UNITED
STATES SECURITIES AND EXCHANGE COMMISSION




Washington,
D.C.  20549




Form
10-K




x
   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE


SECURITIES
EXCHANGE ACT OF 1934




For the
fiscal year ended March 31, 2009




 ̈
   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE


SECURITIES
EXCHANGE ACT OF 1934




For the
transition period from 
to




Commission
file number:  000-09751




STATMON
TECHNOLOGIES CORP.


(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.)3000
      Lakeside Drive, Suite 300 South, Bannockburn, IL 60015(Address
      of principal executive offices) (Zip Code)(847)
      604-5366(Issuer’s
      telephone number)




Securities
registered under Section 12(b) of the Exchange
Act:  None.




Securities
registered under Section 12(g) of the Exchange Act:




Common Stock, $0.01 par
      value
              OTCBB(Title
      of class)
              (Name
      of exchange on which
registered)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes   ̈  No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act


Yes   ̈  No x




Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.


Yes  x  No  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceeding 12 months (or for such shorter period that the registrant was
required to submit and post such files)


Yes  x  No  ̈




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




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




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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes  ̈  Nox




The
aggregate market value of the common stock of the registrant held by
non-affiliates as of September 30, 2008, the last business day of the
registrant’s most recently completed second fiscal quarter, was
$5,318,615.




The
number of shares outstanding of the registrant’s common stock as of July 31,
2009 was 23,938,651.




Documents
Incorporated by Reference:  None.







FORM
10-K


STATMON
TECHNOLOGIES CORP.


March
31, 2009




TABLE
OF CONTENTS





PagePART IITEM
      1. Business.
                                                                2ITEM
      1A. Risk Factors.
                                                                14ITEM
      2. Properties.
                                                                22ITEM
      3. Legal Proceedings.
                                                                22ITEM
      4. Submission of Matters to a Vote of Security Holders.
                                                                23PART IIITEM
      5. Market for Registrant’s Common Equity,Related Stockholder Matters and
      Issuer Purchases of Equity Securities.
                                                                23ITEM
      6. Selected Financial Data
                                                                25ITEM
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                                                                25ITEM
      7A. Quantitative and Qualitative Disclosures about Market
    RiskITEM
      8. Financial Statements and Supplementary Data
                                                                32ITEM
      9. Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                                                                32ITEM
      9A(T). Controls and Procedures
                                                                32ITEM
      9B. Other Information
                                                                34PART IIIITEM
      10. Directors, Executive Officers and Corporate Governance
                                                                35ITEM
      11. Executive Compensation.
                                                                38ITEM
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.
                                                                40ITEM
      13. Certain Relationships and Related Transactions, and Director
      Independence.
                                                                40ITEM
      14. Principal Accountant Fees and Services.
                                                                43PART IVITEM
      15. Exhibits, Financial Statement Schedules
                                                                44Signature
      Page
                                                                46







This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Exchange Act of 1934.  Some of such statements involve
substantial risks and uncertainties.  In some cases, you can identify these
statements by forward-looking words such as "may," "might," "will," "should,"
"could," "plan," "project," "continue," "believe," "expect," "anticipate,"
"intend," "estimate" and other variations of these words or comparable
words.  In addition, any statements that refer to expectations, projections
or other characterizations of events, circumstances or trends and that do not
relate to historical matters are forward-looking statements.  Such
statements involve known and unknown risks, uncertainties and situations that
might cause our or our industry's actual results, level of activity, performance
or achievements to be materially different from any future results, level of
activity, performance or achievements expressed or implied by these
statements.  Certain factors that might cause such a difference are
discussed in the section entitled "Cautionary Factors that May Affect Future
Results" in this Form 10-K, along with any other cautionary language in this
report, provide examples of risks, uncertainties and events that may cause our
actual results to differ from the expectations described or implied in our
forward-looking statements.




Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.  You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this
report.  Except as required by law, we do not undertake to update or revise
any forward-looking statement, whether as a result of new information, future
events or otherwise.




In this
Report, “Statmon”, the “Company”, “we”, “us”, or “our” refer to Statmon
Technologies Corp. and its wholly-owned subsidiaries, STC Software Corp. and
Statmon-eBI Solutions, LLC.




ITEM
      1.
            BUSINESS




Company
Overview




StatmonTechnologies Corp. is a
wireless and fiber infrastructure management solution provider for the control
and monitoring of remote site networks.  “Axess”, our proprietary flagship
software application, and our supporting integration products are deployed in
telecommunications, media broadcast and navigation aid transmission networks to
reduce operating costs and optimize the performance of every remote site in the
network.  A typical infrastructure network comprises a network operations
center or master control center plus a network of remote transmission sites that
incorporate a wide range of communications devices, facilities management and
environmental control systems.




The
Statmon Platform is designed to self-heal or pre-empt transmission failure by
automating the integration of all the different devices and disparate
technologies under a single umbrella control system and to facilitate manual
corrective action at the network operations center or from any connected
computer including a wireless device such as a laptop or Blackberry.  A
tiered, severity level alarm system at every site, down to the individual device
level, reports back to the network operations center logging automated
adjustments or permitting manual adjustment or corrective action without a field
technician having to physically travel to the remote site.  Any authorized
operator can drill down through the Axess software screens to observe exactly
what is taking place in real time with an individual device or system at a
remote site and make further manual setting adjustments as
required.




The
optimization of network performance plus the preemption of failure eliminates or
minimizes network or individual site downtime and the need for field technician
visits.  Remote site transmission downtime typically has a mission critical
or direct financial impact on the customers’ top line revenue generation,
operating profit and customer satisfaction.  Investment payback periods
relative to the purchase cost of the Statmon Platform compared to the operators
loss of revenue or hard costs of being “off the air” typically make the return
of investment highly attractive.  For example, advertisers do not pay for
commercials that do not go to air, or cell phone users cannot make phone calls,
email, text or download video content when a base station or cell site is off
the air.  On a geographical basis, the Statmon Platform significantly
streamlines the network engineering, emergency remote site field trips and
routine maintenance process, reducing operating and outsourcing costs and
facilitating the reallocation of resources.  For example, the ratio of the
number of cell sites being managed per field technician can be improved by a
meaningful amount.


2


The
Statmon Platform also is able to facilitate “green” policies being increasingly
implemented at various levels of corporate and governmental entities. 
Reduced truck rolls and fuel savings alone can represent meaningful
environmental improvement.




Architecturally
designed as a universal “manager of technologies” application or platform, wide
scale network operations, regardless of disparate equipment brands or
incompatible technologies deployed at a network operations center or remote
site, can automatically interact with each other while being managed from a
single point of control or “dashboard” style computer screen.  In real
time, a proactive alarm system reports to a network operations center or
designated wireless device for appropriate attention or action.  Adjusting
the HVAC, the health of the uninterrupted power supply, diesel generator and
level of the generator fuel tank, as well as disaster recovery, emergency power
management and redundancy, are all proactive management capabilities of the
Statmon Platform.  The Statmon Platform will keep remote sites operating
even when part or all of the network is down, automatically bringing the remote
site back online when network operations are restored.




Telecommunications
infrastructure and high speed networks in both developed and developing
countries around the world are being aggressively upgraded to meet the growing
subscriber demand of services.  In developing countries, wireless networks
provide an affordable alternative to the more expensive hardwire or landline
infrastructure.  Notable are the third generation, or 3G, wireless and
infrastructure transmission networks which are being upgraded to handle the
rapid traffic increase, wireless broadband and convergence of media delivery and
additional data services for the wireless and IPTV fiber markets.  Cable
systems are offering telecommunication and broadband services to their customers
and upgrading their networks including deploying Statmon’s proprietary
“Accurate” Local People Meter monitoring platform, which interfaces directly
with Nielsen.  Statmon’s unique radio frequency background and know-how in
the mainstream media broadcast industry places us in a strategic position to
provide high-end solutions for the enhanced telecommunications networks offering
video and enriched multimedia content.




