UNITED STATES SECURITIES AND EXCHANGE COMMISSION












x

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934








o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934









**STATMON TECHNOLOGIES CORP.**(formerly Viable Resources, Inc.)(Name of small business issuer in its charter)




Nevada

83-0242652(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)
 345 North Maple Drive, Suite 120Beverly Hills, CA 90210(Address of principal Executive Offices Zip Code)

























o x




o




















EXPLANATORY NOTE:













TABLE OF CONTENTS


PagePART IITEM 1. Description of Business
1ITEM 2. Description of Properties
20ITEM 3. Legal Proceedings
20ITEM 4. Submission of Matters to a Vote of Securities Holders
21





PART II





ITEM 5. Market for the Common Equity and Related Stockholder Matters
21ITEM 6. Managements Discussion and Analysis of Financial Condition and Results of Operation
24ITEM 7. Financial Statements
30ITEM 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
31ITEM 8a. Controls and Procedures
31


PART III





ITEM 9. Directors, Executive Officers, Promoters, and Control Persons; Compliance with Section 16(a) of the Exchange Act
31ITEM 10. Executive Compensation
33ITEM 11. Security Ownership of Certain Beneficial Owners and Management
34ITEM 12. Certain Relationships and Related Transactions
35





PART IV





ITEM 13. Exhibits and Reports on Form 8-K
36ITEM 14. Principal Accountant Fees and Services
39Signature Page
40




















**ITEM 1.**
**DESCRIPTION OF BUSINESS**




Company Overview










Recent Financial Developments




Positive EBITDA.




Capital Augmentation Plan.




1




History






















Software History














2












Broadcast Engineering Broadcast Engineering 2003 Pick Hit Award










Products and Services

















3












Software





*Axess*









*Neuro*










Hardware




*UIF-32 (Universal Interface Unit)*










*UIF-96S (Universal Interface Unit)*










4  *EIF-32 (Embedded Interface Unit)*










*UVM-6 (Universal Voltage Monitor)*










Key Features of Our Products









·
Ease of implementation, installation, maintenance, and upgrade;


·
Fully scalable and customizable;


·
Ability to integrate the monitoring and management of a wide range of protocols and unrelated systems and devices;


·
Low-cost, off-the-shelf hardware and software, utilizing the Windows operating system, used in conjunction with a standard personal computer, laptop, PDA, or other handheld computerized device;


·
Real-time remote access, self-healing, and control and monitoring of diverse systems, both intelligent and passive devices;


·
Real-time digital data collection, aggregation and information management services;


·
Time and motion efficiencies through off-site monitoring, managing and remote control capabilities from any web-enabled location;


·
Device automation and "fail-safe" problem solving;


·
Additional assurance against system down-time by prevention rather than cure;


·
Preventative maintenance opportunities based upon trend analysis of collected data; and


·
The ability to "daisy-chain" the hardware devices from a single serial or LAN (Local Area Network) connection.




Integration Services









5









Customers


















Fiscal 2005 Goals









·
Promote Axess to new distribution channels and support Harris, our primary broadcast distributor, in its domestic and international radio and television broadcast marketing in order to capitalize on the proven "first mover" advantage of Axess and ReCon and jointly dominate the broadcast industry space.





·
Implement strategic vertical market opportunities in the energy, power management and Homeland Security markets.





·
Identify small strategic vertical market operators with complimentary technologies for end-to-end solutions including database, wireless and sensor technologies.





·
Recruit appropriate industry experts for our target strategic vertical markets; such experts will bring with them deep industry knowledge and contacts, plus a vision for the integration of our products and services.





·
Evaluate private label/OEM opportunities, both domestically and internationally, to exploit our technology in markets and for applications within and beyond our current scope.





6




Radio and Television Broadcasting Industry












Software Industry












Business Strategy - Potential New Vertical Markets
















7




















·
Energy Industry - Remote Control, Monitoring, Automation and Data Aggregation;





·
Homeland Security - Remote Control, Monitoring and Surveillance; and





·
Institutional - Remote Control, Monitoring and Data Aggregation.








Competition

















8












·
Breadth of geographic presence;





·
Ease of integration;





·
Reliability;





·
Ability to offer turnkey solutions;





·
Customer service;





·
Performance;





·
Flexibility; and





·
Scalability.












Business Development

















9




Customer Support and Service










·
Tiered levels of support based on the size of the customer;





·
Centralized technical support;





·
On-site and twenty-four hour off-site technical support;





·
Centralized and on-site training;





·
Application solution design services; and





·
Non-warranty product repair.




Research and Development









Sources and Availability of Materials










Patents, Trademarks, Copyrights and Licenses









10







Licenses and Warranties










Employees















CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS


















11


Risks Related To Our Business




*Limited Operating History.*
We have had a limited operating history upon which potential investors may base an evaluation of its prospects and there can be no assurance that we will achieve our objectives. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in a rapidly evolving market, such as the market for automation, remote monitoring and process control software. Such risks include, but are not limited to, our ability to obtain and retain customers and attract a significant number of new customers, the growth of the broadcast and other markets we intend to pursue, our ability to implement our growth strategy, especially the sales and marketing efforts, and the introduction of new devices and computer
network and control technologies by us and our competitors.*We Have a History of Net Losses and May Never Achieve or Maintain Profitability.*
We have a history of incurring losses from operations. As of March 31, 2004, we had an accumulated deficit of approximately $3,608,000. We anticipate that our operating expenses will increase substantially in the foreseeable future as we increase our sales and marketing activities, attempt to develop new market verticals, and continue to develop our technology, products and services. These efforts may prove more expensive than we currently anticipate and we may incur significant additional costs and expenses in connection with our business development activities. Such costs and expenses could prevent us from achieving or maintaining profitability in future periods. If we do achieve profitability in any period, we may not be able to sustain or increase our profitability on a quarterly or annual basis.*Our Auditors Have Expressed a Going Concern Opinion.*
Primarily as a result of our recurring losses and our lack of liquidity, we have received a report from our independent auditors that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern.




