon Y. Levinas, our Chief Technology Officer and Director, and the sister of Tamir Levinas, our Director. Pursuant to such agreement, Ms. Levinas agreed to provide consulting services related to our human resource needs. Shiri Levinas has received $30,000 for her services and received 60,000 stock options, each of which entitles the holder thereof to purchase one share of common stock at $0.15 per share. This can be deleted, because it does not involve (i) any transaction since the beginning of 2007, or (ii) any transaction exceeding the lesser of $120,000 or 1% of average total assets at the end of 2006 and 2007.

On January 24, 2006, the Company issued 60,000 shares to each of the following persons: Amir Uziel, a director; Tamir Levinas, a director; and Shiri Levinas, the daughter of Ahraon Y. Levinas, who is a director. Such shares were issued in consideration for consulting services rendered to the Company. The shares were offered and issued pursuant to an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

On October 3, 2005, the Company entered into a Consulting Agreement with Peter Mateja, pursuant to which Mr. Mateja was engaged as the Chief Executive Officer of the Company. As compensation for his services, Mr. Mateja will receive an annual base salary of $150,000 and an annual bonus of up to $50,000 based on the Company's performance and meeting established objectives which shall be submitted by Mr. Mateja and approved by the Company's board of directors. In addition, the Company granted to Mr. Mateja 3,000,000 stock options, each of which gives Mr. Mateja the right to purchase one share of the Company's common stock for $0.15. Such stock options shall vest pro ratably every three months over the three year period commencing three months from October 3, 2005. The vested stock options shall be exercisable until the earlier of five years after vesting or 365 days after Mr. Mateja's termination. All remaining stock options shall automatically vest upon the Company's change in control. The term of the Consulting Agreement was for one year, commencing on the date thereof. On October 3, 2006 Mr. Mateja’s consulting agreement was renewed and amended, to provide for an annual base salary of $170,000 and $700 per month as reimbursement for accommodation expenses incurred by him. The Company also agreed that, if the Company terminates Mr. Mateja’s engagement without cause it will continue to pay him under normal payroll practices for the six months immediately following such termination. Mr. Mateja’s consulting agreement expired on October 2, 2007.

On August 31, 2005, the Company issued 10,421,750 shares to Aharon Y. Levinas. Such shares were issued pursuant to the Asset Purchase Agreement, dated March 23, 2005, between the Company, Purisys, Inc., and Mr. Levinas, as partial consideration for the sale of the Battery Brain to the Company by Purisys, Inc., a company wholly owned by Mr. Levinas. This can be deleted, because it does not involve any transaction since the beginning of 2007.

On July 29, 2005, the Company entered into a separate Letter Agreement with each of its five directors (the "Letter Agreements"): Joseph Bahat, Jacob Enoch, Amir Uziel, Tamir Levinas, and Aharon Y. Levinas. The terms of each Letter Agreement are identical. Pursuant to the Letter Agreements, each director agreed to serve as a director of the Company until the Annual Meeting of Shareholders that is to be held in 2006. The director may be removed from his position at any time by the affirmative vote of the majority of the directors or the affirmative vote of the majority of the Company's shareholders. The director may resign at any time. As compensation for his services, each director shall be paid $4,000 for each year that he serves as director, payable quarterly in arrears. In addition, each director shall be paid $1,000 for each board or committee meeting at which he is physically present. Each director shall also receive options to purchase 345,000 shares of the common stock of the Company for a price of $0.15 per share, exercisable for three years after the date that the stock options vest. Such stock options shall vest every quarterly over the next three years commencing three months from the date of the Letter Agreement, so that 28,750 stock options shall vest every three months. If the Company undergoes a change in control, all stock options shall vest automatically upon the date of such change in control.

On July 1, 2005, the Company entered into a Consulting Agreement with Tamir Levinas, which was thereafter amended in February, 2006. Mr. Levinas manages our research and development facility in Israel and is also a principal of Aniam Engineering. Aniam Engineering is responsible for our research and development laboratory and also manages our relationships with some of our component manufacturing suppliers in Israel. As compensation for his services, he is entitled to a consulting fee of $5,000 per month plus reimbursement of reasonable costs incurred on behalf of the Company.

On May 24, 2005, the Company and Edward Braniff entered into an employment agreement pursuant to which Braniff was employed by the Company as its Chief Financial Officer with an annual base salary of $140,000, an annual bonus of $50,000 based on performance, and options for 1,000,000 shares at $0.05. On October 25, 2006 Mr. Braniff’s employment agreement was amended and restated to provide for an annual base salary of $145,000. Mr. Braniff continues to be entitled to a bonus of up to $50,000 based on performance. In addition, Mr. Braniff is entitled to an additional bonus as follows: for each $1,000,000 in revenues above $1,200,000 earned by the Company during the fiscal year ended December 31, 2006, the Company shall pay to Mr. Braniff the following: (a) 50,000 stock options, each of which shall give him the right to purchase one share of common stock for $0.45; (b) a cash payment equal to $10,000; and (c) a cash payment equal to 2.5% of the Company’s EBIT for the fiscal year ending December 31, 2006. Mr. Braniff’s employment agreement was amended and restated on October 25, 2006 to provide for an annual base salary of $145,000. Mr. Braniff continues to be entitled to a bonus of up to $50,000 based on performance. In addition, Mr. Braniff is entitled to an additional bonus as follows: for each $1,000,000 in revenues above $1,200,000 earned by the Company during the fiscal year ended December 31, 2006, the Company shall pay to Mr. Braniff the following: (a) 50,000 stock options, each of which shall give him the right to purchase one share of common stock for $0.45; (b) a cash payment equal to $10,000; and (c) a cash payment equal to 2.5% of the Company’s EBIT for the fiscal year ending December 31, 2006. Mr. Braniff’s employment agreement expired on May 24, 2008 and has been extended until July 1, 2009. Mr. Braniff was granted 50,000 monthly stock options (each entitling Mr. Braniff to purchase one share of common stock for $0.24) were granted to Mr. Braniff.

