Under the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for any transaction from which the director directly or indirectly derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our amended and restated by-laws provide for the indemnification of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. We are not, however, required to indemnify any director or officer in connection with any (i) willful misconduct, (ii) willful neglect, or (iii) gross negligence toward or on behalf of us in the performance of his or her duties as a director or officer. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or officer in connection with that proceeding on receipt of any undertaking by or on behalf of that director or officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under our amended and restated by-laws or otherwise.

We have entered into indemnification agreements with our directors providing that in consideration of the director rendering valuable services to us, we agree that in the event an indemnitee is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a claim by reason of an indemnifiable event, we will indemnify an indemnitee to the fullest extent authorized by law, against any and all losses and expenses, including all interest, assessments and other charges paid or payable in connection with or in respect of such losses and expenses of such claim, whether or not such claim proceeds to judgment or is settled or otherwise is brought to a final disposition, subject in each case, to the further provisions of the agreement. The indemnity agreement provides certain limitations on indemnification, including that the indemnitee will not be indemnified and held harmless from any losses or expenses which have been determined to constitute an excluded claim, or that the indemnitee is indemnified by us and has actually received payment pursuant to the certificate of incorporation, D&O insurance or otherwise, or in connection with any claim initiated by indemnitee unless we have joined in or the board of directors has authorized such claim.

We have been advised that, in the opinion of the SEC, any indemnification for liabilities arising under the Securities Act is against public policy, as expressed in the Securities Act, and is, therefore, unenforceable.

XStream Systems, Inc. sold the following securities within the past three years without registering the securities under the Securities Act.

On December 19, 2006, we issued a convertible promissory note in the principal amount of $100,000, payable on demand at any time on or after February 28, 2007. In accordance with the terms of the note, on March 14, 2007, all of the principal and interest due on the note was converted into 26,867 shares of Series A preferred stock.

On various dates from August 31, 2005 to March 14, 2006, we sold debentures in the aggregate principal amount of $1,525,000 to accredited investors. In connection with such sale, each investor received a ten-year warrant to purchase 5,000 shares of common stock at a price of $2.34 per share for each $25,000 in principal amount of debentures. As a result, we issued warrants to purchase an aggregate of 305,000 shares of common stock. On December 19, 2007, in connection with an amendment to two of the debentures in the aggregate amount of $250,000, the investors received additional ten-year warrants to purchase an aggregate of 25,000 shares of common

In connection with a secured, revolving, demand promissory note dated November 16, 2006, we issued the holder of the note a warrant to purchase an aggregate of 21,000 shares of common stock at an exercise price of $3.80 per share on January 25, 2008.

On various dates from December 14, 2006 to December 4, 2007, we sold short term convertible promissory notes to accredited investors in the aggregate principal amount of $1,211,000. On March 14, 2007, $330,955 in principal amount and accrued but unpaid interest due on the notes was subsequently converted into an aggregate of 87,094 shares of Series A preferred stock. On December 21, 2007, $894,348 in principal amount and accrued but unpaid interest due on the notes was converted into an aggregate of 298,116 shares of Series B preferred stock. These securities were sold pursuant to the exemption from registration requirements provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

By stock purchase agreement dated March 14, 2007, as amended from time to time, we issued an aggregate of 962,101 shares of Series A preferred stock to accredited investors. The shares of Series A preferred stock were issued at a purchase price of $3.80 per share, resulting in $3,655,983 of gross proceeds, part of which consisted of conversion of outstanding debt in the aggregate amount of $330,955 including accrued but unpaid interest. These securities were sold pursuant to the exemption from registration requirements provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

On various dates from December 2007 through June 2008, we issued an aggregate of 1,619,127 shares of Series B preferred stock to accredited investors. The shares of Series B preferred stock were issued at a purchase price of $3.00 per share, resulting in $4,857,381 of gross proceeds, part of which consisted of the conversion of outstanding debt in the aggregate amount of $1,903,092 including accrued but unpaid interest and services valued at approximately $100,000. In addition, each investor received for each share of Series B preferred stock purchased, one ten-year warrant to purchase five shares of the Company’s common stock at an exercise price of $3.00 per share. These securities were sold pursuant to the exemption from registration requirements provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

On various dates from March 2009 through August 2009, we issued an aggregate of 365,996 shares of Series C preferred stock to accredited investors. The shares of Series C preferred stock were issued at a purchase price of $3.00 per share, resulting in $1,097,988 of gross proceeds. In addition, each investor received for each share of Series C preferred stock purchased, one ten-year warrant to purchase five shares of the Company’s common stock at an exercise price of $3.00 per share. These securities were sold pursuant to the exemption from registration requirements provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

During October 2009, we issued an aggregate of 563,414 shares of Series D preferred stock to accredited investors. The shares of Series D preferred stock were issued at a price of $3.00 per share, resulting in $1,690,242 of gross proceeds. In addition, each investor received for each share of Series D preferred stock purchased, one ten-year warrant to purchase five shares of the Company’s common stock at an exercise price of $3.00 per share. These securities were sold pursuant to the exemption from registration requirements provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

For each of the above transactions exempt from registration requirements under Rule 506, the individuals purchasing our securities had access to management and information concerning the company. For each of such sales, no advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of ours or our executive officers, and transfer was restricted by us in accordance with the requirements of the Securities Act. Each of such persons represented to us that they were accredited or sophisticated investors, that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment.

(a) The exhibits listed in the following Exhibit Index are filed as part of this registration statement.

(b) The financial statement schedules are either not applicable or the required information is included in the financial statements and footnotes related thereto.

A. The undersigned registrant hereby undertakes:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

B. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.