12




*We have depended on Harris for a Substantial Portion of our Revenues under an OEM agreement; if this agreement was terminated, it could have a material adverse impact on us.*
Approximately 60% of our revenues in fiscal 2004 were generated through our OEM distribution agreement with Harris based on minimum revenue commitments and exclusive rights in the broadcast industry. On July 22, 2004 Harris had forfeited its rights to exclusivity and is no longer obliged to purchase minimum amounts of our products. Harris continues to distribute our products to its clients. The Harris agreement expires February 25, 2006. If the agreement is not renewed upon its expiration or if the terms of the agreement are modified in a way that decreases our revenue from it, or if the volumes of our Axess (branded ReCon by Harris) product that it licenses or sells under the agreement significantly declines, it would have a material adverse impact on our business, results of operation and financial condition.*Future Capital Needs, Uncertainty of Future Additional Financing.*
We currently anticipate that our available funds and resources, including product sales, will not be sufficient to meet our anticipated needs for working capital and capital expenditures for the next twelve months. We will need to raise additional funds in the future in order to repay our existing indebtedness if we are not able to extend the maturity date of our note holders, as well as to pursue new market verticals, develop new or enhanced products, respond to competitive pressures and acquire complementary businesses or technologies. If we raise additional funds through the issuance of equity or convertible debt securities, the current stockholders may experience dilution and any such securities may have rights, preferences or privileges senior to those of the rights of our current shareholders. There can be no
assurance that we can obtain additional financing or obtain it on terms favorable to us. If adequate funds are not available or not available on acceptable terms, we may not be able to fund our expansion, new market verticals, promote our products as we desire, take advantage of unanticipated acquisition opportunities, develop or enhance products or respond to competitive pressures. Any such inability could have a material adverse effect on our business, results of operation and financial condition.*We May Not be Able to Refinance Short-Term Promissory Notes that are Coming Due.*
We issued approximately $1.4 million of short-term promissory notes which have or will expire by September 30, 2004. We plan to raise additional equity capital before the end of 2004. In addition, we may seek to extend the maturity date of some or all of these notes in order to give us time to implement a longer-term financing strategy. We may be required to pay certain of the notes prior to the completion of our longer-term financing strategy and, in this connection, issue additional short-term debt or equity securities to raise the capital to do so. If we are unable to either extend the maturity dates of the notes or repay them through raising additional capital, the holders of such notes could demand payment, causing our insolvency, which would have a material adverse effect our business, results of operation and
financial condition. There can be no assurance that we will be able to raise sufficient capital to retire this short-term debt, or be able to do so on terms acceptable to us.  13
  *Undetected Errors or Failures in Our Software Could Result in Loss or Delay in the Market Acceptance for Our Product, Lost Sales or Costly Litigation.*
Because our software products are complex, they may contain errors that can be detected at any point in a product's lifecycle. While we continually test our products for errors, errors in our products may be found in the future even after our products have been commercially introduced. Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our products, diversion of development resources, injury to our reputation, increased service and warranty costs or costly litigation. Additionally, because our products support or rely on other systems and applications, any software errors or bugs in these systems or applications may result in errors in the performance of our software, and it maybe difficult or impossible to determine
where the error resides. Product errors could harm our business and have a material adverse effect on our business, results of operation and financial condition.*A Successful Products Liability Claim Could Require Us to Pay Substantial Damages and Result in Harm to Our Business Reputation.*
The manufacture and sale of our products involve the risk of product liability claims. We do not carry product liability insurance. A successful claim brought against us could require us to pay substantial damages and result in harm to our business reputation, remove our products from the market or otherwise adversely affect our business and operations.*Industry Resistance to Change.*
Our initial target market, television/radio broadcasting, is considered by many to be mature, of limited size and finite. Certain senior engineering management in this market segment tends to have a comfort zone with existing operations and may not readily see a reason to change from the *status quo*. Together with Harris, we must convince broadcast customers that there can be material cost-savings and management efficiencies realized through the utilization of our array of products. Furthermore, we must demonstrate to the customer that by not utilizing these products, the customer may fall behind the technology curve being embraced by certain of their competitors.*Fluctuations in Quarterly Operating Results.*
We expect to experience significant fluctuations in future quarterly operating results that may be caused by many factors, including, among others, delays in our introduction of products or product enhancement for the automation remote monitoring and process control software market; introduction of new product or products enhancement for such market by our competitors or other providers of hardware, software and components costs associated with product or technology acquisitions; the size and timing of individual orders, software "bugs" or other product quality problems, competition and pricing in the software industry; seasonality of revenues; customer order deferrals in anticipation of new products; market acceptance of new products; reductions in demand for existing products and shortening of product life
cycles as a result of new product introductions; changes in operating expenses; changes in our personnel; changes in regulatory requirements; mix of products sold; and general economic conditions. As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance.  14
  *Failure to Manage Growth Will Adversely Affect Operations.*
We plan to significantly expand our distribution, sales, marketing, research and development activities, hire additional employees as needed, expand internal information, accounting and billing systems and establish additional sales channels throughout the world. In addition, we plan to expand our infrastructure by investing in additional software and programming talent. In order to successfully manage growth, management must identify, attract, motivate, train and retain highly skilled managerial, financial, engineering, business development, sales and marketing and other personnel. Competition for this type of personnel is intense. If we fail to effectively manage our growth, our business and viability will be materially and adversely impacted.*Dependence on Microsoft Windows.*
Our software products are designed for use with personal computers and devices running in the Microsoft Windows operating environment, and future sales of our products are dependent upon continued use of Windows and Windows NT. In addition, changes to Windows or Windows NT may require us to continually upgrade our products. Any inability to produce upgrades or any material delay in doing so would adversely affect our operating results. The successful introduction of new operating system or improvements of existing operating systems that compete with Windows or Windows NT also could adversely affect sales of our products and have a material adverse effect on our operating results.*We May Fail to Keep Pace With Rapidly Changing Technologies.*
The vertical market segments we are targeting are characterized by rapidly changing technology, evolving industry standards and frequent new product and service introductions. These factors require management to continually improve the performance, features and reliability of the array of our products. We may not successfully respond quickly enough or on a cost-effective basis to these developments. We may not achieve widespread acceptance of our services before our competitors offer products and services with speed, performance, features and quality similar to or better than our products or that are more cost-effective than our services.  15
  *We May Not Be Able to Compete Effectively.*
The market for automation, monitoring and process control software is rapidly evolving and highly competitive. Many of our competitors and potential competitors have substantially greater financial, technical, and managerial and marketing resources, longer operating histories, greater name recognition and more established relationships than we do. Since our business is partially dependent on the overall success of the Internet as a communication medium, we also compete with traditional hardware based broadcast technology management in the radio and television and other industries that we are targeting. We expect competition from these and other types of competitors to increase significantly.*We May Experience Difficulties in Integrating Businesses, Products and Technologies We May Acquire into Our Business.*
Given sufficient financing, we may acquire businesses, products and technologies and enter into joint ventures and strategic relationships with other companies. Any of these transactions expose us to additional risks, including: the assimilation and integration of the operations of the combined companies; retaining key personnel; the potential disruption of our core business; and the potential additional expenses associated with amortization of acquired intangible assets, integration costs and unanticipated liabilities or contingencies.*Loss of Key Personnel Could Harm Our Business.*
Given the early stage of development of our business, we depend highly on the performance and efforts of our CEO, Geoffrey Talbot, our CTO, Peter Upfold, and the Board of Directors. If we lose the service of any members of our management team or other key personnel, our business prospects will be materially and adversely impacted.*Enactment of New Laws or Changes in Government Regulations Could Adversely Affect Our Business.*
We are not currently required to comply with direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally and laws or regulations directly applicable to the Internet. However, due to the increasing popularity of the Internet, it is possible that additional laws may be adopted regarding the Internet, any of which could materially harm our business. The adoption of any additional laws may decrease the growth of Internet use, which could lead to a decrease in the demand for our services or increase our cost of doing business.*Our Products Could Infringe on the Intellectual Property Rights of Others, Which May Lead to Costly Litigation, Lead to Payment of Substantial Damages or Royalties and/or Prevent Us from Manufacturing and Selling Our Current and Future Products.*
If third parties assert that our products or technologies infringe their intellectual property rights, our reputation and ability to license or sell our products could be harmed. Whether or not the litigation has merit, it could be time consuming and expensive for us and divert the attention of our technical and management personnel from other work. In addition, these types of claims could be costly to defend and result in our loss of significant intellectual property rights.

A determination that we are infringing the proprietary rights of others could have a material adverse effect on our products, revenues and income. If we infringe on a third partys patent, we cannot assure that we will be able to successfully redesign our products or processes to avoid such infringement. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products and could require us to pay substantial damages and/or royalties.  16
  *The Inability to Obtain Patent and Copyright Protection for Our Technology or Misappropriation of Our Software and Intellectual Property Could Adversely Affect Our Competitive Position.*
Our success depends on internally developed computer code, technologies, know-how, trademarks and related intellectual properties. We regard the technology as proprietary and will attempt to protect it by implementing security password codes, seeking patents, copyrights or trademarks, and by invoking trade secret laws and confidentiality and nondisclosure agreements. These legal means, however, afford only limited protection and may not adequately protect our rights. Further, despite these precautions, it may be possible for a third party to obtain and use our services or technology without authorization. Third parties also may develop similar technology independently through reverse engineering techniques.We intend to apply for registration of certain copyrights and a number of key trademarks and service marks and intend to introduce new trademarks and service marks. We may not be successful in obtaining registration for one or more of these trademarks. Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources and management attention. In addition, we cannot assure that competitors or other parties have not filed or in the future will not file applications for, have not received or in the future will not receive, patents or obtain additional proprietary rights relating to products or processes
used or proposed to be used by us. In that case, our competitive position could be harmed and we may be required to obtain licenses to patents or proprietary rights of others.In addition, the laws of some of the countries in which our products are or may be sold may not protect our products and intellectual property to the same extent as U.S. laws, if at all. We may be unable to protect our rights in proprietary technology in these countries.Our technologies and trademarks may be claimed to conflict with or infringe upon the patent, trademark or other proprietary rights of third parties. If this occurred, we would have to defend ourselves against such challenges, which could result in substantial costs and the diversion of resources. Any of these events could materially harm our business.  17
  Risks Related To The Industry
  *If We Fail to Successfully Introduce New Products, Our Future Growth May Suffer. Certain Products at an Early Stage of Development are the Areas of Our Expected Future Growth and Sustainability.*
As part of our growth strategy, we intend to develop and introduce certain new products. Such products are currently in research and development, and we have generated no revenues from such potential products and may never generate revenues. A substantial portion of our resources have been, and for the foreseeable future will continue to be dedicated to our research programs and the development of products. If we do not introduce these new products on a timely basis, or if they are not well accepted by the market, our business and the future growth of our business may suffer. There can be no assurance that we will be able to develop a commercial product from these projects. Our competitors may succeed in developing technologies or products that are more effective than ours.*If We Do Not Update and Enhance Our Technologies, They Will Become Obsolete or Noncompetitive. Our Competitors May Succeed in Developing Products, and Obtaining Related Regulatory Approvals, Faster than Us.*
We operate in a highly competitive industry and competition is likely to intensify. Emerging technologies, extensive research and new product introductions characterize the market for our products and services. We believe that our future success will depend in large part upon our ability to conduct successful research in our fields of expertise, to discover new technologies as a result of that research, to develop products based on our technologies, and to commercialize those products. If we fail to stay at the forefront of technological development, we will be unable to compete effectively.

Our existing and potential competitors may possess substantial financial and technical resources and production and marketing capabilities greater than ours. We cannot assure that we will be able to compete effectively with existing or potential competitors or that these competitors will not succeed in developing technologies and products that would render our technology and products obsolete and noncompetitive. Our competitors product advances could erode our position in the market rapidly.