We have an agreement with Aharon Y. Levinas, who became the Chief Technology Officer and a director as of March 23, 2005. The agreement is for a 4-year term, with a base salary of $160,000, $200,000, $240,000 and $240,000 for each year of the term. All benefits to be granted to the individual who will be appointed as our Chief Executive Officer shall be granted to Levinas as well, including bonuses and stock options. Mr. Levinas shall receive a cell phone and a car allowance. The consulting agreement with Mr. Levinas provides that if Mr. Levinas is terminated during the 4-year term, or is no longer employed by us for any reason during said period, including termination for cause or death, we remain obligated to pay the full amounts due Mr. Levinas thereunder. Mr. Levinas’ agreement was amended on April 18 and May 18 of 2005 to provide, among other things, for a grant of 2,650,000 shares of common stock, which shall vest pro ratably every 3 months over a 3-year period commencing on April 4, 2005. Upon a change of control of the Company, all such shares shall automatically be issued simultaneously upon the effective date of the change of control. Mr. Levinas’ employment agreement was extended until July 1, 2009.

On April 22, 2005, the Company entered into a Consulting Agreement with Amir Uziel, a director and also our Chief Executive Officer from November 24, 2004 until April 17, 2005. As compensation for services rendered thereunder, Mr. Uziel was entitled to receive a monthly cash payment of $2,700 and 5,000 shares of common stock of the Company during each month of the agreement’s term, commencing as of January 1, 2005. The Consulting Agreement was terminated on December 31, 2005.

On April 22, 2005, the Company entered into a Consulting Agreement with Shiri Levinas, which was thereafter cancelled by the Company.

Director Independence

We believe that the following of our directors currently meet the definition of “independent” as promulgated by the rules and regulations of NASDAQ: Guy Moshe and Michael Ben-Ari.

Item 14. Principal Accounting Fees and Services

Chisholm, Bierwolf, Nilson & Morrill, LLC has been serving as the Company’s auditor since May 17, 2005. Squire & Company, PC served as the Company’s auditors from June 10, 2002 until May 17, 2005. Their pre-approved fees billed to the Company are set forth below:

	Fiscal year ending December 31, 2008		Fiscal year ending December 31, 2007
Audit Fees	$	46,263	$	22,686
Audit Related Fees	$	26,000	$	8,158
Tax Fees	$	0	$	0
All Other Fees	$	0	$	0

As of December 31, 2008, the Company did not have a formal documented pre-approval policy for the fees of the principal accountant.

Add (i) a description of the pre-approval procedures used, despite the absence of a formal documented policy, (ii) the percentage of audit related services that were pre-approved, and (iii) a description of the nature of the services in the audit related category.

Item 15. Exhibits, Financial Statement Schedules

(a) Financial Statements:

Our financial statements, as indicated by the Index to Consolidated Financial Statements set forth below, begin on page F-1 of this Form 10-K, and are hereby incorporated by reference. Financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.

Report of Independent Registered Public Accounting Firms		F-3

Balance Sheet		F-4

Statements of Operations		F-5

Statements of Stockholders' Equity		F-6

Statements of Cash Flows		F-7 – F-8

Notes to the Financial Statements		F-9 – F-23

(b) Exhibits:

Exhibit No.	Description	Where Found
3.1	Articles of Incorporation	Previously filed with the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 19, 2005
3.2	Bylaws	Previously filed with the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 19, 2005
10.1	Letter of Intent	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on December 17, 2004
10.2	Letter, dated February 28, 2005, between Purisys, Inc. and the Company	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on March 1, 2005
10.3	Asset Purchase Agreement dated as of March 23, 2005 among the Company, Purisys, Inc. and Aharon Y. Levinas	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on March 28, 2005
10.4	Consulting Agreement dated as of March 23, 2005 between the Company and Aharon Y. Levinas	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on March 28, 2005
10.5	Distribution Agreement, dated January 15, 2006, between the Company and Elcart Distribution S.P.A.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2006
10.6	Distribution Agreement, dated November 30, 2005, between the Company and Superior Automotive Company	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on January 23, 2006
10.7	15% Convertible Promissory Note Due May 24, 2007, made by the Company in favor of EGFE, Ltd.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on May 25, 2006