The
marketing and distribution of our products is primarily facilitated by third
party sales channel partners, value added resellers, black label and original
equipment manufacturer collaborations (“Channel Partners” or “Strategic
Partners”).  Channel Partners are developed and managed by an internal
business development team and supported by a direct sales and engineering
support force.  We have a history as an innovative technology leader for
remote site facilities management, transmission remote control and monitoring in
the traditional television, radio, satellite and cable broadcast
industries.  The traditional network television market is undergoing a
resurgence of activity and reformatting as the high definition television (“HD
TV”), cable and satellite delivery systems realign their operating and business
models, including offering additional digital channels that individually focus
on high definition programming, continuous news coverage and weather reporting,
sports and special interest coverage.  Leading network broadcast operations
are being streamlined or rationalized with central casting, regional hubs and
unmanned stations and remote site transmission operations.  The traditional
radio markets are retrofitting to multi-band digital transmission in order to
remain competitive with satellite radio, mobile TV, multimedia and music content
direct to cell phone or mobile device offerings for automobiles, trucks, public
transport and the military.




We
successfully entered the telecom wireless infrastructure vertical market in
September 2006 via a contract with the Qualcomm Incorporated (“Qualcomm”) wholly
owned subsidiary, FLO TV  Incorporated, (“FLO TV”), previously known as
MediaFLO USA Incorporated to deploy our Axess software and related integration
products for the control and monitoring of their national mobile TV network
rollout. This is reputedly the largest media distribution network of its type in
the world based on the Qualcomm developed and owned MediaFLOTM and FLOTM global
mobile entertainment platform, enabling broadcasting of high–quality video,
audio, ClipcastingTM media and IP datacasting streams to mobile handsets. The
“FLOTM” multicast technology, is a comprehensive, end–to–end solution designed
specifically to address the inherent challenges of distributing large volumes of
high–quality mobile multimedia content to wireless cell phone and mobile device
Telecom subscribers.


3


FLO TV is
providing mobile TV and a multimedia platform (the “FLO Platform”) directly to
the Verizon and AT&T cellular subscriber base.  From the FLO TV network
operations center in San Diego, the Statmon Platform controls and manages all
the remote sites throughout the USA to optimize the FLO Platform transmission
performance and Verizon’s and AT&T’s mobile TV customer satisfaction. 
We anticipate that the FLO TV mobile TV platform will be adopted by additional
wireless operators around the world, although we can offer no assurance in this
regard.




Under our
agreement with FLO TV, we are licensing our Axess software and supplying
interface components for the FLO TV San Diego Network Operation Center and the
national rollout of wireless transmission sites.  Under such agreement,
Qualcomm and/or FLO TV periodically issues purchase orders to us.  From
September 7, 2006 to March 31, 2009, Qualcomm and/or MediaFLO has jointly
purchased $6,000,019 from us.  Between April 1, 2009 and July 31, 2009
sales were $390,600, and we have received purchase orders for an additional
$243,000 of product for delivery in the month of August 2009, of which $180,000
has been delivered to date.  Statmon products required for the FLO TV build
plan through May 2010 is currently projected at $828,000.  The FLO TV
agreement is dated September 7, 2006 and specifies no minimum or maximum number
of purchase orders and is for an initial term of three years with automatic
extension provisions predicated on annual support contracts being current. 
The total number of FLO TV remote sites is currently estimated to expand to
1,200 sites, although there is no guarantee that this will occur.  We also
provide support and maintenance to FLO TV renewable on an annual basis which
increases every quarter as new sites come online.





We have
commenced penetrating and, upon receipt of adequate operating capital, intend to
pursue rapid expansion into additional vertical markets, including the wireless
telecommunications (cell phone), mobile TV, IPTV over fiber networks, microwave
telecommunications, multimedia, gaming, building management, power grid and
emergency power management, government infrastructure management, homeland
security, military communications, surveillance and other markets where
centrally controlled network management, embedded industrial systems and wide
scale remote monitoring and control solutions are being
implemented.




We
believe our products have broad application in the wireless, landline and fiber
segments of the broadcast and telecommunications industries providing network
management, alarm monitoring and remote site control, transmission and
facilities management solutions for many of the new planned networks, as well as
the upgrades and wide scale infrastructure enhancements.  In developing
countries, wireless infrastructure networks are being developed as viable
alternatives to wired networks for internet, content delivery and
communications. Economic remote site management is vital for viable carrier
operations.




We expect
the wireless and infrastructure markets to experience sustained growth over the
next ten to twenty years as the carriers and infrastructure service providers
compete to provide superior and additional wide-ranging services, including
enriched video and high quality content to mobile devices, wireless broadband
and other related mobile data delivery services customers expect.  We
believe that our background in the mainstream broadcast transmission industry at
the highest HD digital TV and radio network levels, plus our three year
involvement with wireless technology leader Qualcomm, places us in a position to
satisfy the operational needs of the other mainstream telecommunications,
wireless and infrastructure providers for radio frequency and content delivery,
as well as overall communications network and remote site management and
control.




Our past
and current significant clients have  included Qualcomm Inc. - FLO TV;
General Electric Company – NBC Universal & Telemundo Television
Networks; CBS Corporation, Television and Radio Networks; The Walt Disney
Company - ABC Television and Radio Networks; Cox Communications Inc.; Belo Corp.
Television; Maryland Public Television; Australian Government owned Air Services
of Australia (the Australian equivalent to the FAA); Tribune Company,
Television; and Univision Communications Television and Radio Network. Some of
our current sales channel and integration partners include: InfraCell Inc.,
Harris Corporation, Pixelmetrix Corporation, Nautel Broadcast Technical
Services, Ltd, Ireland and Sound Broadcast Services, Ltd.


4


Products
and Services





Our
technology is a sophisticated control panel, or "dashboard style" management
tool kit, linking digital and analog control, monitoring and information
generating elements on a wide scale or narrow channel basis.  We believe
that pre-packaged, product-based solutions such as ours are replacing custom
“in-house” software and integration services.  Our proprietary technology
products offer bi-directional telemetry for remote control, automation,
self-healing and monitoring of devices, systems and facilities in real time,
which result in improved operating efficiencies, top line revenue protection,
resource reallocation, headcount reductions and a greater return on
investment.  We believe our technology adds value, including the ability to
process and disseminate vast amounts of gathered information into real time
management information, as well as predictive trends analyses and statutory
compliance reporting packages.




Based on
customer demand, and provided that we are able to obtain additional capital, we
plan to launch monitoring services or partner with managed services operators
where we oversee a client’s network operations center and network, as well as a
“central server model solution”, which allows the data to reside at our
partners’ or a Statmon facility.  Given current economic conditions, there
is no guarantee that we will be able to obtain such additional financing, on
terms acceptable to us or at all.  We believe that this offering will be
attractive to customers who prefer outsourcing and paying for services as an
ongoing operating expense rather than capital expenditure.  We believe
managed services or out-sourcing models are gaining popularity in the market
place.




We have
established an operating history with several large, high-tech corporations,
including Qualcomm, FLO TV, GE-NBC Universal, CBS, ABC, Belo, Cox Communications
and Harris Corporation, where our products have been shown to be stable and
reliable and we have a reputation for being highly responsive to customers’
needs.  Our products are scalable and are designed to offer substantially
off-the-shelf solutions to assist customers achieve measurable improvements in
their top line revenue generation, operating margins and more efficient asset
management.  In the government sector, we believe that our products can be
applied to make time critical institutional, defense and governmental
infrastructure projects, such as first responder telecommunications, power and
water management, Homeland Security and other civic projects achievable and
affordable within capital budget and timeline constraints.