In addition, because our products are dependent upon other operating systems, we will need to continue to respond to technological advances in these operating systems.*Our Success Depends, in Part, on Attracting Customers Who Will Embrace the New Technologies Offered by Our Products.*
It is vital to our long-term growth that we establish customer awareness and persuade the market to embrace the new technologies offered by our products. This may require in certain instances a modification to the culture and behavior of customers to be more accepting of technology and automation. Organizations may be reluctant or slow to adopt changes or new ways of performing processes and instead may prefer to resort to habitual behavior within the organization. Our marketing plan must overcome this obstacle, invalidate deeply entrenched assumptions and reluctance to behavioral change and induce customers to utilize our products rather than the familiar options and processes they currently use. If we fail to attract additional customers at this early stage, our business and the future growth of our business may suffer.
  18
  **Risks Related To Our Securities***Our Stock Price is Likely to be Highly Volatile Because of Several Factors, Including a Limited Public Float.*
The market price of our common stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price. Our common stock may not be able to be resold following periods of volatility because of the market's adverse reaction to volatility.Other factors that could cause such volatility may include, among other things:

·    Actual or anticipated fluctuations in our operating results;

·    Announcements concerning our business or those of our competitors or customers;

·    Changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;

·    Announcements of technological innovations;

·    Conditions or trends in the industry;

·    Litigation;

·    Patents or proprietary rights;

·    Departure of key personnel;

·    Failure to hire key personnel; and

·    General market conditions.*Because Our Common Stock is Considered a Penny Stock, Any Investment in Our Common Stock is Considered to be a High-Risk Investment and is Subject to Restrictions on Marketability.*
Our common stock is currently traded on the National Quotations Bureau (the "Pink Sheets") and is considered a "penny stock." The Pink Sheets market is generally regarded as a less efficient trading market than the OTC Bulletin Board or NASDAQ Small Cap Market.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also
must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.

Since our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus the ability for our common stock to be sold in the secondary market. 
 19
  *Control by Certain Stockholders.*
Our Directors and Executive Officers beneficially own approximately 43% of our outstanding shares of common stock. If these stockholders act as a group, they will have effective control of all matters requiring stockholder approval, including the election of Directors and approval of significant corporate transactions. Such control may have the effect of delaying or preventing a change in control of us, impeding a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could have a materially adverse effect on the market price of our common stock.*Absence of Dividends.*
We do not anticipate paying any cash dividends in the foreseeable future. See "Item 5 - Market for the Common Equity and Related Stockholder Matters."






**ITEM 2.**
**DESCRIPTION OF PROPERTIES**










**ITEM 3.**
**LEGAL PROCEEDINGS**








20




st










**ITEM 4.**
**SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS**










**ITEM 5.**
**MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**




Market Prices




www.bigcharts.com




21




High Bid

Low BidFiscal Year Ended March 31, 20041st Quarter
1.46

0.612nd Quarter
1.51

0.713rd Quarter
1.40

0.614th Quarter
1.36

0.71Fiscal Year Ended March 31, 20031st Quarter
1.35

0.552nd Quarter
1.01

0.153rd Quarter
0.16

0.034th Quarter
1.16

0.16








Dividends








Equity Compensation Plan Information








Recent Issuances of Unregistered Securities






























-
135,000 shares of common stock to two secured note holders pursuant to promissory note extension agreements;


-
200,000 shares of common stock to two non-employee Directors for services provided; and


-
210,000 shares of common stock to eleven unsecured note holders.


-
50,000 shares of common stock to five trade creditors










-
70,000 warrants to four new unsecured note holders;


-
200,000 warrants to a new employee for accounting and administration services;


-
200,000 warrants to our Director of Programming for services;


-
2,000 warrants to a web design vendor for services; and


-
9,766 warrants to five unsecured note holders as a penalty under their notes.




22






































23




**ITEM 6.**
**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION**








OVERVIEW


















24




RESULTS OF OPERATIONS




YEARS ENDED MARCH 31, 2004 AND 2003













.



















YEARS ENDED MARCH 31, 2003 AND 2002













.




25























QUARTERS ENDED JUNE 30, 2003, SEPTEMBER 30, 2003, DECEMBER 31 2003 AND JUNE 30, 2002, SEPTEMBER 30, 2002, DECEMBER 31 2002














. . .





26
















THREE MONTHS ENDED MARCH 31, 2002 AND 2001














.













27




LIQUIDITY AND CAPITAL RESOURCES


























28


















CRITICAL ACCOUNTING POLICIES AND ESTIMATES










Accounts Receivable - Allowance for Doubtful Accounts










Revenue Recognition















29




Effects of Recent Accounting Policies























**ITEM 7.**
**FINANCIAL STATEMENTS**








30




**ITEM 8.**
**CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

















**ITEM 8A.**
**CONTROLS AND PROCEDURES**














**ITEM 9.**
**DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT**












31




Name

Age

Position

Director and/or Officer SinceGeoffrey P. Talbot

56

Chairman, President, Chief Executive Officer & Chief Financial Officer

Chairman, President, Chief Executive Officer and Chief Financial Officer since June 2002Peter J. Upfold

41

Chief Technology Officer, Vice Chairman, Director and Secretary

Vice Chairman, Chief Technology Officer and Director since June 2002Leonard Silverman, Ph.D.

64

Director

Director since June 2002Robert B. Fields

67

Director

Director since June 2002








Geoffrey P. Talbot




Peter Upfold




Leonard Silverman, Ph.D.




Robert B. Fields








32




Compliance with Section 16(a) of the Securities Act of 1934










**ITEM 10.**
**EXECUTIVE COMPENSATION**








SUMMARY COMPENSATION TABLE




|**Annual Compensation**                               |  | **Long Term Compensation** | 
|----------------------------------------------------- |  | -------------------------- | 
|**Name and Principal Position**                       |  | **Fiscal Year**            | 
|Geoffrey P. Talbot,
President, Chairman & CEO (1)(2)  |  | 200420032002               | 
|Peter J. Upfold,
Vice Chairman & CTO
Secretary (1)(2) |  | 200420032002               | 

















33




Director Compensation












**ITEM 11.**
**SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**












|**Name and Address of Beneficial Owner Group**                            | **Amount of Common Stock and Nature of Beneficial Ownership** | **Percent of Class of Common Stock**
|------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------
|Geoffrey P. Talbot, Chairman, President, CEO, and Interim CFO (1)         | 1,746,180                                                     | 14.75%                              
|Peter J. Upfold, CTO, Vice Chairman, Secretary/Treasurer and Director (1) | 2,814,270                                                     | 23.77%                              
|Leonard Silverman, Ph.D., Director (2)(3)                                 | 283,544                                                       | 2.38%                               
|Robert B. Fields, Director (2)(3)                                         | 210,250                                                       | 1.78%                               
|Thieme Consulting, Inc. (4)                                               | 1,402,006                                                     | 11.58%                              
|John Hoff(5)                                                              | 706,626                                                       | 5.97%                               
|All Executive Officers and Directors as a Group (four persons)            | 5,054,244                                                     | 42.47%                              






| | (1) | The address of Geoffrey P. Talbot and Peter J. Upfold is 345 North Maple Drive, Suite 120, Beverly Hills, CA 90210.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (2) | The address of Leonard Silverman, Ph.D. and Robert B. Fields is c/o Statmon Technologies Corp., 345 North Maple Dr., Suite 120, Beverly Hills, CA 90210.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Dr. Leonard Silverman and Robert Fields each received 100,000 shares for their services as Directors on December 31, 2002. The Company issued 15,000 and 10,000 restricted shares of its common stock to Dr. Silverman on December 31, 2002 and October 31, 2003, respectively, in connection with loans that he made to the Company. The Company also issued 5,000 restricted shares of its common stock to Mr. Fields in connection with loans that he made to the Company in October 2003. See "Certain Relationships and Related Transactions."
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | The address of Thieme Consulting, Inc. is 845 third Ave., 14th Floor, New York, New York 10022.
| | --- | -----------------------------------------------------------------------------------------------

| | (5) | The address of John Hoff is 4002 Hunt Club Court, Agoura Hills, CA 91301.
| | --- | -------------------------------------------------------------------------




34




|**ITEM 12.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
|------------ | --------------------------------------------------



In September 2000, the Company entered into employment agreements with Mr. Talbot and Mr.Upfold. Each Agreement had a term of five years commencing upon satisfaction of certain financial milestones. The Board of Directors determined that as of July 1, 2004 the Company had met the milestones and the employment agreements became effective. In calendar 2002 through fiscal 2004, prior to the effective date of the employment agreements, Mr. Talbot and Mr. Upfold each received or accrued $81,333 per annum as a consulting fee. The Company paid any accrued amounts during this period by the end of fiscal 2004.





In October 2001, Thieme Consulting, Inc. and its affiliates loaned the Company $250,000, which was represented by senior notes (the "Senior Notes"). The Senior Notes matured in April and May 2002 and the Senior Notes have accrued interest since such dates at a rate of 15% per annum. In connection with the Senior Notes, Thieme Consulting acquired 250,000 shares of common stock and a warrant to purchase 250,000 common stock exercisable for a three-year term at $2.00 per share. Under the terms of the Senior Notes, the Company has issued, and continues to issue, 25,000 restricted shares of its common stock per month until it has repaid the Senior Notes in full. The holder of the Senior Notes has a lien on all of the assets of the Company and retains certain priority rights over new equity
capital the Company raises. In fiscal 2004 and 2003, the Company issued a total of 300,000 and 472,006, respectively, of restricted shares of its common stock to Thieme under terms of the Senior Notes and Senior Note extensions.





35




In December 2002, Dr. Silverman, a Director, loaned the Company $15,000 under the terms of a promissory note bearing interest at a rate of 10% per annum. The promissory note matured on May 31, 2003 and is currently in default. In connection with the note, the Company issued Dr. Silverman 15,000 restricted shares of its common stock and has issued him 15,000 common stock purchase warrants exercisable at $1.00 per share for a three-year term. The Company continues to accrue interest at the stated penalty interest rate of 15% per annum and issue common stock purchase warrants exercisable at $1.00 per share for a three-year term at the rate of 2,500 per month as a penalty under the note until it is repaid.