10.8	15% Convertible Promissory Note Due June 4, 2007, made by the Company in favor of EGFE, Ltd.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on May 25, 2006
10.9	Distributorship Agreement, dated June 22, 2006, by and between the Company and Carter Group, Inc.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on June 28, 2006
10.10	Profit Sharing and Internet Distribution Agreement, dated June 22, 2006, by and between Company and Carter Group, Inc.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on June 28, 2006
10.11	Finder’s Agreement, dated June 22, 2006, by and between Company and Carter Group, Inc.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on June 28, 2006
10.12	Demand Promissory Note, dated September 14, 2006, made by the Company in favor of EGFE, Ltd.	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on September 19, 2006
10.13	Letter Agreement, dated March 19, 2007, between the Company and Moshe Guy	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on March 23, 2007
10.14	Letter Agreement, dated March 19, 2007, between the Company and Pete Mateja	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on March 23, 2007
10.15	Letter Agreement, dated March 19, 2007, between the Company and Michael Ben-Ari	Previously filed with the Company’s Current Report on Form 8-K, filed with the SEC on March 23, 2007
10.16	Distributorship Agreement and Addendum to Distributorship Agreement, dated March 17, 2008, between the Company and OnGuard Dealer Services, LLC	Previously filed with the Company’s Current Report on Form 8-K/A, filed with the SEC on March 24, 2008
10.17	Distributorship Agreement, dated September 13, 2007, between the Company and Breeze Overseas Ltd.	Previously filed
31.	Rule 13a-14(a)/15d14(a) Certification	Attached Hereto
32.	Section 1350 Certification	Attached Hereto

SIGNATURES

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

	SMART ENERGY SOLUTIONS, INC.

Dated: April 13, 2009	By:	/s/ Edward Braniff
	Name: Edward Braniff
	Title: Chief Financial Officer
	Acting Chief Executive Officer

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

SIGNATURE	TITLE	DATE

/s/ Edward Braniff	Chief Financial Officer, Acting Chief	April 13, 2009
Edward Braniff	Executive Officer

/s/ Aharon Y. Levinas	Chief Technology Officer	April 13, 2009
Aharon Y. Levinas	and Director

/s/ Tamir Levinas	Director	April 13, 2009
Tamir Levinas

/s/ Guy Moshe	Director	April 13, 2009
Guy Moshe

/s/ Michael Ben-Ari	Director	April 13, 2009
Michael Ben-Ari

SMART ENERGY SOLUTIONS, INC.

FINANCIAL STATEMENTS

December 31, 2008 and 2007

CONTENTS

Report of Independent Registered Public Accounting Firm	F-3

Balance Sheets	F-4

Statements of Operations	F-5

Statements of Stockholders' Equity (Deficit)	F-6

Statements of Cash Flows	F-7

Notes to the Financial Statements	F-9

F-2

CHISHOLM, BIERWOLF, NILSON & MORRILL, LLC

Certified Public Accountants

Phone (801) 292-8756 • Fax (801) 292-8809 • wwwcbnmcpa.com

Todd D. Chisholm

Nephi J. Bierwolf

Troy F. Nilson

Douglas W. Morrill

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Shareholders

Smart Energy Solutions, Inc.

Pompton Plains, New Jersey

We have audited the accompanying balance sheets of Smart Energy Solutions, Inc. as of December 31, 2008 and 2007, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing our 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. As such we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 Smart Energy Solutions, Inc. as of December 31, 2008 and 2007 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred substantial losses from operations, has negative working capital, negative cash flows from operations and has limited sales of its product which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Chisholm, Bierwolf & Nilson, LLC

Bountiful, Utah

April 2, 2009

PCAOB Registered, Members of AICPA, CPCAF and UACPA

533 West 2600 South, Suite 25 • Bountiful, Utah 84010

12 South Main, Suite 208, Layton, Utah 84041

F-3

SMART ENERGY SOLUTIONS, INC.

Balance Sheets

	December 31,			December 31,
	2008			2007
ASSETS

CURRENT ASSETS

Cash	$	132,687		$	70,902
Accounts receivable, net		68,798			259,552
Inventory		494,269			955,912
Prepaid expenses		21,269			485

Total Current Assets		717,023			1,286,851

PROPERTY AND EQUIPMENT, net		27,139			42,062

OTHER ASSETS

Trademark, net		429			715
Deposits		23,700			23,700
Battery Brain technology, net		13,027			23,449

Total Other Assets		37,156			47,864

TOTAL ASSETS	$	781,318		$	1,376,777


LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES

Accounts payable and accrued expenses	$	623,626		$	481,060
Bank overdraft		-			52,294
Deferred revenue		280,000			140,000
Convertible debt, net		-			1,475,613

Total Current Liabilities		903,626			2,148,967

TOTAL LIABILITIES		903,626			2,148,967

COMMITMENTS		-			-
STOCKHOLDERS' (DEFICIT)

Preferred stock:no par value;1,000,000 shares authorized; none outstanding
Common stock, no par value; 500,000,000 shares authorized; 107,176,595 and 82,022,679 shares issued and outstanding, respectively		21,916,986			15,722,872
Accumulated deficit		(22,039,294	)		(16,495,062	)

Total Stockholders' (Deficit)		(122,308	)		(772,190	)

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)	$	781,318		$	1,376,777

The accompanying notes are an integral part of these condensed financial statements.

F-4

SMART ENERGY SOLUTIONS, INC.

Statements of Operations

	For the Years Ended
	December 31,
	2008			2007

REVENUES	$	1,272,810		$	1,244,108

COST OF GOODS SOLD		879,842			933,836

GROSS PROFIT		392,968			310,272

OPERATING EXPENSES

General and administrative		1,659,943			2,687,557
Marketing and advertising		144,802			350,190
Professional fees		194,375			334,506
Consultation fees		2,731,083			4,644,482

Total Operating Expenses		4,730,203			8,016,735

LOSS FROM OPERATIONS		(4,337,235	)		(7,706,463	)

OTHER INCOME (EXPENSES)

Interest income		7,124			35,602
Beneficial conversion expense		(349,859	)		-
Loss on extinguishment of debt		(768,990	)		-
Interest expense		(95,272	)		(225,818	)

Total Other Income (Expenses)		(1,206,997	)		(190,216	)

NET LOSS BEFORE INCOME TAXES		(5,544,232	)		(7,896,679	)

INCOME TAX EXPENSE		-			-

NET LOSS	$	(5,544,232	)	$	(7,896,679	)

BASIC AND FULLY DILUTED LOSS PER SHARE	$	(0.06	)	$	(0.10	)

BASIC AND FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING		95,947,996			78,979,737

The accompanying notes are an integral part of these condensed financial statements.