Strict
asset management and infrastructure security have become an increasingly
important priority since September 11, 2001, facilitating a worldwide review of
the needs for real-time infrastructure network monitoring, automation and remote
site management capabilities.  We believe that the prevailing environment
presents a significant opportunity for us to incorporate appropriate features
and functionality into our proven application software.  For example, the
major television networks are automating the FCC required Emergency Alert System
(EAS) alarm system with our software, as well as monitoring their
mission-critical transmission, microwave links, studio and facilities management
operations.  Localized EAS emergency broadcasting is expected to be
integrated to the mobile TV and wireless markets.  The major cable
television operators are moving towards consolidating their worldwide operations
across seven continents to centralized master control operations which provide
significant opportunities for the company and where we have unique radio
frequency broadcast experience.




In the
short term, we are focused on expanding into both the wireless and fiber
communications infrastructure vertical markets.  For the foreseeable
future, we intend to continue to adapt our proprietary software and integration
technologies to provide real time monitoring and remote control capabilities
across a wide range of network and infrastructure markets.  We interface
front-end custom screens, protocols, embedded software and systems integration
to industry specific analog and digital devices, sensors and different
types of disparate systems.  We are aligned with strategic sales channel or
distribution partners who have pre-existing clients and worldwide install
bases.  Our products can also be employed as middleware and/or be part of
complete end-to-end solutions with the major infrastructure vendors, such as
Ericsson owned Tandberg, Motorola and many others.




Software




Axess




The Axess
software application remotely monitors devices, networks and systems where
automatic control and response is required.  With Axess, system operators
and engineers can remotely manage outlying operations from a network
operations center down to the individual device level and rely on the system’s
automation capabilities, as well as alarm notification, root cause analysis and
fault descriptions, triggered when situations exceed a predetermined range
or parameter.  Axess can take immediate pre-programmed action on its own,
such as operating a standby generator, monitoring the generator fuel supply,
switching to a redundant system, segregating or resetting
devices, running a control program, or disabling fault-causing
issues.  Axess operates on a Windows platform, is scalable and can
simultaneously monitor large numbers of remote sites, right down to
the devices level of the network.


5


Roving




Roving is
the Company’s "thin client" used for remote access from anywhere on the
globe.  With a customizable graphical user interface, Roving allows the
user to monitor, control and manage its network from anywhere.  Via Roving,
network operators can connect remotely through the primary Axess point and
manage the entire enterprise via this single portal.  Multiple clients can
access the network simultaneously with no limitation.Display alarms and logs,
import custom backgrounds, shapes and Adobe® Flash® objects to display and
control your infrastructure with ease. Link multiple operator visual interface
screens allowing levels of detail and granularity previously unknown in
technology management applications.




Accurate




Accurate
is the Company’s solution for monitoring Local People Meter data, as deployed in
the Nielsen Media Research Local People Meter project across the U.S. 
Accurate can interface directly with both the Norpak® Universal Reader, and the
Nielsen Media Research's NACAT application.  Interpreting decoded data from
these sources, Accurate can then alarm, notify, and log when discrepancies in
Local People Meter data occur.  Accurate monitors four key components in
the Local People Meter data:  final distributor system identification,
final distributor date/time information, program system identification, and
program data/time information.  Once an inaccuracy is detected, Accurate
can activate audio and visual alarms, notify operators and management via email,
text, or voice, and log the discrepancy from onset to resolution, thus providing
a verifiable document to assist in data correction from Nielsen® Media
Research.




Hardware




GPX
& UIF-32 (Universal Interface Unit)




The GPX
& UIF-32 is a universal interface designed to allow Axess to collect 32
channels of analog, logic type and control information.  The GPX &
UIF-32 translates the General Purpose Input and Output channels into serial or
TCP/Ethernet data streams for process by Axess.  The GPX & UIF-32 is a
“passive” device, which means it simply relays information from devices, such as
temperature sensors, door alarms and light switches.




UVM-6
(Universal Voltage Monitor)




The UVM-6
is a hardware interface that allows a host computer to accurately measure and
monitor six different A.C. line voltage (mains) sources on a remote
basis.




Key
Features of Our Products




We have
designed our proprietary software and hardware products with a number of key
features to meet the needs of our customers in our various markets,
including:




·
            Operator
      friendly;




·
            Minimization
      of field engineering travel
requirements;




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




·
            Scalable
      and customizable;




·
            Fully-secure,
      including highest government approved
  encryption;


6


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




·
            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, control and monitoring of diverse systems,
      intelligent and passive devices across the
  network;




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




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




·
            Network
      and device automation, redundancy and "fail-safe" problem
      solving;




·
            Top
      line revenue protection and insurance against system down-time by
      self-healing, preemption and prevention rather than cure;
    and




·
            Preventative
      maintenance opportunities based upon trend analysis of collected
      data.




Customers




Our past
and current significant clients for our software and hardware products include
Qualcomm/FLO TV; General Electric – NBC Universal & Telemundo Television
Networks; CBS Corporation Television and Radio Networks; The Walt Disney Company
- ABC Television and Radio Networks; Belo Corp.; Cox Communications; Australian
Government owned “Air Services of Australia”; Tribune Company Television; and
Univision Communications Television and Radio Network. Some of our sales channel
and integration partners include: InfraCell, Harris Broadcast, Pixelmetrix,
Sound Broadcast Services, Ltd., and Nautel Navigation.  These customers use
our technology to manage their network and facilities to control, monitor,
automate and manage transmission, audio, video and data.




The
Company sold a substantial portion of its product and services to one customer
during the years ended March 31, 2009 and 2008.  Sales to this customer
were approximately 59% and 54% of total sales during the years ended March 31,
2009 and 2008, respectively.




Fiscal
2010 Goals




Our goals
for fiscal 2010, provided that we are able to obtain sufficient capital, are
to:




·
            Continue
      to develop the Qualcomm/FLO TV relationship, working with CDMA Telecom
      carriers, both domestically and through international infrastructure
      partners, carrier user groups and individual
  operators;




·
            Focus
      directly on GSM Telecom wireless carriers and  infrastructure service
      providers for the sale of remote site management and control products and
      managed services including building
management;




·
            Collaborate
      with Nautel, Inc. and develop our exposure in the aviation navigation
      market, including the FAA and other air and sea navigational aid and
      beacon market opportunities;




·
            Aggressively
      promote our software products, “Axess”, “rOVIng” and “Accurate” into the
      existing and expanding sales and distribution channels, including,
      InfraCell, Harris Broadcast, BTS, Pixelmetrix, Eddystone - Sound Broadcast
      Services, Ltd.;




·
            Focus
      on high profile product positioning and increasing our public relations
      exposure in the media trade live television, magazine, internet and all
      identified infrastructure and technology
  markets;


7


·
            Implement
      investor relations, internet and public market making programs to educate
      financial markets about us and to generate liquidity in our OTC Bulletin
      Board-listed common stock;




·
            Expand
      our in-house sales engineering and channel business development team in
      the domestic and foreign markets;




·
            Focus
      on the worldwide digital HD TV and radio transmitter retrofit cycle
      working with the transmitter, fiber and satellite hardware manufacturers
      and integrators;




·
            Identify
      strategic vertical market collaboration opportunities in the aviation,
      shipping, energy, power management, military, government and corporate IT
      infrastructure markets;




·
            Identify
      strategic infrastructure integrators and operators and complementary
      technologies for end-to-end solutions in the power supply, data center,
      wireless data delivery, embedded and sensor vertical
    markets.




Given
current economic conditions, there is no guarantee that we will be able to
obtain the required additional financing, on terms acceptable to us or at all,
to fund the above-listed goals.