In October, 2003, Dr. Silverman, a Director, loaned the Company $10,000 under the terms of a promissory note bearing interest at a rate of 10% per annum. The promissory note matured on April 28, 2004 and is currently in default. In connection with the note, the Company issued Dr. Silverman 10,000 restricted shares of its common stock and has issued him 10,000 common stock purchase warrants exercisable at $1.00 per share for a three-year term. The Company continues to accrue interest at the stated penalty interest rate of 15% per annum and issue common stock purchase warrants exercisable at $1.00 per share for a three-year term at the rate of 500 per month as a penalty under the note until it is repaid.





In October 2003, Robert B. Fields, a director, loaned the Company $5,000 represented by a promissory note bearing interest at 10% per annum. The promissory note matured on April 28, 2004 and is currently in default. In connection with the loan, the Company issued Mr. Fields 5,000 restricted shares of its common stock and has issued him 5,000 common stock purchase warrants exercisable at $1.00 per share for a three-year term. The Company continues to accrue interest at the stated penalty interest rate of 15% per annum and issue common stock purchase warrants exercisable at $1.00 per share for a three-year term at the rate of 500 per month as a penalty under the note until it is repaid.





In connection with PSOs agreement with Blue Skies LLC, an affiliate of John Hoff, a principal shareholder of the Company, the Company paid Blue Skies for its systems integration services the sums of $99,727 and $1,208,646 in fiscal 2004 and 2003, respectively. PSO wound down its relationship with Blue Skies late in fiscal 2004. Mr. Hoff also received 807,640 shares of common stock in 2002 in connection with the Plan of Reorganization between the Company and Statmon Delaware, of which he was a principal shareholder. Mr. Hoff loaned the Company $260,000 represented by a promissory note bearing interest at 10% per annum. The First Note, which was originally issued on September 8, 2000, initially matured on September 8, 2001. The First Note
was extended until May 8, 2002 and for a second time until August 8, 2002. A third 180-day extension became effective on December 1, 2002 and expired on May 31, 2003. The note originally matured on September 8, 2001 and was ultimately extended to May 31, 2003 and was in default until January 2, 2004, when it was paid in full. He received 30,000 shares of common stock per month from July 31, 2002 through November 30, 2002 as a penalty under the note until it was repaid.







|**ITEM 13.** | **EXHIBITS AND REPORTS ON FORM 8-K.**
|------------ | -------------------------------------



(a) Exhibits


**Exhibit Description**2.1

Agreement and Plan of Reorganization (1)3.1

Articles of Incorporation (2)3.2

Articles of Amendment of Articles of Incorporation (3)3.3

*Amended and Restated Bylaws of the Company


36
  4.1

*Registration Rights Agreement dated October 12, 2001 between Statmon Technologies Corp. and Thieme Consulting, Inc.4.2

*Note Purchase and Shareholder Rights Agreement dated November 3, 2000 issued by Statmon Technologies, Inc. to John Hoff and other holders named therein.4.3

*Form of Stock Certificate4.4

*Form of Common Stock Purchase Warrant (exercisable at $5.00 per share)4.5

*Form of Common Stock Purchase Warrant (exercisable at $2.00 per share)4.6

*Form of Common Stock Purchase Warrant (exercisable at $1.00 per share)10.1

Share Purchase Agreement (Sino Global Development Limited) (4)10.2

Share Purchase Agreement (Systems & Technology Corp.) (4)10.3

Share Purchase Agreement (Ace Capital Investment Limited) (4)10.4

Share Purchase Agreement (Powerlink International Finance Inc.) (4)10.5

* Employment Agreement, dated as of July 1, 2004, by and between Statmon Technologies Corp. and Geoffrey P. Talbot, as amended.10.6

*Employment Agreement, dated as of July 1, 2004, by and between Statmon Technologies Corp. and Peter J. Upfold, as amended.10.7

*Agreement for Purchase & Sale of Remote Monitoring Products, dated February 25, 2003 between Statmon Technologies Corp. and Harris Corporation, as amended.10.8

*Premises lease by and between Statmon Technologies Corp. as tenant and Maple Plaza, Ltd. as Landlord10.9

*Promissory Note dated as of October 15, 2001 in the amount of $125,000 issued by Statmon Technologies Corp. to Thieme Consulting, Inc.10.10

*Promissory Note dated as of November 7, 2001 in the amount of $100,000 issued by Statmon Technologies Corp. to Global Opportunity Fund Limited.10.11

*Promissory Note dated as of November 6, 2001 in the amount of $25,000 issued by Statmon Technologies Corp. to Veninvest.10.12

*Promissory Note Extension Agreement dated as of February 7, 2003 between Statmon Technologies Corp. and Thieme Consulting, Inc., The Global Opportunity Fund and Veninvest.10.13

*Pledge and Security Agreement between Statmon Technologies Corp. and Thieme Consulting, Inc.10.14

*Subordination Agreement between Statmon Technologies Corp. and Thieme Consulting, Inc.10.15

*Promissory Note dated December 2, 2002 issued by Statmon Technologies Corp. to L&F Silverman in the principal amount of $15,000.10.16

* Promissory Note dated October 31, 2003 issued by Statmon Technologies Corp. to L&F Silverman, PhD. in the principal amount of $10,000.10.17

*Promissory Note dated October 31, 2003 issued by Statmon Technologies Corp. to Robert B. Fields.10.18

*Note Purchase and Shareholder Rights Agreement dated November 3, 2000 issued by Statmon Technologies, Inc. to John Hoff.  37
  10.19

*Promissory Note Extension Agreement dated December 2, 2002 between Statmon Technologies Corp. and John Hoff.10.20

*Form of Promissory Note issued by Statmon Technologies Corp. to purchasers of Units from April 2002 to March 2004.10.21

*Deal Point Memorandum regarding Statmon eBI Solutions, LLC. Between Statmon Technologies Corp. and eBI Solutions, LLC.14.1

* Code of Ethics14.2

*Charter of Audit Committee21.1

* List of Subsidiaries of the Company.24.1

*Power of Attorney.31.1

* Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

* Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

* Certification of the Companys Chief Executive Officer Certification, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

* Certification of the Companys Chief Financial Officer Certification, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


* Filed herewith




(1)

Incorporated by reference to Statmon Technologies Corp.s Form 8-K/A filed on October 15, 2002, previously filed as Item 10.1 on Exhibit to Form 8-K.(2)

Incorporated by reference to Viable Resources Inc.s Form 10-K filed March 31, 1981.(3)

Incorporated by reference to Statmon Technologies Corp.s Form 8-K/A filed on October 15, 2002.(4)

Incorporated by reference to Statmon Technologies Corp.s Form 8-K filed on May 31, 2002.(5)

Incorporated by reference to Statmon Technologies Corp.s Form 8-K/A filed on June 10, 2004.


(B) REPORTS ON FORM 8-K




The Company's report on Form 8-K/A filed June 10, 2004.




On May 19, 2004, the Registrant filed a Current Report on Form 8-K/A, announcing the dismissal of Grassi & Co. CPAs P.C. as its independent accountants, and announcing the engagement of Marcum & Kliegman LLP as its new independent accountants for the fiscal years ended March 31, 2004 and 2003 and the three month period ended March 31, 2002.




38




|**ITEM 14.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES**
|------------ | ------------------------------------------



The following table summarizes the fees of Marcum & Kliegman, LLP our current independent auditor billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services:




For the threeFor the Year Ended March 31,

months ended2004

2003

March 31, 2002Audit Fees

$
72,000

$
72,000

$
16,000Audit Related Fees








Tax Fees








All Other Fees








Total Fees

$
72,000

$
72,000

$
16,000


Audit Fees: Consists of fees for professional services rendered by our principal accountants for the contemporaneous audit of the Company's three annual financial statements and the review of quarterly financial statements or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.




Audit-Related Fees: Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit fees."




Tax Fees: Consists of fees for professional services rendered by our principal accountants for tax advice.




All Other Fees: Consists of fees for products and services provided by our principal accountants, other than the services reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees" above.




Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company's independent accountants must now be approved in advance by the Audit Committee to assure that such services do not impair the accountants' independence from the Company. Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the "Policy") which sets forth the procedures and the conditions pursuant to which services to be performed by the independent accountants are to be pre-approved. Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would
be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees in the above table as well as services for limited review of actuarial reports and calculations. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed by the independent accountants. In addition, any services that receive annual pre-approval but exceed the pre-approved maximum fee level also will require separate approval by the Audit Committee prior to being performed. The Audit Committee may delegate authority to pre-approve audit and non-audit services to any member of the Audit Committee, but may not delegate such authority to management.





39





**SIGNATURES**




Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrar has duly caused this report on form 10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized, this
  13th day of September 2004.