F-5

SMART ENERGY SOLUTIONS, INC.

Statements of Stockholders' (Deficit)

For the Period January 1, 2007 through December 31, 2008

	Shares		Amount		Deficit			Total
Balance, January 1, 2007		71,510,628	$	9,523,164	$	(8,598,383	)	$	924,781

Common stock issued for cash		5,946,531		1,900,832		-			1,900,832

Common stock issued for services		4,287,270		2,346,526		-			2,346,526

Common stock issued for exercise of options		278,250		63,085		-			63,085

Valuation of options and warrants		-		1,889,265		-			1,889,265

Net loss for the year ended December 31, 2007		-		-		(7,896,679	)		(7,896,679	)

Balance, December 31, 2007		82,022,679		15,722,872		(16,495,062	)		(772,190	)

Common stock issued for cash		3,736,363		775,000		-			775,000

Common stock issued for services		1,565,282		242,311		-			242,311

Common stock issued for conversion of debt		19,852,271		2,183,750		-			2,183,750

Valuation of options and warrants		-		1,898,591		-			1,898,591

Fair value of beneficial conversion feature of convertible debt		-		325,472		-			325,472

Loss on conversion of debt		-		768,990		-			768,990

Net loss for the year ended December 31, 2008		-		-		(5,544,232	)		(5,544,232	)

Balance, December 31, 2008		107,176,595	$	21,916,986	$	(22,039,294	)	$	(122,308	)

The accompanying notes are an integral part of these condensed financial statements.

F-6

SMART ENERGY SOLUTIONS, INC.

Statements of Cash Flows

	For the Years Ended
	December 31,
	2008				2007

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss		$	(5,544,232	)	$	(7,896,679	)
Adjustments to reconcile net loss to net cash used by operating activities:
Warrants and options issued for services			1,898,591			1,889,265
Common stock issued for services			242,311			2,346,526
Accretion of discount on convertible notes payable			349,859			15,818
Depreciation and amortization			25,631			106,820
Loss on conversion of debt			768,990			-
Changes in operating assets and liabilities:
(Increase) decrease in prepaid and expenses and deposits			(20,784	)		163,037
(Increase) decrease in accounts receivable			190,754			971,036
(Increase) in inventory			461,644			(742,471	)
Increase (decrease) in accounts payable and accrued expenses			326,315			152,006
Increase in deferred revenue			140,000			140,000

Net Cash Used in Operating Activities			(1,160,921	)		(2,854,642	)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of equipment			-			(2,000	)

Net Cash Used in Investing Activities			-			(2,000	)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of bank overdraft			(52,294	)		-
Proceeds from notes payable			500,000			-
Proceeds from exercise of stock options			-			63,085
Proceeds from issuance of common stock			775,000			1,900,832

Net Cash Provided by Financing Activities			1,222,706			1,963,917

NET INCREASE (DECREASE) IN CASH			61,785			(892,725	)

CASH AT BEGINNING OF YEAR			70,902			963,627

CASH AT END OF YEAR		$	132,687		$	70,902

The accompanying notes are an integral part of these condensed financial statements.

F-7

SMART ENERGY SOLUTIONS, INC.

Statements of Cash Flows (Continued)

	For the Years Ended
	December 31,
	2008		2007

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash Paid for:
Interest	$	-	$	210,411
Income taxes	$	-	$	-

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Common stock issued for services	$	242,311	$	2,346,526
Warrants and options issued for services	$	1,898,591	$	1,889,265
Common stock issued for convertible debt and interest	$	2,183,750	$	-

The accompanying notes are an integral part of these condensed financial statements.

F-8

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Business and Organization

This summary of significant accounting policies of Smart Energy Solutions, Inc. (the Company) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Nature of Operations – Smart Energy Solutions, Inc., was incorporated in the State of Utah on February 10, 1999, for the purpose of developing and marketing various Internet and Internet-related products and services. On March 23, 2005, the Company purchased inventory, manufacturing molds and technology from Purisys, Inc. whereby it became a producer of an electronic control for vehicle batteries, known as the “Battery Brain”, which is intended to keep the batteries from discharging to the point that the vehicle cannot be started. It is also intended to prevent the vehicle from being started without using the ignition system by what is commonly known as hot wiring. The Company has been selling the Battery Brain from that date on a wholesale basis through distributors and a retail basis over the internet. A special meeting of the shareholders of the Company was held on August 22, 2005. At the Meeting, the shareholders approved the change of the Company’s state of incorporation from Utah to Nevada by the merger of the Company with and into its wholly owned subsidiary, Smart Energy Solutions, Inc., a Nevada corporation. The shareholders also authorized the differences between the Articles of Incorporation of Smart Energy Solutions, Inc. and the Certificate of Incorporation of the Company, including changing the Company's name from Datigen.com, Inc. to Smart Energy Solutions, Inc., increasing the number of shares of the authorized common stock of the Company from 50,000,000 to 500,000,000 shares of common stock and authorization of a class of 1,000,000 million shares of preferred stock.