Infrastructure
and Network Management




In the
rapidly evolving mass communications industry, the major operators are deploying
and upgrading wide-scale infrastructure and networks comprising command and
control network operation centers, buildings, remote sites, wide selections of
incompatible technologies, alarm systems, hardware and devices from different
manufacturers with disparate connectivity and operating systems. 
Management and control of these complex infrastructures require network-wide and
local engineering systems and platforms.  In the event any element of a
network or a remote site on the network is not functioning as designed, the
primary functions may stop communicating or interacting per their intended
purpose or per customer expectations of service.  In many cases, a failure
on the network may also cause a domino negative impact across the entire
network.




The
communications infrastructure industry encompasses the traditional television
and radio broadcasters and all forms of telecommunications, including landline
telephone and data, fiber rings, satellite, internet, broadband, mobile phones,
wireless devices  (lap tops or PDA’s), microwave data transmission, radio
frequency for first responders, law enforcement, air and sea navigation and
emergency services.  These networks typically have multiple remote sites,
buildings and operations centers, plus network element operational issues which
can be consolidated up to a single management system and central
location.




When a
commercial communications network is down (not on the air receiving or
transmitting), there is typically a direct impact on the operators’ revenue
generation, as well as on customer service and performance. Emergency
engineering or resource reallocations to solve mission critical problems have a
high cost factor, which can be significant in cases involving difficult to
access or remote sites, such as on mountain tops, or locations in busy
cities.  Many network or infrastructure operational failures are power or
weather related and can be proactively avoided or minimized.




For
example, a storm comes through an area where a site is located, a power line
goes down, the uninterrupted power supply (uninterrupted power supply) initially
takes the full power load for a short period, the standby generator is started
provided the starter motor battery is charged and there is enough fuel in the
generator tank.  This change of events can happen without the network
operations center or monitoring entity knowing anything or little more than the
site is down and not transmitting (off the air).  Operations at the site
may remain stable until the generator runs out of fuel or the power comes back
up and the site can switch back to the grid power.  Typically, an engineer
would be dispatched to the site to handle the restoration of the site to a
normal or healthy condition.  In the world today, there is a need for all
the network elements and the health of remote sites to be managed and controlled
all the way from the mission critical transmission technologies down to the
individual periphery device and sensor level for all of the different
technologies and equipment brands at the remote site and all layers comprising
the network.  We believe the Statmon Platform addresses the emerging need
for a highly flexible and universal manager of technologies in the multi-billion
dollar infrastructure network industry.


8


Radio
and Television Broadcasting Industry




Several
significant rules issued by the Federal Communications Commission (FCC) of the
United States in the late 1990’s opened opportunities for our products in the
United States broadcast industry.  These changes included (i) radio and
other broadcast stations are allowed to operate “unattended”, provided a
reliable remote control system is installed, (ii) station owners are permitted
to own multiple stations in a single marketplace and broadcast multiple call
signals from the same physical location, and (iii) stations are required to
transmit both HDTV and analog television signals until June 12, 2009.  Now
that the HD TV switch over has taken place, broadcasters are consolidating and
streamlining their digital transmission operations.  We believe that these
evolving broadcast industry circumstances will continue to provide on-going
opportunities for us, including the central server model and the co-location and
outsourcing of monitoring, remote control and managed services.




Software
Industry




With the
solid benefits offered by a web-enabled system, we believe the majority of large
enterprises will now transition their software to this architecture over the
next decade.  In fact, many software vendors are rushing to develop new
functionality that was previously cost-prohibitive under either client/server or
mainframe systems.




As the
software industry has evolved, so have the demands of enterprises purchasing
software and integration services.  Enterprises have become more
discriminating and more influential in dictating their terms to the software
industry.  Enterprises increasingly want to buy from vendors who provide
highly functional network based products within newer areas, such as remote
asset and facilities management, system and device control and monitoring,
supply chain and procurement, as well as in the bread-and-butter application
areas, such as Enterprise Resource Planning.  Leading-edge, web-based
architecture is also coming to be seen as an essential need for
operations.  Moreover, companies are beginning to expect software vendors
to bear an increased portion of the integration burden by developing out-of-the
box connectors to common applications and devices.




Business
Strategy - Potential New Vertical Markets




Provided
that we are able to raise sufficient capital, we plan to continue to launch our
products into an expanding range of vertical markets within the communications
and infrastructure markets for a range of industries including sports arena and
building management, microwave networks, power management, energy,
environmental, municipal, Homeland Security, defense and governmental
markets.  Given current economic conditions, there is no guarantee that we
will be able to obtain such additional financing, on terms acceptable to us or
at all.  We are also seeking out consumer industry partners where we
believe there are significant opportunities in the smart house, boating and
sporting markets.




Any
number of remote sites and devices can be networked and fully integrated for
network operations center control, multiple site automation, alarmed monitoring,
management, remote control and/or the aggregation of real time
information.  Our core products are designed to be universal, robust and
economically adaptable to a multitude of vertical markets.  The same core
technology is used across on markets.  We are focused on the ongoing
development of our products in consultation with our major clients and sales
channel partner relationships.  We intend to increase the number of Channel
Partners with the objective of penetrating new markets where we do not have a
presence and to enhance the perception of our ability to perform on major
contracts.


9


Statmon’s
validation by technology industry leader Qualcomm, as well as the major
broadcasters including NBC Universal, CBS, ABC and others, has permitted us to
demonstrate the powerful functions, capabilities and stability of our core
technology platforms.  The current version of our proprietary software is
designed to provide a low cost, non-customized solution to allow customers to
monitor their networks in real time, in digital or analog mode, many different
varieties and numbers of sites, systems and remote devices.  Our goal in
this regard is to market our software as a universal, cross-industry,
cross-application, enterprise, end-to-end or middleware solution that can
demonstrate the same cost-saving efficiencies and fail-safe automation in a wide
range of applications and markets as we currently do in the traditional
broadcast, telecom - mobile TV and navigation aid industries.




Our
business model and product strategy is to directly promote and license our
proprietary products to all levels of communications infrastructure and media
broadcasters, as well as value-added resellers and original equipment
manufacturer partners such as InfraCell (Ericsson partner), Pixelmetrix and
Harris Broadcast.  We also intend to collaborate with equipment suppliers,
infrastructure contractors and systems integrators like Ericsson -Tandberg and
Motorola for Joint Venture, Strategic Alliance, and/or Private Label/original
equipment manufacturer distribution across the virtually unlimited range of
vertical markets.  We believe that collaboration with powerful strategic
partners will identify solution opportunities utilizing our products for
monitoring, self-healing, automated asset management and/or remote control of
technical operations, including the aggregation of data.




Our
objective is to be perceived in the market as a leading remote site and
facilities management, remote control, monitoring and universal network solution
provider with affordable economics.  We provide our new customers with
extensive training in our technology and its functionalities and provide
materials and customer support for the on-going maintenance, monitoring and use
of our products.  We also provide high levels of support through our
Channel Partners, so that our products and applications can achieve greater
distribution and customer satisfaction.




We are
identifying domestic and foreign partners and proceeding with our evaluation and
development of a number of additional vertical markets, including the
following:




·
            Wireless
      and Fiber Infrastructure and
Communications;




·
            In-Building
      & Sports Arena Radio Frequency and Security
  Management;




·
            First
      Responder, Emergency Services, Government and
  Military;




·
            Energy
      Industry;




·
            Wireless
      and Microwave Tower Network
Management;




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




·
            Infrastructure
      - Remote Control, Monitoring and Data
  Aggregation.




Examples
of our capabilities within these potential new markets include network
operations centers and wireless multicasting transmission networks for mobile
TV, microwave telecommunications networks for first responders,
infrastructure,  redundant power supply, remote site equipment and devices
and other similar proactive real time control and management
applications.




Competition




The
management and control of sophisticated Network Operation Centers and the
individual monitoring and remote control of remote sites, individual devices and
disparate software systems, is becoming a more diverse and competitive market.
Companies such as Ericsson, IBM, Cysco, Hewlet Packard and Computer Associates
offer various remote site, telemetry and network element solutions. Major
hardware manufacturers offer a variety of network management, device management
and control systems primarily to control their proprietary hardware and control
systems.  All the above-mentioned companies have greater resources than
Statmon.