STATMON TECHNOLOGIES CORP.,a Nevada corporationBy:
/s/ Geoffrey P. TalbotGeoffrey P. Talbot
Chairman, CEO, President and Chief Financial Officer
(Principal Financial and Accounting Officer)




Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by following persons on behalf of the Registrant and in the capacities and on the dates indicated:




|**Signatures**         |  | **Title**                                            |  | **Date**          
|---------------------- |  | ---------------------------------------------------- |  | ------------------
|                       |  |                                                      |  |                   
|/s/ GEOFFREY P. TALBOT |  | Chairman, CEO, President and Chief Financial Officer |  | September
13, 2004
|                       |  |                                                      |  |                   
|GEOFFREY P. TALBOT     |  |                                                      |  |                   
|                       |  |                                                      |  |                   
|/s/ PETER J. UPFOLD    |  | CTO and Director                                     |  | September
13, 2004
|                       |  |                                                      |  |                   
|PETER J. UPFOLD        |  |                                                      |  |                   
|                       |  |                                                      |  |                   
|/s/ LEONARD SILVERMAN  |  | Director                                             |  | September
13, 2004
|                       |  |                                                      |  |                   
|LEONARD SILVERMAN      |  |                                                      |  |                   
|                       |  |                                                      |  |                   
|/s/ ROBERT B. FIELDS   |  | Director                                             |  | September
13, 2004
|                       |  |                                                      |  |                   
|ROBERT B. FIELDS       |  |                                                      |  |                   






|
|
|
|

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**








|                                                        |                                                                                                                                                      | Page (s)   
|------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|Report of Independent Registered Public Accounting Firm |                                                                                                                                                      | F-1        
|                                                        |                                                                                                                                                      |            
|Financial Statements:                                   |                                                                                                                                                      |            
|                                                        | Consolidated Balance Sheets as of March 31, 2004, 2003 and 2002                                                                                      |            
|                                                        |                                                                                                                                                      |            
|                                                        | Consolidated Statements of Operations for the Years Ended March 31, 2004, and March 31, 2003 and the three months ended March 31, 2002               |            
|                                                        |                                                                                                                                                      |            
|                                                        | Consolidated Statements of Stockholders Deficiency for the Years Ended March 31, 2004, and March 31, 2003 and the three months ended March 31, 2002 |            
|                                                        |                                                                                                                                                      |            
|                                                        | Consolidated Statements of Cash Flows for the Years Ended March 31, 2004, and March 31, 2003 and the three months ended March 31, 2002               |            
|                                                        |                                                                                                                                                      |            
|Notes to Consolidated Financial Statements              |                                                                                                                                                      | F-6 to F-18







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







Board of Directors and Stockholders of


Statmon Technologies Corp.






We have audited the accompanying consolidated balance sheets of Statmon Technologies Corp. and Subsidiaries (the "Company") as of March 31, 2004, 2003 and 2002 and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the years ended March 31, 2004 and 2003 and the three-months ended March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.




In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Statmon Technologies Corp and Subsidiaries at March 31, 2004, 2003 and 2002 and the results of their operations and their cash flows for the years ended March 31, 2004 and 2003 and for the three months ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America.




The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company incurred net losses of $600,055 and $1,883,278 during the years ended March 31, 2004 and 2003, respectively, and a net loss of $355,531 during the three-months ended March 31, 2002. In addition, as of March 31, 2004, the Company had a working capital deficiency of $1,178,314. These conditions raise substantial doubt about the Company's ability to continue as a going-concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/ MARCUM & KLIEGMAN LLP





New York, New York


August 27, 2004




F-1


**STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES**




CONSOLIDATED BALANCE SHEETS




At March 31,**2004**

**2003**

**2002****ASSETS**Current Assets:Cash




$
92,527

$
8,442

$
Accounts receivable





780,831


423,458


68,225Prepaid expense and other current assets





209,781


3,988


4,468Total Current Assets





1,083,139


435,888


72,693Property and equipment, net

22,766


30,401


34,676Other assets

6,465


6,465


6,465Total Assets




$
1,112,370

$
472,754

$
113,834**LIABILITIES AND STOCKHOLDERS' DEFICIENCY**Current Liabilities:Notes payable (including $280,000, $481,296 and $508,733 dueto related parties as of March 31, 2004, 2003 and 2002, respectively)




$
1,263,052

$
693,736

$
508,733Accounts payable





443,810


469,813


125,506Accrued expenses





77,892


416,836


26,893Accrued compensation





186,821


226,821


226,821Interest payable (including $87,074, $96,229 and $46,342 dueto related parties as of March 31, 2004, 2003 and 2002, respectively)





154,559


117,317


46,342Deferred revenue





135,319


430,330


Total Liabilities




$
2,261,453

$
2,354,853

$
934,295Commitments, contingencies and other mattersStockholders' Deficiency:Common stock- $.01 par value; 25,000,000 shares authorized (15,000,000 at March 31, 2002); 11,717,661, 10,205,661 and 7,575,000 issued and outstanding at March 31, 2004, 2003, and 2002 respectively.





117,177


102,057


75,750Additional paid-in capital





2,341,252


1,023,301


227,968Accumulated deficit





(3,607,512
)

(3,007,457
)

(1,124,179
)Total Stockholders' Deficiency





(1,149,083
)

(1,882,099
)

(820,461
)Total Liabilities and Stockholders' Deficiency




$
1,112,370

$
472,754

$
113,834  The accompanying notes are an integral part of these consolidated financial statements.







|
|
|
|

**STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES**




CONSOLIDATED STATEMENTS OF OPERATIONS








For the ThreeFor the Years Ended March 31,

Months Ended2004

2003

March 31, 2002Revenues

$
2,511,356

$
2,426,831

$
86,070Cost of Sales (including $99,727 and $1,208,646 fromrelated parties in 2004 and 2003)


725,586


1,864,926


36,210Gross Profit


1,785,770


561,905


49,860Selling, General and Administrative Expenses


1,303,537


1,336,126


239,668Cost of Settlement Agreement





300,000


Operating Income/(Loss)


482,233


(1,074,221
)

(189,808
)Other (Income)/Expense:Interest income


(264
)

(2,826
)

Interest expense


111,927


96,128


16,480Common stock and warrants issued in association with debt


572,427


334,482


79,200Amortization of debt discount


359,257


383,879


51,960Amortization of deferred financing costs


38,941





18,083Other income





(2,606
)

Total Other Expense


1,082,288


809,057


165,723NET LOSS

$
(600,055
)
$
(1,883,278
)
$
(355,531
)NET LOSS PER COMMON SHARE - Basic and Diluted

$
(0.06
)
$
(0.21
)
$
(0.05
)Weighted Average Number of Common Shares Outstanding -Basic and Diluted


10,651,320


9,087,351


7,477,999







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




F-3


**STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES**




CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY








Additional



TotalCommon Stock

paid-In

Accumulated

stockholder'sShares

Amount

capital

deficit

deficitBalance, December 31, 2001

7,455,000


75,750


115,768


(768,648
)

(577,130
)Issuance of common stock for debt extension





120,000





33,000





33,000Issuance of debt related stock warrants











79,200





79,200Net loss














(355,531
)

(355,531
)Balance, March 31, 2002

7,575,000


75,750


227,968


(1,124,179
)

(820,461
)Acquired equity of Viable Resources, Inc.





1,441,640


14,416


(14,416
)




Issuance of debt related penalty shares





704,021


7,041


245,059





252,100Issuance of debt related stock warrants











115,900





115,900Issuance of common stock for compensation





200,000


2,000


29,800





31,800Issuance of common stock for services





50,000


500


7,450





7,950Beneficial conversion feature for note payable











258,733





258,733Issuance of shares and warrants related to new debt





235,000


2,350


44,417





46,767Issuance of warrants for services











68,651





68,651Issuance of penalty warrants











39,739





39,739Net loss














(1,883,278
)

(1,883,278
)Balance, March 31, 2003

10,205,661


102,057


1,023,301


(3,007,457
)

(1,882,099
)Issuance of debt related penalty shares





300,000


3,000


300,500





303,500Issuance of common stock for services





25,000


250


25,225





25,475Issuance of shares and warrants related to new debt





1,187,000


11,870


748,775





760,645Issuance of debt related penalty warrants











243,451





243,451Net loss














(600,055
)

(600,055
)Balance, March 31, 2004

11,717,661


117,177


2,341,252


(3,607,512
)

(1,149,083
)







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







|
|
|
|



**STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES**




CONSOLIDATED STATEMENTS OF CASH FLOWS





For the Years Ended March 31,

Three Months Ended March 31,2004

2003

2002CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(600,055
)
$
(1,883,278
)
$
(355,531
)Adjustments to reconcile net loss to net cash(used in)/provided by operating activities:Depreciation and amortization


10,237


9,775


2,095Amortization of debt discount


359,257


383,879


51,960Common stock and warrants issued in association with debt


572,427


334,482


79,200Non-cash stock based compensation charge





95,718


Changes in operating assets and liabilities:Accounts receivable


(357,373
)

(355,233
)

37,391Prepaid expense and other current assets


(205,793
)

481


117,585Interest payable


37,242


70,975


16,479Deferred revenue


(295,011
)

430,330


Accounts payable


(26,003
)

344,307


56,635Accrued expenses


(338,945
)

389,944


(2
)Accrued compensation


(40,000
)




NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES


(884,017
)

(178,620
)

5,812CASH FLOWS USED IN INVESTING ACTIVITIES:Purchase of property and equipment


(2,602
)

(5,500
)

(6,282
)CASH FLOWS FROM FINANCING ACTIVITIES*:*Proceeds from borrowings


1,187,000


235,000


469Repayment of borrowings


(216,296
)

(42,438
)

NET CASH PROVIDED BY FINANCING ACTIVITIES


970,704


192,562


469NET INCREASE IN CASH


84,085


8,442


CASH, BEGINNING OF PERIOD


8,442





CASH, END OF PERIOD

$
92,527

$
8,442


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest

$
74,684

$
25,000

$
Income Taxes

$


$


$
   The accompanying notes are an integral part of these consolidated financial statements.