Share-Based Payments-The Company has adopted the fair value based method of accounting for stock-based employee compensation in accordance with Statement of Financial Accounting Standards Number 123 (REVISED 2004), "Share-Based Payment" (SFAS 123[R]). In accordance with SFAS 123[R], option expense of $1,898,591 and $1,889,265 was recognized for the years ended December 31, 2008 and 2007, respectively. The expense was calculated using the Black-Scholes valuation model.

Fair Value of Financial Instruments – On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements. SFAS No. 157 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

F-9

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of December 31, 2008 and 2007.

Cash and Cash Equivalents-For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents.

Concentration of Credit Risk – Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the clients that comprise our customer base and their dispersion across different business and geographic areas. We estimate and maintain an allowance for potentially uncollectible accounts and such estimates have historically been within management's expectations. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The Company had no amounts in excess of federally insured limits at December 31, 2008 and 2007.

During the year ended December 31, 2008, the Company had three customers that accounted for approximately 29%, 19% and 12% of its revenues, respectively.

During the year ended December 31, 2007, the Company had two customers that accounted for approximately 27% and 13% of its revenues, respectively.

Basic and Fully Diluted Loss Per Share - The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period.

	December 31,
	2008			2007

NET LOSS	$	(5,544,232	)	$	(7,896,679	)

BASIC AND FULLY DILUTED LOSS PER COMMON SHARE	$	(0.06	)	$	(0.10	)
BASIC AND FULLY DILUTED
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		95,947,996			78,979,737

The computation of loss per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the year.

F-10

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Common stock equivalents, consisting of 11,334,665 and 10,934,665 in options and 10,878,517 and 16,560,037 in warrants were considered but were not included in the computation of loss per share at December 31, 2008 and 2007, respectively, because they would have been anti-dilutive.

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

Revenue Recognition- The Company applies the provisions of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

The Company's revenues are generated from sale of products. Revenues from the sale of products are generally recognized upon shipment of product, which corresponds with the transfer of title. The costs of shipping are typically billed to the customer upon shipment and are included in cost of sales. Deposits from customers for orders to be delivered in the future are recorded as deferred revenues. The Company has $280,000 and $140,000 in deferred revenues as of December 31, 2008 and 2007,respectively.

Research and Development-The Company follows the policy of expensing its research and development costs in the period in which they are incurred in accordance with SFAS No. 2, “Accounting for Research and Development Costs”. The Company incurred research and development expenses of $394,188 and $423,441 during the years ended December 31, 2008 and 2007, respectively.

Inventory-The Company’s inventory is composed of Battery Brain units and memory chips for the Battery Brain. The inventory is recorded at the lower of cost or market and comprised of the following as of December 31:

	2008			2007

Finished goods	$	381,203		$	314,432
Work in progress		118,988			-
Raw materials		18,000			641,480
Reserve for obsolete inventory		(77,114	)		-

	$	441,077		$	955,912

The Company recorded a reserve for obsolescence of $77,114 and $-0- during the years ended December 31, 2008 and 2007, respectively.

F-11

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(Continued)

Accounts Receivable- Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables, and changes in payment histories. As of December 31, 2008 and 2007, an allowance for doubtful receivables $17,956 and $21,367, respectively, was considered necessary. Trade receivables of $123,101, and $197,963 were written off when deemed uncollectible during 2007 and 2006, respectively. Recoveries of trade receivables previously written off are recorded when received.

Income Taxes-The Financial Accounting Standards Board (FASB) has issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of FIN 48, the Company performed a review of its material tax positions. At the adoption date of January 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate. As of December 31, 2008, the Company had no accrued interest and penalties related to uncertain tax positions. Net deferred tax assets consist of the following components as of December 31, 2008 and 2007:

	2008			2007
Current Federal and State
Deferred tax assets:
NOL Carryover	$	4,407,727		$	3,327,914
Deferred tax liabilities:		-			-
Valuation allowance		(4,407,727	)		(3,327,914	)

Net deferred tax asset	$	-		$	-

The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2008 and 2007 due to the following:

	2008			2007

Book Loss from Operations	$	(2,091,088	)	$	(3,074,611	)
Options and warrants issued for services		640,438			736,813
Common stock issued for services		83,035			980,470
Allowance for bad debts		(12,104	)		19,107
Loss on conversion of debt		299,906			-
Valuation allowance		1,079,813			1,338,221

Income tax expense	$	-		$	-

At December 31, 2008, the Company had net operating loss carry forwards of approximately $11,302,000 that may be offset against future taxable income from the year 2024 through 2028. No tax benefit has been reported in the December 31, 2008 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

F-12

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

Intangible Assets- Intangible assets consist of technology and trademark costs. Technology costs are acquisition costs. Trademark costs are costs incurred to develop and file trademark applications. If the technology is purchased or the trademarks are approved, the costs are amortized using the straight-line method over the estimated lives of 5 years for technology and 5 years for trademarks. Unsuccessful trademark application costs are expensed at the time the application is denied. Management assesses the carrying values of long-lived assets for impairment when circumstances warrant such a review. In performing this assessment, management considers current market analysis and appraisal of the technology, along with estimates of future cash flows. The Company recognizes impairment losses when undiscounted cash flows estimated to be generated from long-lived assets are less than the amount of unamortized assets.