10


Several
hardware-based vendors provide monitoring solutions to the radio and television
broadcast facility industry.  Datapath is a direct software based
competitor as is IBM, CA and Hewlett Packard. Burk-Gentner, Mosley and others
represent a significant portion of the traditional broadcast marketplace
primarily focused on transmitter monitoring.  These products are quality
offerings designed by companies and individuals who have strong industry
contacts.  These products are typically marketed directly to the
engineering department at radio and television stations as a method of increased
convenience. We believe that our products provide diverse functionality and
powerful capabilities while delivering a more elegant, comprehensive, convenient
and cost-effective solution to monitor and manage all of our customers’
mission-critical business operations.




For a
number of years, many companies have targeted the manufacturing process and data
center market with products similar in fit, form and function to us, including
Hewlett Packard, IBM, National Instruments Corp., P.R.I. Automation, Kingfisher
and Wonderware.  These companies have achieved varying levels of success in
the manufacturing and engineering design market space.  Although it
does not appear that these companies are focused on expansion outside their core
solutions, they do represent a peripheral competitive threat to us.




We
compete in markets primarily on the basis of the following factors:




·
            Breadth
      of geographic presence;




·
            Ease
      of integration;




·
            Reliability;




·
            Ability
      to offer turnkey solutions;




·
            Customer
      service;




·
            Performance;




·
            Flexibility;
      and




·
            Scalability.




There are
low barriers to entry to new or existing businesses seeking to offer services in
all of the markets in which we compete.  As a result, our business
environment is intensely competitive, highly fragmented and rapidly
changing.  Competition can come from many sources and may be focused
on different components of our business.




Nearly
all of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have.  In addition, a number of these competitors may merge or form
strategic partnerships.  As a result, certain of these competitors may
be able to offer, or bring to market earlier, products or services that are
superior to our own in terms of features, quality, pricing or other
factors.  Our failure to compete successfully in any of the markets in
which we compete could have a material adverse effect on our business,
prospects, results of operations, financial condition and on the price of our
common stock.




Business
Development




We
believe that the most appropriate target customer will be the President, CEO,
CFO, CTO or Vice-President of Engineering in organizations that manage multiple
networks or facilities with numerous potential applications.  Due to
the executive level at which we are selling and the relatively large
organizations that we are targeting, it is often necessary for our senior-level
management to be actively involved in the business development and sales
process.  In addition, we plan to supplement the business development
team with industry specialists and consultants who can aid in the direction of
our product development, identification and selection of strategic partners and
sales channel opportunities in each vertical market.




As
marketing funds allow, we plan to attend various symposiums for vendors,
including national, state and local government conferences and symposiums, and
to publicize our products and services in various trade journals, including
security companies, contractors and the transportation industry.  We
will, however, place emphasis on our partnering model, in which we will market
to companies that have existing installed bases with product offerings where we
are able to provide value-added products and services.  We may
structure these relationships through original equipment manufacturer license
agreements, joint ventures, partnerships and similar
arrangements.


11


In order
to fully maximize the potential of our technology and proprietary knowledge we
will need to enlist the greater resources of Strategic Partners and
distributors.  These relationships will enable us to further penetrate
our existing markets, as well as to enable us to penetrate markets where we do
not have a presence.  Licensing our products for private or black
label/original equipment manufacturer distribution will allow us to broaden our
revenue base on a marginal cost basis.  We are actively seeking
appropriate alliances and partnerships with entities in wireless, mobile TV,
telecommunications, energy, power management, building and security management,
environmental, government infrastructure, defense and other strategic emerging
markets. Furthermore, we are pursuing domestic and international software
distributors that service the computer network and web server management
markets.




Customer
Support and Service




We
believe that the support and service we provide to our customers are key
competitive advantages and, as part of our strategy, we will continue to focus
on the development of such support and service.  The types of services
that we provide to our customers include:




·
            Tiered
      levels of support and maintenance 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 replacement or repair.




Research
and Development




Our
research and development efforts are focused on constantly expanding the
functionality and performance of our core software products and
services.  We obtain extensive product development input from our
customers and potential customers and monitor our customers' evolving needs and
changes in the marketplace.  We believe our success will depend, in
part, on our ability to develop and produce new software features, functionality
and enhancements to our existing platform and products.  We have made
investments and continue to invest in research and development.  Our
research and development expenditures were approximately $1,469,000 in fiscal
2009 and $1,280,000 in fiscal 2008.  If we are unable to develop new
enhancements to our existing products on a timely basis, or if our new
enhancements fail to achieve market acceptance, our business, prospects and
results of operation will suffer.




Sources
and Availability of Materials




We
outsource the design and assembly of all of our specialized interface hardware
products to manufacturers in the USA and Canada.  All of the
components of our hardware products are off-the-shelf items that we can obtain
from multiple sources, except for our printed circuit boards, which would need
to be manufactured according to our design specifications.  Our
current third-party manufacturers have assured us that they have additional
capacity through its own outsourcing contacts if our volume grows beyond its
capacity or it is otherwise unable to perform.  In addition, if
needed, we believe that we could obtain alternative third-party manufacturers
within a short period.




Patents,
Trademarks, Copyrights and Licenses




We have
designed our software products for use with personal computers and devices
running in the Microsoft Windows operating environment.  We rely on
internally developed computer code, new technologies and know-how to help us
protect our intellectual property.  In addition, we regard our
technology as proprietary and attempt to protect it by implementing security
password codes and high-end encryption and by seeking patents, copyrights or
trademarks, where appropriate, and by invoking trade secret laws and
confidentiality and non-disclosure agreements.


12


We have
trademark protection for our name on our products and intend to apply for
registration of certain copyrights and key trademarks and service marks and
intend to introduce new trademarks and service marks, where we deem
appropriate.  We have not applied for nor do we hold any patents on
any of our products.  We understand that the means we have used afford
only limited protection and may not adequately protect our rights.  In
addition, despite the precautions, it may be possible for a third-party to
obtain our services or technology without authorization.  We also run
the risk of a third-party developing similar technology independently through
reverse engineering techniques.  In the event this occurs we will seek
protection and remedy through the courts. Because of the dynamic state of the
development of application software, we use the strategy that continual product
enhancement and development is perhaps our best intellectual property
protection, although this may not, in fact, be the case.




Licenses
and Warranties




Our
software products are designed for use with personal computers and devices
running in the Microsoft Windows operating environment.  We thus
obtain licenses and warranties from Microsoft in this
connection.  While we do not offer warranties on our software and
hardware products to our customers beyond replacement, we give our customers the
benefit of whatever warranty protection we receive from Microsoft and other
suppliers.




Our
Employees




As of
July 31, 2009, we had fifteen full-time employees, of which two were engaged in
sales, marketing and sales channel development; five were engaged in technical
support and training; five were engaged in software development and engineering;
and three were engaged in management, administration, finance and
operations.  None of our employees are covered by any collective
bargaining agreement.  We generally consider our relationship with our
employees to be satisfactory and have never experienced a work
stoppage.


13





ITEM
1A. RISK FACTORS





The
disclosure and analysis in this report and in our other reports, press releases
and public statements of our officers contain forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future
events, and may be identified by the fact that they do not relate strictly to
historical or current facts. In particular, forward-looking statements include
statements relating to future actions, prospective products or new product
acceptance in the marketplace, future performance or results of current and
anticipated products, sales efforts, expenses, and the outcome of contingencies
and financial results. Many factors discussed in Part I of this report will be
important in determining future results. We will have little or no control over
many of these factors and any of these factors could cause our operating results
and gross margins, and consequently the price of our common stock, to fluctuate
significantly.