F-5









NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|**1.** | **BUSINESS DESCRIPTION, GOING CONCERN AND MANAGEMENT PLANS**
|------ | ------------------------------------------------------------




Statmon Technologies Corp. (hereafter known as "the "Company," and "we," "us" or "our") was previously known as Viable Resources Inc. ("Viable") and was incorporated in the State of Nevada on August 24, 1978 with authorized common stock of 25,000,000 shares at a par value of $0.01 per share. Between 1978 and 1992, Viable was engaged in the mining business. On February 29, 1984, Viable filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Act in the United States Bankruptcy Court in the District of Wyoming (the "Viable Resources Bankruptcy"). On July 13, 1988, the Bankruptcy Court issued the final decree closing the case of Viable Resources, Inc. (No. 84-00138-B), pursuant to Rule 3022 under the U.S. Bankruptcy Act. During 1992, Viable ceased operations
and it remained inactive until June 2002 when it acquired all of the issued and outstanding common stock of Statmon Technologies Corp., a privately held Delaware corporation incorporated in June 2000 ("Statmon Delaware"). As a result, Statmon Delaware became a wholly-owned subsidiary of the Company and the principal shareholders of Statmon Delaware became the controlling shareholders of the Company. All pre-existing debt incurred or identified after the Viable Resources Bankruptcy had been extinguished by the statute of limitations or was previously settled before the transaction with Statmon Delaware.




Prior to the transaction with Statmon Delaware, the Viable Board of Directors, and a majority of its stockholders as of May 22, 2002, approved the Agreement and Plan of Reorganization (the "Plan of Reorganization") between the Company and Statmon Delaware. The Company's issued and outstanding common stock was reverse split on a one for sixteen basis on June 12, 2002, the effective date of the transaction. Under the Plan of Reorganization the Company changed its name to "Statmon Technologies Corp." and exchanged 7,575,000 shares of its common stock (on a post reverse split basis) for all of the issued and outstanding common stock of Statmon Delaware.




In connection with the Plan of Reorganization, the Company also issued warrants to purchase 250,000 common stock (post reverse split) at $5.00 per share for a period of five years to the members of the Viable Board of directors, all of whom resigned upon the appointment of the present members of the Board of Directors on June 13, 2002.




The transaction has been accounted for as a reverse merger in which Statmon Delaware is considered to be the acquirer of Statmon Technologies Corp. Accordingly, the reverse merger was accounted for as a recapitalization in which (i) the assets and liabilities of Statmon Delaware and Viable were combined on the basis of their historical book values, (ii) the common stock and additional paid in capital of Viable were retroactively restated to give effect to the exchange of Statmon Delaware common stock for Viable common stock, and (iii) the retained earnings balance of Viable at the date of the merger was converted into additional paid-in capital.




In addition, the financial statements presented for all periods prior to the recapitalization are those of Statmon Delaware.




The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and assume that the Company will continue as a going concern. The Company has incurred net losses of approximately $3,608,000 since its inception. Additionally, the Company had net working capital deficiencies of approximately $1,178,000, $1,919,000 and $862,000 at March 31, 2004, March 31, 2003 and March 31, 2002, respectively, and negative cash flows from operations for the year ended March 31, 2004 of approximately $884,000. Those conditions raise substantial doubt about the Companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.




F-6




STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|**1.** | **BUSINESS DESCRIPTION, GOING CONCERN AND MANAGEMENT PLANS, continued**
|------ | -----------------------------------------------------------------------



The Company plans to raise equity through a private offering in late 2004 to repay short-term debt, fund new market opportunities and provide working capital for its operations and growth. There can be no assurance that it will be able to raise the capital it requires or at all or that it will be able to raise the capital in terms acceptable to it.




There can be no assurances that the Company will be successful in obtaining the aforementioned financing or refinancing and or extension of its notes payable. If it is not successful, the Company would seek to negotiate other terms for the issuance of debt, and/or pursue bridge financing, negotiate with suppliers for a reduction of debt through issuance of stock, and seek to raise equity through the sale of its common stock. At this time management cannot assess the likelihood of achieving these objectives. If the Company is unable to achieve these objectives, the Company may be forced to cease its business operations, sell its assets and/or seek further protection under applicable bankruptcy laws.







|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
|------ | ----------------------------------------------



|*a.* | Basis of Consolidation -The consolidated financial statements include the accounts of the Company's 51% owned subsidiary, Statmon-eBI Solutions, LLC. On February 15, 2004, the Company acquired the remaining 49% of the subsidiary. All inter-company accounts and transactions have been eliminated.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




|*c.* | Property and Equipment- Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over five years, which is the estimated useful life of the assets.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|*d.* | Research and Development - Research and development expenditures are charged to operations as incurred. Research and development expenditures were approximately $232,000 in fiscal 2004, $209,000 in fiscal 2003 and $40,000 for the three months ended March 31, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|***e.*** | Net Loss Per Share - Basic loss per share is computed using the weighted average number of shares of outstanding common stock***.***For all periods presented, diluted net loss per share was the same as basic net loss per share since the inclusion of the warrants would have been anti-dilutive. In the event that the Company reports net income in the future periods, warrants could have a dilutive effect on future per share calculations in those periods.
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-7

STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued**
|------ | ---------------------------------------------------------



|*f.* | Income Taxes - Income taxes are accounted for under Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes," which is an asset and liability approach that requires the
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

recognition of deferred tax assets and liabilities for the expected future tax
  consequences of events that have been recognized in the Company's financial
  statements or tax returns.





|*g.* | Fair Value of Financial Instruments - The carrying amounts reported in the balance sheet for cash, receivables, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. The carrying amount of the Companys notes payable approximate fair value based on the prevailing market interest rates.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|*h.* | Impairment of Long-Lived Assets - The Company reviews long-lived assets and certain identifiable assets on a quarterly basis for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. At March 31, 2004, the Company does not believe that any impairment has occurred.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|*i.* | Revenue Recognition - Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"), was issued in October 1997 by the American Institute of Certified Public Accountants ("AICPA") and was amended by Statement of Position 98-4 ("SOP 98-4"). SOP 97-2 provides revised and expanded guidance of software revenue recognition and applies to all entities that earn revenue from licensing, selling, or otherwise marketing computer software. Based on its interpretation of SOP 97-2 and SOP 98-4, the Company believes its current revenue recognition policies and practices are consistent with SOP 97-2 and SOP 98-4. Additionally, the AICPA issued SOP 98-9 in December 1998, which provides certain amendments to SOP 97-2, and is effective for transactions, entered into during the year ended December 31, 2000.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | Product revenues from the sale of software licenses are recognized when evidence of a license agreement exists, the fees are fixed and determinable, collectibility is probable and vendor specific objective evidence exists to allocate the total fee to elements of the arrangements. The Company's software license agreement entitles the licensee limited rights for upgrades and enhancements for the version they have licensed.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | Deferred revenue represents revenue billed and collected for products and or/services but not yet shipped
| | ---------------------------------------------------------------------------------------------------------

| | 
| | 

|*j.* | Stock-Based Compensation- As permitted under Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which amended SFAS No. 123 "Accounting for Stock-Based Compensation," the Company has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related interpretations including Financial Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB No. 25. No stock-based employee compensation cost is reflected in net loss, as no options are outstanding.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | For the years ended March 31, 2004 and March 31, 2003 and for the three months ended March 31, 2002, the Company has not issued any options to its employees.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------



F-8


STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
|------ | ---------------------------------------------------------



|*k.* | Shipping and Handling - Shipping and handling costs incurred are either billed to the customer and included as part of cost of sales or expensed as cost of sales as incurred.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|*l.* | Amortization of Debt Discount- Debt discount is amortized on the straight-line basis over the life of the related notes
|---- | -----------------------------------------------------------------------------------------------------------------------




|*m.* | Recent Accounting Pronouncements
|---- | --------------------------------




|i. | In January 2003, the FASB issued Interpretation Number 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). This interpretation of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides guidance for identifying a controlling interest in a variable interest entity ("VIE") established by means other than voting interests. FIN No. 46 also requires consolidation of a VIE by an enterprise that holds such a controlling interest. In December 2003, the FASB completed its deliberations regarding the proposed modification to FIN No. 46 and issued Interpretation Number 46(R), "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN No. 46(R)"). The decisions reached included a deferral of the effective date and provisions for additional scope exceptions for certain types of variable interests.
Application of FIN No. 46(R) is required in financial statements of public entities that have interests in VIEs or potential VIEs commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public small business issuers' entities is required in all interim and annual financial statements for periods ending after December 15, 2004. Management does not believe that the adoption of this pronouncement will have a material effect on the Company's financial statements.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|ii. | Effective July 1, 2003, the Company had adopted Emerging Issues Task Force (EITF) Issue No. 00-21, Accounting For Revenue Arrangements with Multiple Deliverables, which establishes criteria for whether revenue on a deliverable can be recognized separately from other deliverables in a multiple deliverable arrangement. The criteria considers whether the delivered item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the customer's right of return for the delivered item. Adoption of this standard did not have a material impact on the Company's financial position, results of operations or cash flows.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|iii. | In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity"("SFAS No. 150"). SFAS No. 150 establishes standards for classification and measurement in the statement of financial position of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires classification of a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and, otherwise, is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have any impact on the Company's consolidated results of operations, financial position or cash flows.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|
|
|
|

STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|**3.** | **PROPERTY AND EQUIPMENT**
|------ | --------------------------





Property and equipment consist of the following:


At March 31,2004

2003

2002Computer Equipment

$
33,494

$
30,892

$
30,134Software


11,608


11,608


9,464Office Equipment


8,033


8,033


5,43553,135


50,533


45,033Less: accumulated depreciation


30,369


20,132


10,357$
22,766

$
30,401

$
34,676




For the years ended March 31, 2004 and 2003, depreciation expense was $10,237 and $9,775, respectively. For the three months ended March 31, 2002, depreciation expense was $2,095.






|**4.** | **RELATED PARTY TRANSACTIONS**
|------ | ------------------------------



In connection with an agreement in June 2001 with Blue Skies LLC, an affiliate of John Hoff, a principal shareholder of the Company, the Company paid Blue Skies for its systems integration services $99,727 and $1,208,646 during the years ended March 31, 2004 and 2003, respectively.