On March 23, 2005, the Company purchased the technology to its Battery Brain product for $52,109. The technology is being amortized over a period of 5 years. Costs associated with the trademark on the Battery Brain product of $1,431 are also capitalized. Trademarks that are pending or are being developed are not being amortized.

Future Amortization of these Costs is as follows:

2009		$	10,707
2010		$	2,750

Amortization expense for the years ended December 31, 2008 and 2007 was $10,707 and $10,707, respectively. The Company has recorded no impairment of its intangible assets in 2008 or 2007.

Property and Equipment-The Company’s property and equipment are comprised of the following December 31, 2008 and 2007:

Office equipment	$	35,853		$	35,853
Trade show booth		4,650			4,650
Molds		22,500			22,500
Leasehold improvements		11,665			11,665
		74,668			74,668
Accumulated depreciation		(47,529	)		(32,606	)
Net Property and Equipment	$	27,139		$	42,062

The equipment is depreciated over its estimated useful life of 5 years under the straight-line method. Leasehold improvements are depreciated over the lesser of the lease term or the useful life of the asset. Depreciation expense for the years ended December 31, 2008 and 2007 was $14,934 and $14,734, respectively.

F-13

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Beneficial Conversion Feature-The Company has adopted Emerging Issues Task Force ("EITF") Issue No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," and EITF Issue No. 00-27, "Application of EITF Issue No. 98-5 to Certain Convertible Instruments." The Company incurred debt with a conversion feature that provides for a rate of conversion that is below market value. This feature is recorded by the Company as a beneficial conversion feature pursuant to EITF Issues No. 98-5 and 00-27. Expense recorded on the Company's financial statements during the years ended December 31, 2008 and 2007 as a result of adoption of EITF issues No. 98-5 and 00-27 totaled $349,859 and $15,818, respectively.

Recent Accounting Pronouncements- In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60”. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its financial position, results of operations or cash flows.

F-14

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company's election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for “plain vanilla” share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). The Company will adopt this Statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations.’This Statement replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirements in Statement 141. This Statement establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.

F-15

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities—Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entities first fiscal year that begins after November 15, 2007.

Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements. The Company adopted SFAS No. 159 beginning March 1, 2008. The adoption of this pronouncement did not have an impact on the Company’s financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company adopted this statement March 1, 2008. The adoption of this pronouncement did not have an impact on the Company’s financial position, results of operations or cash flows.

Advertising and Marketing-The Company expenses advertising costs in the period in which they are incurred. Advertising and marketing expense was $144,802 and $350,190 for the years ended December 31, 2008 and 2007, respectively.

Deferred Loan Fees-In connection with the $1,500,000 of convertible debt issued by the Company during 2006, the Company paid loan fees of $50,000 in cash and issued $157,714 in shares of its common stock. The loan fees are being amortized over the one year term of the convertible debt. The Company recorded amortization expense of $-0- and $81,378 during the years ended December 31, 2008 and 2007, respectively. At December 31, 2008 the deferred loan fees were fully amortized.

F-16

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 1 -

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Long-Lived Assets-The Company applies the provisions of Statement of Financial Accounting Standards No. 144,” Accounting for the Impairment or Disposal of Long-Lived Assets” (‘SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amounts. In that event a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, The Company has not recorded an impairment of long-lived assets as of December 31, 2008 and 2007.

NOTE 2 -

GOING CONCERN

The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. Historically, the Company has incurred significant annual losses, which have resulted in an accumulated deficit of $22,039,294 at December 31, 2008. The Company also has a negative working capital and negative cash flow from operations of $186,603 and $1,160,921, respectively, at December 31, 2008. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company increasing sales to the point it becomes profitable. The Company may need to raise additional capital for marketing to increase its sales. If the Company is unable to increase sales sufficiently or obtain adequate capital, it could be forced to cease operation. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

Management plans to increase sales by increasing its marketing program and to obtain additional capital from the private placement of shares of its common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

NOTE 3 -

CAPITAL STRUCTURE

The Company has 1,000,000 shares of preferred stock authorized with no par value. No preferred shares are issued and outstanding at December 31, 2008 and 2007. The rights and preferences of the preferred stock will be determined by the board of directors at the time of issuance.

The Company has 500,000,000 shares of common stock authorized with no par value. All common shares are entitled to one vote per share in all matters submitted to the shareholders.

F-17

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 3-

CAPITAL STRUCTURE (CONTINUED)

During the year ended December 31, 2008, the Company issued 2,600,000 shares of its common stock to unrelated investors for an aggregate cash inflow of $650,000 at $0.25 per share. The Company also issued 1,136,363 shares for cash at $0.11 per share for an aggregate cash inflow of $125,000.

During the year ended December 31, 2008, the Company issued 19,852,271 shares of its common stock upon the conversion of $2,213,150 of debt at $0.11 per share.

During February 2008, the Company issued 250,000 shares of common stock at $0.25 per share for services rendered for a total value of $50,000. During August 2008, the Company issued 845,282 shares of common stock for services at $0.11 per share rendered for a value of $92,981. During September 2008, the Company issued 330,000 shares for services at $0.21 per share for a value of $69,930. The Company also awarded 140,000 shares for accrued services at $0.21 per share for a value of $29,400, which were issued subsequent to December 31, 2008.