Any or
all forward-looking statements in this report or any other report and in any
other public statements may turn out to be wrong.  They can be
affected by inaccurate assumptions or by known or unknown
uncertainties.  No forward-looking statement can be guaranteed, and
actual results may differ materially.  We undertake no obligation to
publicly update forward-looking statements, except as required by law. The
following cautionary discussion of risks, uncertainties and possible inaccurate
assumptions are factors that our management believes could cause actual results
to differ materially from expected and historical results.  Factors
other than those included below could also adversely affect our business
results. The following discussion is provided pursuant to the Private Securities
Litigation Reform Act of 1995.




Prospective
investors should carefully consider the following risk factors in evaluating our
business and us. The factors listed below represent certain important factors
that we believe could cause our business results to differ from our
forward-looking statements. These factors are not intended to represent a
complete list of the general or specific risks that may affect us. It should be
recognized that other risks may be significant, presently or in the future, and
the risks set forth below may affect us to a greater extent than
indicated.






Risks
Related To Our Business




We
have a Limited Operating History.




We have
had a limited operating history upon which potential investors may base an
evaluation of our 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 wireless communications, broadcast and other markets we intend to pursue,
our ability to implement our growth strategy, especially our 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.  At March 31, 2009, we
had an accumulated deficit of approximately $23,943,898.  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.


14


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 their substantial doubt about our ability to continue as a going
concern.




Our
Business is Concentrated in One Customer.




In fiscal
2009 and 2008, FLOTV accounted for approximately 59% and 54% of our revenues,
respectively.  We expect the volume of our revenues derived from FLOTV
and its affiliates to grow in fiscal 2010 and the percentage to continue to
decrease as overall revenues and non-FLOTV revenues increase. A loss of all or a
substantial portion of this business would have a material adverse effect on our
business, results of operations and financial condition




We
have Future Capital Needs and it is Uncertain Whether We Will be able to Obtain
Future Additional Financing.




We
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.The Company is
attempting raise up to an additional $1,136,000 capital as part of its secured
convertible debenture offering.  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 dates of our notes, 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 continue as a going concern, and may be forced to cease business
operations, sell assets and /or seek protection under applicable bankruptcy
laws, let alone to fund our expansion into 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.




Substantially
All of Our assets are Pledged to Secure our Indebtedness.




In
connection with the March 2008 private placement, we executed a Security
Agreement pursuant to which we granted a security interest and lien on all of
our assets.  Since these assets represent substantially all of our
assets, we will not have access to additional secured lending until this
indebtedness is repaid, which may require us to raise additional funds through
unsecured debt and equity offerings.  Default under our debt
obligations would entitle our lenders to foreclose on our assets.  The
inability to raise additional working capital or the foreclosure of our assets
could have a material adverse effect on our financial condition and results of
operations.  The lien will terminate when the note and all amounts due
in connection with the Debentures have been paid, discharged or satisfied in
full.




Undetected
Errors or Failures in Our Software Could Result in Loss or Delay in the Market
Acceptance of 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 may
be 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.


15


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.




The
Broadcast Industry is Resistant 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. 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 our
products, the customer may fall behind the technology curve being embraced by
certain of its competitors.




We
Continue to Experience Fluctuations in our Quarterly Operating
Results.




We expect
to experience significant fluctuations in future quarterly operating results
that may be caused by many factors, including, among others, the volume of
orders that we receive from MediaFLO and Qualcomm, delays in our introduction of
product enhancements for the facilities management, automation, remote
monitoring and 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
past results of operations may not necessarily be relied upon as indications of
future performance.




Failure
to Manage Growth Will Adversely Affect our Operations.




We plan,
given sufficient capital, 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 United States and the world.
In addition, given sufficient capital, 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.




Our
Technology is Dependent 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.


16


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 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.




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, our EVP of
Programming, Nigel Brownett, and the Board of Directors. If we lose the service
of any member 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 upon 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.


17


A
determination that we are infringing the proprietary rights of others could have
a material adverse effect on our products, results of operations and financial
condition.  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.




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, if
we deem such actions appropriate under the circumstances. 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.




Risks
Related To The Industry




If
We Fail to Successfully Introduce New Products and Enhancements, 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
and enhancements.  Such products and enhancements 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 and enhancements.  If we
do not introduce these new products and enhancements 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.


18




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 Approval, 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.




Risks
Related To Our Securities




Our
Common Stock may become ineligible for quotation on the OTC Bulletin Board as a
result of our failure to file our periodic reports under the Exchange Act of
1934 with the Securities and Exchange Commission in a timely manner




On
November 16, 2005, the Securities and Exchange Commission (“SEC”) approved a
change to NASD Rule 6530 providing that if an issuer with securities quoted by a
NASD member on the OTC bulletin board is cited for delinquent filing of its
periodic reports under the Exchange Act of 1934 with the SEC three times in a 24
month period or is removed from such quotation for failure to timely make such
filings three times in a 24 month period then the securities of such issuer will
be ineligible for quotation by a NASD member on the OTC bulletin board.  If
an issuer becomes ineligible to be so quoted, such issuer would not become
eligible for quotation on the OTC board  until it has filed such periodic
reports for one year in a timely manner.




The
Company has been late in one of its filings with the SEC in 2009, of which the
December 31, 2008 10-Q filing was late.  Accordingly, the Company may be
ineligible for quotation by a NASD member if it is delinquent two more times in
its periodic filings with the SEC during the applicable 24-month period. 
The Company is currently late on its filing of this 10-K.  The Company has
requested a hearing with the NASD to see if the Company can continue to be
listed as an NASD member.  If the Company is not successful at the hearing,
the Company will be listed on the “pink sheets.”


19




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 the volume of our business with MediaFLO and its
      affiliates;




·
            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 OTC Bulletin Board (ticker symbol
“STCA.OB”) and is considered a “penny stock”.




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 that 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.


20


Control
by Certain Stockholders.




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 of our common stock to be sold in the
secondary market.




Our
directors and executive officers and affiliates beneficially own approximately
21.3% of our outstanding shares of common stock and approximately 15.6% of all
securities on a fully-diluted basis.  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 material 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 Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities."


21




ITEM
      2.
            PROPERTIES.




The
Company leases its office facilities and equipment under non-cancelable lease
arrangements. The Company leases and maintains its principal place of business
at 3000 Lakeside Drive, Suite 300 South, Bannockburn, IL 60015.  The
Company leases approximately 10,000 square feet in this facility.  The
lease term began on February 1, 2007 and continues to July 31, 2012.  The
straight line rent expense is $17,480 per month, including current estimates for
property taxes and operating costs.





The
Company subleases its former offices located at 345 N. Maple Drive, Suite 120,
Beverly Hills, California 90210.  The term of the sublease began on July 5,
2007 and continues through January 31, 2010.  Per the terms of the
sublease, the first two months of rent have been abated.  The Company
leases 3,953 square feet in this facility. The straight-line rent expense is
$10,374 per month.




ITEM
      3.
            LEGAL
      PROCEEDINGS.




[a]
                On
      May 17, 2007, an action was filed in Los Angeles Superior Court for breach
      of contract and similar causes of action by the Epstein Family Trust
      against the Company in relation to two outstanding promissory notes issued
      by the Company totaling $75,000 ($25,000 and $50,000) plus accrued
      interest. The Epstein Family Trust is seeking attorney’s fees and costs in
      addition to the principal and interest.  These notes were guaranteed
      by Mr. Geoffrey Talbot, the Company's CEO, for up to $25,000, and
      therefore Mr. Talbot was joined in the legal action as a third-party
      defendant.  The case number is BC 371 276. The parties have reached a
      conditional settlement agreement where the plaintiff has agreed to convert
      all principal and interest into shares of common stock at a price of $1.00
      per share provided the Company completes the proposed Convertible
      Debenture and warrant financing in a timely manner. The parties have
      reached a settlement agreement where the plaintiff has agreed to convert
      all principal and interest into shares of common stock at a price of $1.00
      per share and where the Company will pay legal fees of approximately
      $12,000 to plaintiff.  The settlement documentation is currently
      being reviewed and will be finalized shortly. This obligation is recorded
      as Accounts Payable during the year ended March 31,
  2009.