Additionally in September 2000, Mr. Hoff loaned the Company $260,000 represented by a promissory note bearing interest at 10% per annum
  
  (see Note 5a).





F-10




STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






**5.**
**NOTES PAYABLE**





Notes payable - consists of the following:




2004

2003

2002Notes Payable - John Hoff - related party


[a
]
$


$
216,296

$
258,733Notes Payable - Thieme Consulting, Inc. - related party[b
]

250,000


250,000


250,000Notes Payable - various (including $30,000 and$15,000 from related parties as of March 31,2004 and 2003, respectively)


[c
]

1,422,000


235,000


1,672,000


701,296


508,733Less: Debt discount





(408,948
)

(7,560
)

Note Payable, net of debt discount




$
1,263,052

$
693,736

$
508,733


[a] One note holder (the "First Note Holder") had a secured Promissory Note from the Company for $260,000, plus, accrued interest, which accrued at 10% per annum until September 8, 2001 and then accrued at a penalty interest rate of 15% per annum, plus, 30,000 shares of the Companys common stock per month until November 30, 2002. (the "First Note"). The First Note was originally issued on September 8, 2000 and matured on September 8, 2001. The First Note was extended until May 8, 2002 and for a second time until August 8, 2002. A third 180-day extension became effective on December 1, 2002 and expired on May 31, 2003. Between January and May 2003 the Company made reductions towards principal and interest totaling $79,977. On June 30, 2003 $242,867 was paid in cash
to the First Note Holder leaving an outstanding balance of $6,620. On July 28, 2003 the First Note holder made further advances to the Company totaling $51,763 thereby increasing the balance to $58,620 which was paid in full on January 2, 2004 including interest of $3,953.The note holder received 207,015 and 120,000 penalty shares during the year ended March 31, 2003 and the three months ended March 31, 2002,
  respectively. The penalty shares were valued at $92,909 and $33,000 during the year ended March 31, 2003 and the three months ended March 31, 2002, respectively





[b] In October 2001, the Company issued three secured Promissory Notes to three related lenders (collectively, the "Senior Notes") for a total of $250,000, accruing interest at 10% per annum. In connection with the Senior Notes, Thieme Consulting, Inc. acquired 250,000 shares of common stock and a warrant to purchase 250,000 shares of common stock exercisable for a three-year term at $2.00 per share. The three Senior Notes initial terms expired on April 16, 2002, May 6, 2002, and May 18, 2002, respectively, and have since accrued interest at a penalty rate of 15% per annum. Pursuant to the loan agreements penalty provisions the Company has issued and continues to issue 25,000 shares of Common stock per month until full repayment of the Senior Notes. The Companys
obligations under the Senior Notes are secured by a UCC perfected lien on the assets of the Company, plus, certain priority rights over first new equity capital coming into the Company, effective until the Senior Notes are fully repaid.





F-11


STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|**5.** | **NOTES PAYABLE, Continued**
|------ | ----------------------------




[b] On February 7, 2003 the Company entered into a promissory Note Extension Agreement with the holder of the Senior Notes. Pursuant to that agreement the Company extended the Senior Notes until June 30, 2003 and is currently in default. The extension consideration was 200,000 shares of common stock which was valued at $36,385, with the 15% penalty interest rate continuing to accrue, plus, the Company will continue to issue the holders of the Senior Notes 25,000 shares per month or pro rata until repayment in full of all principal and interest. The note holder received 300,000 and 472,006 penalty shares during the years ended March 31, 2004 and March 31, 2003. The penalty shares were valued at $303,500 and $159,191 for the years ended March 31, 2004 and March 31, 2003, respectively.




[c] Between April 5, 2002 and March 31, 2004 the Company issued Units, consisting of a 180 day promissory note bearing interest at 10% per annum, a share of the Companys common stock and three-year warrants to purchase shares at an exercise price of $1.00 per share to approximately 60 investors for a total amount of $1,422,000. These notes have initial term maturity dates between October 5, 2002 and September 30, 2004.  At March 31, 2004, $385,000 of these notes were expired. At June 30, 2004, $850,000 principal amount of these notes had matured. Upon default, the notes accrued interest at
15% per annum and provide for the issuance of monthly warrants (the number of warrants calculated at 10% of the face value of the Note) as a penalty until the repayment of the notes in full. The warrants are exercisable at $1.00 per share for three-year terms from their dates of issuance. As of July 31, 2004, the Company has paid $95,000 of principal plus interest of $15,920 on the notes. On August 27, 2004, the Company issued Units consisting of a $250,000 promissory note bearing interest at 10% per annum, due 180 days from issuance, 250,000 shares of the Companys common stock and a three-year warrant exercisable to purchase 250,000 shares of common stock exercisable at $1.00 per share, to an investor.




During the year ended March 31, 2004 the Company paid $101,700 of commissions, pursuant to a placement agreement with a registered broker dealer, in relation to the sale of $1,017,000 of the Units included in Note 5(c) above.  Additionally, the registered broker dealer has the right to acquire 101,700 warrants to purchase shares of common stock at an exercise price of $1.00 per share, exercisable after one year from the date of issuance and expiring in 5 years from the date of issuance.




**6.**
**EQUITY TRANSACTIONS**




[a] Common Stock




During the three months ended March 31, 2002, Statmon Delaware issued 120,000 shares of common stock related to the extension of outstanding debt.




During the year ended March 31, 2003, the Company issued 704,021 shares of common stock to various parties as penalty shares associated with notes that are in default, an aggregate of 50,000 shares of common stock to five trade creditors for extension of payment terms and 200,000 shares of common stock to two directors as compensation for services Additionally, in June of 2002, the Company provided a conversion feature in a note extension to one of the Companys note holders. The conversion provided for a 50% discount from fair market value for conversion of the balance of the note. The Company recognized
  an expense over the term of the note of $258,733 related to this beneficial
  conversion feature. The Company has subsequently repaid this note in full.




During the year ended March 31, 2003, the Company issued 235,000 shares of common stock to note holders related to new debt in the period (see note 5c).




F-12




STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|**6.** | **EQUITY TRANSACTIONS, continued**
|------ | ----------------------------------



During the year ended March 31, 2004, the Company issued 300,000 shares of common stock to various parties as penalty shares associated with unpaid debt and 25,000 shares of common stock to a trade creditor for extension of payment terms. Additionally, the Company issued 1,187,000 shares of common stock to note holders related to new debt in the period.




[b] Warrants




The following table illustrates the Companys warrant issuances and balances outstanding through March 31, 2004. The Company generally issues warrants to purchase shares of common stock in connection with debt and equity financing and to non-employee consultants.





Weighted AverageShares

Exercise Price

ExercisableWarrants outstanding at December 31, 2001


420,000

$
1.65Granted


120,000


1.00Canceled





Exercised





Warrants outstanding at March 31, 2002


540,000


1.51


540,000Granted


974,256


2.12Canceled





Exercised





Warrants outstanding at March 31, 2003


1,514,256


1.84


1,514,256Granted


1,417,850


1.00Canceled


(50,000
)

1.00Exercised





Warrants outstanding and exercisable at March 31, 2004


2,882,106

$
1.43


2,882,106







The following is additional information with respect to the Companys warrants as of March 31, 2004.


Weighted Average

WeightedNumber

Remaining Years of

Average

NumberRange of Exercise

Outstanding

Contractual Life

Exercise Price

Exercisable$ 0.00 - 1.00

2,357,106

2.6

$ 1.00

2,357,106$ 1.01 - 2.00

275,000

2.59

2.00

275,000$ 2.01 - 5.00

250,000

3.13

5.00

250,000$ 0.00 - 5.00

2,882,106

2.63

$ 1.43

2,882,106






Net Loss Per Share




The above-mentioned warrants could potentially dilute basic earnings per share ("EPS"), in the future, and were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.