During the year ended December 31, 2007, the Company issued 278,250 shares of its common stock to an unrelated investor for an aggregate cash inflow of $63,085 upon the exercise of their warrants at $0.45 per share. The Company also issued 4,777,781 shares for cash at $0.30 per share and 1,168,750 shares for cash at $0.40 per share for an aggregate cash inflow of $1,900,832.

During January 2007, the Company issued 250,000 shares of common stock at $0.54 per share for services rendered for a total value of $135,000 and 360,000 shares of common stock for services at $0.46 per share for a value of $163,800. During March 2007, the Company issued 350,000 shares of common stock for services rendered at $0.58 per share for a value of $203,000, 25,000 shares of common stock at $0.60 for a value of $15,000 and 166,000 shares of common stock at $0.59 for a value of $97,940.During May 2007, the Company issued 40,000 shares of common stock for services at $0.59 per share rendered for a value of $23,600, 1,333,333 shares at $0.58 for a value of $773,333 and 350,000 shares at $0.59 for a value of $206,500. During June 2007, the Company issued 350,000 shares for services at $0.55 per share for a value of $189,000. During August 2007, the Company issued 170,000 shares for services at $0.57 per share for a value of $96,900. During September 2007, the Company issued 600,000 shares for services at $0.50 per share for a value of $306,000 and 31,000 shares at $0.52 for a value of $16,120. In October 2007, the Company issued 110,000 shares of common stock at $0.50 per share for services rendered for a value of $55,000, In December 2007, the Company issued 151,937 shares of common stock at $0.43 per share for services rendered for a value of $65,333.

All valuations of common stock issued for services were based upon value of the services rendered, which did not differ materially from the fair value of the Company’s common stock during the period the services were rendered.

NOTE 4-

CONVERTIBLE DEBT

During 2006, the Company raised $1,000,000 through the issuance of 15% unsecured convertible debt and $500,000 from the issuance of 12% unsecured convertible debt. The debt with the accrued interest is due, by extension, on September 8, 2008. The Company was unable to repay the debt on the original due date, accordingly the holders thereof have the right to convert the debt to equity.

F-18

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 4-

CONVERTIBLE DEBT (CONTINUED)

Per the convertible debt agreement the conversion price is to be calculated by dividing the amount of outstanding principal and interest that the holder elects to convert by the average of the conversion price. The conversion price is 95% of the average of the last bid and ask price of the common stock as quoted on the Over-the-Counter Bulletin Board or such other exchange where the common stock is quoted or listed for the five trading days ending the day prior to the Company's receipt of the holders' written notice of election to convert. Since the convertible debt can be converted at anytime from the signing of the agreement forward, the closing prices of the five trading days prior to May 24, 2006 were used for the calculation of the beneficial conversion feature, in accordance with EITF 98-5.

The value of the beneficial conversion feature was determined using the intrinsic value method. The amount recorded as a discount to the convertible debt was $48,246. The discount is being amortized over the 2 year term of the convertible debt, accordingly, the Company recorded $6,097 and $15,818 in expense for the accretion of the discount during the years ended December 31, 2008 and 2007. On the date of the conversion, the Company issued a total of 19,852,271 shares of common stock in full satisfaction of $2,000,000 in principle and $183,750 in accrued interest on the convertible debt. At the same time, the Company recorded an expense for the unamortized debt discount of $18,920 and $325,472 related to the $1,500,000 and $500,000 principle notes, respectively. This was recorded as a debit to beneficial conversion expense and a credit to convertible debt, in accordance with EITF 00-21, paragraph 21.

During 2008, the Company entered into two convertible notes of $250,000. The notes are convertible at 60% of the average closing price of the Company’s common stock for the 15 days immediately preceding the date of conversion. The value of the beneficial conversion feature was determined using the intrinsic value method. The amount recorded as a discount to the convertible debt was $325,472.

The Company also amended the terms of the $500,000 15% convertible promissory note dated June 18, 2006, the $500,000 15% convertible promissory note dated May 22, 2006, and the $500,000 12% convertible note dated August 15, 2006 (amended and restated April 27, 2008). The conversion price of the $1,500,000 of prior notes was amended from 95% of the average bid and ask on the day prior to conversion to 60% of the average closing price of the Company’s common stock for the 15 days immediately preceding the date of conversion as an incentive to the note holders to convert. In accordance with EITF Issue No. 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”, EITF Issue No. 06-6, “Debtor’s Accounting for a Modification (or Exchange) of Convertible Debt Instruments,” and FAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” the Company has determined this to be a substantial modification to the debt instruments and has applied debt extinguishment accounting to record a loss on extinguishment of debt of $768,990 for the year ended December 31, 2008.

F-19

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE5-

COMMON STOCK PURCHASE WARRANTS AND OPTIONS

Warrants

The Company has determined the estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: expected term of 1year, a risk free interest rate of 3.25% in 2008 and 4.93% in 2007, a dividend yield of 0% in both years and volatility of 55 to 63%% in 2007 and 92% for the valuation of warrants in 2007. The amount of the expense charged to operations for compensatory warrants granted in exchange for services was $489,469 and $218,278 during the years ended December 31, 2008 and 2007, respectively.

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. These warrants were granted in lieu of cash compensation for services performed or financing expenses. Warrants vest immediately and services are provided during the period granted.