[b]
            On
      December 20, 2007, a complaint was filed in the United States District
      Court for the District of Colorado alleging additional commissions are due
      to a third party introducer. The plaintiff demanded payment of additional
      commission of $143,000 for the period ended September 30, 2007 and
      additional commissions through December 31, 2007. The Company has settled
      the matter and as of June 30, 2008 accrued a payment due on or before July
      7, 2008 of $89,683 as final settlement of all past and future amounts due
      to said party.  On July 1, 2008 all amounts related to this
      settlement have been paid and the matter has been
  dismissed




[c]
            On
      December 18, 2008,  Ira J. Gaines filed an action for breach of
      contract and unjust enrichment against the Company in the Superior Court
      of the State of Arizona, Maricopa County, case number CV2008-032043. The
      action is based on demanding payment on a promissory note in default and
      was seeking immediate payment of a principal balance of $145,200 plus
      additional accrued interest, costs and attorneys' fees totaling $215,996.
      The
      settlement called for two payments of $5,000 to be applied against accrued
      interest, first on dismissal and second on November 1, 2009. The remainder
      of the debt was to be paid in 24 equal payments of $12,183 beginning June
      1, 2009. The Company is in default of the payment plan. As provided for in
      the settlement agreement, the Company issued a warrant to purchase 50,000
      shares of the Company’s stock at $0.50 per share valued at $15,500 based
      on a Black-Scholes model.This matter has been finalized and the
      first payment made on May 18, 2009.




Other




[d]
            The
      Company is delinquent in the payment of its payroll tax liabilities with
      the Internal Revenue Service.  As of March 31, 2009, unpaid payroll
      taxes total approximately $416,000 and related penalties and interest
      approximated $78,000 computed through March 31, 2009.  These
      liabilities have been recorded as accrued payroll and selling, general and
      administrative expenses at March 31, 2009. The Company expects to pay
      these delinquent payroll tax liabilities as soon as possible.  The
      final amount due will be subject to negotiations with the Internal Revenue
      Service.


22





[e]
            The
      Company has reported to the IRS the taxable income of the Chief Executive
      Officer and Chief Technology Officer to date using forms 1099 and 1096.
      Since 2001, the Company has accrued approximately $720,000 as accrued
      compensation which was calculated as the difference between their gross
      and net compensation for the period. The Company plans to pay this accrued
      compensation of approximately $720,000 to the Chief Executive Officer and
      Chief Technology Officer to satisfy the tax obligations related to the
      income reported. Such payroll tax reporting classification is subject to
      audit by the Internal Revenue Service and other state and local taxing
      authorities, which, upon review, could determine that such individuals’
      compensation should have been reported on the basis that such individuals
      are employees.  Accordingly, depending on such potential audit, the
      Company may be subject to additional payroll related liabilities the
      amount of which, if any, is not determinable at this
  time.




ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.




No
matters were submitted to a vote of shareholders of the Company during the
fiscal year ended March 31, 2009.




PART
II




ITEM
      5.
            MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES




Market
Prices




The
Company’s common stock, par value $0.01 per share (the “Common Stock”), is
currently quoted on the OTC Bulletin Board under the symbol “STCA.OB”. The
high/low closing prices of the Company’s common stock were as follows for the
periods below, as reported on www.finance.yahoo.com. 
The quotations below reflect inter-dealer bid prices without retail markup,
markdown, or commission and may not represent actual transactions:




High Bid
                      
                      
                      Low BidFiscal Year Ended March 31,
      20094th
      Quarter
                      
                      
                      0.52
                      
                      
                      
                      0.133rd
      Quarter
                      
                      
                      0.48
                      
                      
                      
                      0.252nd
      Quarter
                      
                      
                      1.04
                      
                      
                      
                      0.491st
      Quarter
                      
                      
                      1.43
                      
                      
                      
                      0.53Fiscal Year Ended March 31,
      20084th
      Quarter
                      
                      
                      1.15
                      
                      
                      
                      0.863rd
      Quarter
                      
                      
                      1.16
                      
                      
                      
                      0.912nd
      Quarter
                      
                      
                      1.59
                      
                      
                      
                      0.791st
      Quarter
                      
                      
                      1.75
                      
                      
                      
                      0.92




As of
July 31, 2009, we had approximately 1,691 shareholders of record for our common
stock.






23




Dividends




We have
not paid any cash dividends on our common stock since our inception and do not
anticipate paying any cash dividends in the foreseeable future.  We plan to
retain our earnings, if any, to provide funds for the expansion of our
business.  Our Board of Directors will determine future dividend policy
based upon conditions at that point, including our earnings and financial
condition, capital requirements and other relevant factors.




Equity
Compensation Plan Information




We have
not adopted any equity compensation plans.




Recent
Issuances of Unregistered Securities





Set forth
below is a description of all of our sales of unregistered securities during the
fiscal year end March 31, 2009.  All sales were made to “accredited
investors” as such term as defined in Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act").  All such sales were exempt
from registration under Section 4(2) of the Act, as transactions not involving a
public offering.  Unless indicated, we did not pay any commissions to third
parties in connection with the sales.





Issuance
of stock and warrants in relation to new debt:





·
            In
      June 2008, the Company issued a $100,000 principal amount promissory note
      bearing no interest and due seven days from the date of issuance as a
      short-term bridge loan to be repaid from the net proceeds of the second
      tranche of the private placement of Debentures. The Company issued 5,000
      shares of restricted common stock related to this note. This note was
      repaid in full on June 25, 2008.




·
            In
      the first and second quarters of fiscal year 2009, the Company issued an
      additional $1,038,000 principal amount of the Debentures and received net
      proceeds of $865,000 related to the second tranche of the private
      placement of such Debentures. In connection with the Debentures, the
      Company issued five-year warrants to purchase 1,056,600 shares of common
      stock at $1.20 per share. The Debentures are convertible into common stock
      at $0.9824 per share.





Other
issuances of stock and warrants:





·
            During
      the year ended March 31, 2009, the Company issued 200,004 shares of
      restricted common stock valued at $188,753 associated with consulting
      agreements for investor relations and financial advisor services, 5,000
      shares of restricted common stock valued at $5,500 associated with a
      short-term bridge loan that was repaid and 22,917 shares of restricted
      stock valued at $12,146 in lieu of cash interest payments related to the
      Senior Subordinated Notes Payable. All of the stock issuances were valued
      based on the closing price of the stock at grant
  date.




·
            In
      April 2008, the Company granted warrants to purchase 100,000 shares of
      common stock at an exercise price of $1.00 to one employee during the year
      ended March 31, 2009. The warrants were valued at $68,000 using a
      Black-Scholes model and will be expensed based on the vesting
      terms.




·
            During
      the year ended March 31, 2009, the Company granted warrants to purchase
      183,331 shares of common stock, valued at $91,166 based on a Black-Scholes
      model, at an exercise price of $1.20 with a term of five years for
      financial services and commissions related to the Tranche I
      financing.




·
            During
      the year ended March 31, 2009, the Company granted 90,000 penalty
      warrants, valued at $33,750 based on a Black-Scholes model, related to
      delinquent notes payable per the terms of the note
    agreement.




·
            Subsequent
      to year-end, the Company has issued 400,000 shares of penalty warrants to
      the debenture holders in tranche one related to this penalty.  The
      fair value of these warrants is $80,000 based on a Black Scholes
      model.  The Company also expects to issue 230,667 penalty warrants to
      the debenture holders in Tranche two in anticipation of not meeting the
      revenue minimums in the tranche II purchase agreement.  The Company
      has recorded the expected Black Scholes fair value of $44,743 in relation
      to the expected issuance of Tranche II penalty warrants.  These
      warrants are considered issuable at March 31,
  2009.