F-13




STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




**7.**
**INCOME TAXES**




As of March 31, 2004, 2003 and 2002, the Company has net operating loss carry forwards of approximately $7,608,000, $7,940,000 and $6,775,000, respectively for Federal
  and State tax purposes expiring between 2006 and 2024. These losses are subject to IRS
  and applicable State Regulations and may be subject to significant limitations. The resulting deferred tax asset of approximately $3,000,000, $3,175,000 and $2,709,000 as of March 31, 2004, 2003 and 2002, respectively has been offset by a corresponding valuation allowance.




The Company has recorded a full valuation allowance against the deferred tax assets, including the federal and state net operating loss carry forwards as management believes that it is more likely than not that substantially all of the deferred tax assets will not be realized.




**8.**
**COMMITMENTS AND CONTINGENCIES**





|*a.* | Leases - The Company leases its office facilities and equipment under non-cancelable lease arrangements. Rent expense was $86,683 and $73,892 for the years ended March 31, 2004 and 2003, respectively, and $11,089 for the three months ended March 31, 2002. Future minimum lease payments under noncancellable operating leases include (for the fiscal year ended March 31,):
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





2005

$
81,0172006


11,7822007


2,073$
94,872






|*b.* | Legal Proceedings
|---- | -----------------



On February 25, 2003 the Company entered into a Work Out Agreement with Michael Hurst and Chad Kalebic individually and their affiliates including "SDS LLC" (the "Plaintiffs") pertaining to the termination of their commission-based sales arrangement with the Company. From mid-2000 to February 2003, the Plaintiffs had acted in various capacities with the Company, including functioning as its sales force. In mid-2003, a dispute developed between the parties over unpaid commissions and the release of common stock issued to them. On November 6, 2003, the Plaintiffs filed a lawsuit with the Superior Court of the State of California (Case No. BC305584) alleging breach of contract of the Work Out Agreement, requesting specific performance and making an application for writ of attachment of the
Companys assets. On December 1, 2003, the Company consented to the entry of an attachment order for $184,275, effective January 30, 2004, which was the amount of the Plaintiffs claims for unpaid commissions and accrued compensation. The Plaintiffs also sought the delivery of 1,120,300 restricted shares of common stock issued them but being held by the Company. On December 30, 2003, the Company paid the Plaintiffs $40,000 under protest, to be offset against the $184,275 claimed by the Plaintiffs and on January 30, 2004, the Company made a cash deposit into a bank account for $144,275, which was attached by the Plaintiffs.




F-14




STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


****8.**
**COMMITMENTS AND CONTINGENCIES, continued****




Effective June 14, 2004, the parties settled the lawsuit. Under
  terms of the settlement the Company paid $164,275 in cash, including $144,275 from the release of the attached funds, and the Plaintiffs assigned 1,120,000 shares of common stock issued to them back to the Company for cancellation, effective on the 91st day from the date of the settlement agreement, provided the Company was not in bankruptcy at that point. The Company incurred approximately $8,000 of filing and third party costs in connection with the settlement and will issue 373,396 restricted and unregistered shares of its common stock pursuant to Rule 144 of the Securities and Exchange Act of 1933, to its legal counsel in connection with the settlement.




The Company was subject to several other legal proceedings and claims arising in the ordinary course of business in fiscal 2004. It has resolved all these matters in a manner that did not have a material adverse effect on its financial condition, results of operations or cash flows.




The Company was subject to several other legal proceedings and claims arising in the ordinary course of business in fiscal 2004. It has resolved all of these matters in a manner that did not have a material adverse effect on its financial condition, results of operations or cash flows.




|*c.* | Employment Agreements
|---- | ---------------------



On September 16, 2000, Geoffrey P. Talbot and Peter J. Upfold entered into employment agreements with the Company providing for annual compensation in the first year of employment of $160,000. Because of conditions contained in certain loan agreements, the commencement date of the employment agreements was delayed until the satisfaction of certain conditions, which the Board of Directors deemed satisfied as of July 1, 2004. The employment agreements have a five-year term through June 30, 2009. During the period from January 1, 2002 to June 30, 2004, Geoffrey Talbot and Peter Upfold each received compensation of $81,333 per year until the employment agreements became effective. Conditions in certain of the loan agreements prohibited Mr. Talbot and Mr. Upfold from receiving more than $6,778
per month during such period. The compensation paid to Mr. Talbot and Mr. Upfold during the period prior to the commencement dates of their employment agreements was recorded as consulting fees.




Effective July 1, 2004, the above agreements were amended. In year two of the
  employment agreements the salaries will adjust to $200,000 per annum. For years three, four and five of the employment agreements, annual salary
  increases, performance and incentive bonuses including the issuance of stock
  options, are to be negotiated and approved by the Compensation Committee on an
  annual basis immediately prior to the Company filing the previous years Form
  10K or June 30 whichever event occurs first.


|
|
|
|



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







**8.**
**COMMITMENTS AND CONTINGENCIES, continued**





|*d.* | Major Customers
|---- | ---------------



The Company sold a substantial portion of its product and services to two customers during the year ended March 31, 2004. Sales to these customers were approximately $1,506,000 (60%) and $426,000 (17%). The accounts receivable balance for these customers at March 31, 2004 was $749,606. All amounts have been collected subsequent to March 31, 2004. During the year ended March 31, 2003, the Company sold a substantial portion of its product and services to three customers. Sales to these customers were approximately $801,000 (33%), $364,000 (15%) and $364,000 (15%). The accounts receivable balance for these customers at March 31, 2003 was $27,753. All amounts have been collected subsequent to March 31, 2003. During the three months ended March 31, 2002,
the Company sold its product to two customers. Sales to these customers were $48,500 (56%) and $37,570 (44%). All amounts have been collected subsequent to March 31, 2002.




|*e.* | Concentration of Credit Risk
|---- | ----------------------------



The Company maintains cash balances in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 per institution. From time to time, the Company's balances may exceed these limits. At March 31, 2004, 2003 and 2002, uninsured cash balances did not exist. The Company believes it is not exposed to any significant credit risk for cash.








****9.**
**SETTLEMENT AGREEMENT****







In January of 2003, the Company entered into a work-out settlement agreement with the Companys sales staff. The settlement amount of $300,000, recorded in the period ended March 31, 2003, represented a negotiated figure between the parties for the dissolving of the outsourced sales department in anticipation of the Original Equipment Manufacturer ("OEM") Agreement with Harris Broadcast Communications. As of March 31, 2004, all amounts related to this settlement have been paid.




F-16




STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




**10.**
**UNAUDITED COMPARATIVE FINANCIAL STATEMENT INFORMATION**






Effective, June 12, 2002, Statmon Delaware changed its fiscal year-end from December 31 to March 31 for consolidation with the Company whose fiscal year-end has been and will continue to be March 31. The accompanying consolidated financial statements include the presentation of the transition period beginning January 1, 2002 and ending March 31, 2002.




The following table provides comparative unaudited financial information for the year ended March 31, 2002 and the three months ended March 31, 2001:


For the ThreeFor the Year Ended

Months EndedMarch 31, 2002

March 31, 2001Revenues

$
357,713

$
17,092Cost of Sales


142,440


12,563Gross Profit


215,273


4,529Selling, General and Administrative Expenses


694,559


123,068Operating Loss


(479,286
)

(118,539
)Other (Income)/ExpenseInterest income


(1,246
)

Interest expense


42,484


6,469Common stock and warrants issued in association with debt


79,200


Amortization of debt discount


51,960


Amortization of financing costs


18,083


Other expense


4,701


195,182


6,469NET LOSS

$
(674,468
)
$
(125,008
)NET LOSS PER COMMON SHARE - Basic and Diluted


(0.09
)

(0.02
)Weighted Average Number of Common Shares Outstanding -Basic and Diluted


7,196,336


7,000,000





F-17


STATMON TECHNOLOGIES CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




****11.**
**UNAUDITED QUARTERLY RESULTS - FISCAL 2004 AND 2003****




**Fiscal Year 2004**Quarter EndedMarch 31,2004

December 31,2003

September 30,2003

June 30,2003Net Sales

$
533,838

$
589,935

$
684,598

$
702,985Gross Profit


389,038


417,385


527,614


451,733Selling, General and Administrative Expenses


260,044


335,477


358,330


349,687Operating Income


128,994


81,908


169,284


102,046Other Expense


440,879


231,447


198,467


211,493Net Loss


(311,885
)

(149,539
)

(29,183
)

(109,447
)Net Loss Per Common Share - Basic and Diluted

$
(0.03
)
$
(0.01
)
$
(0.00
)
$
(0.01
)Weighted Average Number of Common Shares Outstanding - Basic and Diluted


11,190,166


10,619,411


10,406,259


10,274,232****

**Fiscal Year 2003**Quarter EndedMarch 31,2003

December 31,2002

September 30,2002

June 30,2002Net Sales

$
508,209

$
942,312

$
708,562

$
267,748Gross Profit


47,011


230,492


210,809


73,593Selling, General and Administrative Expenses


319,205


385,758


348,394


282,767Settlement Agreement


300,000








Operating Loss


(572,195
)

(155,266
)

(137,585
)

(209,174
)Other Expense


167,838


76,560


264,138


300,523Net Loss


(740,032
)

(231,826
)

(401,723
)

(509,697
)Net Loss Per Common Share - Basic and Diluted

$
(0.07
)
$
(0.02
)
$
(0.04
)
$
(0.07
)Weighted Average Number of Common Shares Outstanding - Basic and Diluted


10,024,828


9,459,411


9,293,813


7,831,292 
 F-18