	Number of Shares			Weighted Average Exercise Price
Outstanding as of January 1, 2007		16,850,518		$	0.70
Granted		2,695,037			0.45
Exercised		-			0.00
Cancelled		(2,985,518	)		0.45
Outstanding at December 31, 2007		16,560,037			0.46

Granted		8,058,480			0.21
Exercised		-			0.00
Cancelled		(13,740,000	)		0.75
Outstanding at December 31, 2008		10,878,517		$	0.44

Common stock warrants outstanding and exercisable as of December 31,2008 and 2007 are:

	Warrants Outstanding						Warrants Exercisable
Year	Exercise Price		Number shares outstanding		Weighted Average Contractual Life (Years)		Number Exercisable		Weighted Average Exercise Price
2006	$	0.75		125,000		.5		125,000	$	0.75
2007	$	0.45		2,695,037		.18		2,695,037	$	0.45
2008	$	0.45		4,963,068		.75		4,963,068	$	0.11
2008	$	0.45		284,092		.75		284,092	$	0.11
2008	$	0.40		2,600,000		.25		2,600,000	$	0.40
2008	$	0.11		211,320		0		211,320	$	0.11
Total				10,878,517				10,878,517

The aggregate intrinsic value of stock warrants outstanding and exercisable at December 31, 2008 and 2007 totaled $0 and $0 and $0 and $0, respectively. The weighted average grant date fair value of warrants granted during the years ended December 31, 2008 and 2007 is $0.19 and $0.35, respectively. The fair value of warrants vested during the years ended December 31, 2008 and 2007 totaled $77,744 and $619,859, respectively.

F-20

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 5-

COMMON STOCK PURCHASE WARRANTS AND OPTIONS (CONTINUED)

Options

The Company has granted common stock purchase options to certain of its employees, directors and consultants. The options vest according to the terms of the employment contracts with the employees and consulting agreements with directors and consultants (usually 1 to 3 years). The option price is also determined in accordance with the terms of the contracts (between $0.00 to $0.75 per share).

During the year ended December 31, 2008, the estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 1 to 5 years, a risk free interest rate of 3.25%, a dividend yield of 0% and volatility of 55 to 63%. The amount of the expense charged to operations for compensatory options and warrants granted in exchange for services was $1,123,113.

During the year ended December 31, 2007, the estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 1 to 3 years, a risk free interest rate of 4.69% to 5.85%, a dividend yield of 0% and volatility of 98%. The amount of the expense charged to operations for compensatory options and warrants granted in exchange for services was $1,562,616.

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed. Options vest either immediately or over 3 years and services are provided during the vesting period.

	Number of Shares			Weighted Average Exercise Price
Outstanding as of January 1, 2007		10,223,665		$	0.15

Granted		1,341,000			0.41
Exercised		(278,250	)		0.23
Cancelled		(351,750	)		0.40
Outstanding at December 31, 2007		10,934,665		$	0.18

Granted		400,000			0.26
Exercised		-			0.00
Cancelled		-			0.00
Outstanding at December 31, 2008		11,334,665		$	0.18

F-21

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE5-

COMMON STOCK PURCHASE WARRANTS AND OPTIONS (Continued)

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. These options were granted in lieu of cash compensation for services performed or financing expenses.

	Options Outstanding						Options Exercisable
Year	Exercise Price		Number shares outstanding		Weighted Average Contractual Life (Years)		Number Exercisable		Weighted Average Exercise Price
2005	$	0.15		4,035,000		1		3,172,000	$	0.15
2005	$	0.00		2,650,000		1		1,987,500	$	0.00
2005	$	0.05		1,000,000		3		750,000	$	0.05
2006	$	0.15		242,000		0		242,000	$	0.15
2006	$	0.45		1,166,665		3		481,850	$	0.45
2006	$	0.35		540,000		1		360,000	$	0.35
2006	$	0.30		50,000		3		50,000	$	0.30
2007	$	0.35		990,000		.83		450,000	$	0.35
2007	$	0.35		40,000		3.33		40,000	$	0.35
2007	$	0.15		60,000		3		60,000	$	0.15
2007	$	0.15		11,000		3		11,000	$	0.15
2007	$	1.00		150,000		.33		150,000	$	1.00
2008	$	0.25		350,000		.25		50,000	$	0.25
2008	$	0.15		50,000		.25		50,000	$	0.15

Total				11,334,675				7,854,350

The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2008 and 2007 totaled $26,500 and $19,875 and $1,137,340 and $870,925, respectively. The weighted average grant date fair value of stock options granted during the years ended December 31, 2008 and 2007 is $0.22 and $0.61, respectively. The fair value of stock options vested during the years ended December 31, 2008 and 2007 totaled $29,738 and $903,574, respectively.

F-22

SMART ENERGY SOLUTIONS, INC.

Notes to Financial Statements

NOTE 6-

COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has entered into a one year lease for its office which expires in July 2008. Future lease commitments are $49,000 for 2009. The Company incurred rent expense of $75,313 and $75,313 in 2008 and 2007, respectively.

Warranties

The Company offers the warranty replacement of defective units for 2 years from the date of sale.

Employment Agreements

The Company is obligated to pay its Chief Technology Officer $200,000 and $240,000 for 2009 and 2010, respectively.

NOTE 7-

SUBSEQUENT EVENTS

On January 13, 2009, the Company accepted resignations from 2 members of its board of directors.

All principal and accrued interest on the Notes is convertible into shares of our common stock at the election of the purchasers or the Company at any time at the conversion price of $0.05 per share.

On January 18, 2009, the Company issued 2,000,000 shares to consultants for investor relation services to be performed.

F-23

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Cannapowder (CAVG) 10-K2008 FY Annual report

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