24




ITEM
      6.
            SELECTED
      FINANCIAL DATA.




Not
applicable.




ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION.




The
following discussion should be read in conjunction with the financial
statements. This Report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  The words “believe”, “expect”, “anticipate”,
“intend”, “estimate”, “may”, “should”, “could”, “will”, “plan”, “future”,
“continue”, and other expressions that are predictions of or indicate future
events and trends and that do not relate to historical matters identify
forward-looking statements.  These forward-looking statements are based
largely on our expectations or forecasts of future events, can be affected by
inaccurate assumptions, and are subject to various business risks and known and
unknown uncertainties, a number of which are beyond our control. 
Therefore, actual results could differ materially from the forward-looking
statements contained in this document, and readers are cautioned not to place
undue reliance on such forward-looking statements.  We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.  A wide variety
of factors could cause or contribute to such differences and could adversely
impact revenues, profitability, cash flows and capital needs.  There can be
no assurance that the forward-looking statements contained in this document
will, in fact, transpire or prove to be accurate.




OVERVIEW




Statmon
Technologies Corp. is a wireless and fiber infrastructure network management
solution provider. “Axess”, our proprietary flagship software application, and
our supporting integration products are deployed in telecommunications, media
broadcast, building management and navigation aid transmission networks to
optimize operations and ensure they remain healthy and fully operational 24/7. A
typical infrastructure network comprises a network operations center (“NOC” or
“Master Control”) plus a network of remote transmission sites that incorporate a
wide range of communication devices, building, facilities management and
environmental control systems.




The
Statmon Platform is designed to self heal or preempt transmission failure by
automating the integration of all the different devices and disparate
technologies under a single umbrella control system and permit manual corrective
action at the network operations center or from any connected computer including
a wireless device such as a laptop or Blackberry. A tiered severity level alarm
system at every site, down to the device level, reports back to the network
operations center logging automated adjustments or permitting manual adjustment
or corrective action without a field technician having to physically travel
to  the network operations center facility or remote site.  Any
authorized operator can drill down through the Axess software screens to observe
exactly what is taking place with an individual device or system at a remote
site and make further adjustments as required.




The
optimization of network performance and the preemption of failure eliminates or
minimizes network or individual site malfunction or downtime. Transmission
downtime typically has a mission critical or direct financial impact on the
customers’ top line revenue generation, operating profit and customer
satisfaction.  Investment payback periods relative to the purchase cost of
the Statmon Platform compared to the operators loss of revenue or costs of being
“off the air” typically make the return of investment (“ROI”) highly
attractive.  Advertisers do not pay for commercials that do not go to air
and cell phone users cannot make calls or download video when a base station or
cell site is off the air. Geographically, the Statmon Platform streamlines the
network engineering and remote site field trips and maintenance process,
reducing operating and outsourcing costs and facilitating the reallocation of
resources.  The Statmon Platform can dramatically facilitate the “Go Green”
policies being implemented by all levels of corporate and government
entities.   Architecturally designed as a universal “Manager of
Technologies” (“MOT”) application or platform, wide scale network operations,
regardless of disparate equipment brands or incompatible technologies deployed
at a network operations center or remote site, can automatically interact with
each other while being managed from a single point of control or “dashboard”
style computer screen.  In real time, a proactive alarm system reports to a
network operations center or designated wireless device for appropriate
attention or action. Adjusting the HVAC, the health of the uninterrupted power
supply and diesel generator and the level of the fuel tank, as well as disaster
recovery, emergency power management,  and redundancy are all proactive
management capabilities of the Statmon Platform. The Statmon Platform will keep
remote sites operating even when part or all of the entire network are down,
automatically bringing the remote back on line when network operations are
restored.


25




Telecommunications
infrastructure and high speed networks in both developed and developing
countries around the world are being aggressively upgraded to meet the growing
subscriber demand for communication services.  In developing countries,
wireless networks provide an affordable alternative to the more expensive
hardwire or landline infrastructure.  Notable are the third generation, or
3G, wireless and infrastructure transmission networks which are being upgraded
to handle the rapid traffic increase, wireless broadband and convergence of
digital media delivery and additional data services for the wireless and IPTV
fiber markets. Cable systems are offering telecommunication and broadband
services to their customers and upgrading their networks including deploying
Statmon’s proprietary “Accurate” Local People Meter monitoring platform which
interfaces with directly with Nielsen. Statmon’s unique radio frequency
background and know how in the mainstream media broadcast industry places us in
a strategic position to provide high end solutions for the enhanced
telecommunications networks offering video and enriched multimedia
content.




The
marketing and distribution of our products is primarily facilitated by third
party sales channel partners, value-added resellers, black label and original
equipment manufacturer collaborations (“Channel Partners” or “Strategic
Partners”). Channel Partners are developed and managed by an internal business
development team and supported by a direct sales and engineering support
force.  We have a history as an innovative technology leader for remote
site facilities management, transmission remote control and monitoring in the
traditional television, radio, satellite and cable broadcast industries. The
traditional network television market is undergoing a resurgence of activity and
reformatting as the digital and high definition (“HD”) television, cable and
satellite delivery systems realign their operating and business models post the
analog switch off including offering additional digital channels that
individually focus on HD programming, continuous news coverage and weather
reporting, sports and special interest coverage. Leading network broadcast
operations are being streamlined or rationalized with central casting, regional
hubs and stations and unmanned remote site transmission operations. The
traditional radio markets are retrofitting to multi band digital transmission in
order to remain competitive with satellite radio, mobile TV, multimedia and
music content direct to cell phone or mobile device offerings for automobiles,
trucks, public transport and the military.




We
successfully entered the telecom wireless infrastructure vertical market via a
contract with the Qualcomm wholly owned subsidiary, FLO TV to deploy our Axess
software and related integration products for the control and monitoring of
their national mobile TV network rollout. This is the largest transmission
network of its type in the world based on the Qualcomm developed “FLO” encoding
and compression technology for multiple channels of live TV and multimedia
content directly to cell phone and mobile wireless devices.




At this
point, FLO TV is providing the “FLO” mobile TV and multimedia platform (the “FLO
Platform”) directly to the Verizon and AT&T cellular subscriber base. From
the FLO TV network operations center in San Diego, our Platform controls and
manages all the remote sites throughout the USA to optimize the FLO Platform
transmission performance and Verizon’s and AT&T’s mobile TV customer
satisfaction. We anticipate that the FLO mobile TV platform will be adopted by
additional wireless operators around the world, although we can offer no
assurance in this regard.


26


Under our
agreement with FLO TV we are licensing our Axess software and supplying
interface components for the FLO TV San Diego Network Operation Center and the
national rollout of wireless transmission sites.  Under such agreement,
Qualcomm and/or MediaFLO periodically issues purchase orders to us.  From
September 7, 2006 to March 31, 2009, Qualcomm and/or MediaFLO has jointly
purchased $6,000,019 from us.  Between April 1, 2009 and July 31, 2009
sales were $390,600, and we have received purchase orders for an additional
$243,000 of product for delivery in the month of August 2009 of which $180,000
has been delivered. Statmon products for the FLO TV build plan through May 2010
is currently at $828,000.The FLO agreement is dated September 7, 2006 and
specifies no minimum or maximum number of purchase orders and is for an initial
term of three years with extensions predicated on the annual support agreements
remaining current.  The number of FLO TV sites is expected to increase to
as many as 1,200 remote as the network expands. We also provide support and
maintenance to MediaFLO renewable on an annual basis.




We have
commenced penetrating and with adequate operating capital are poised to pursue
rapid expansion into additional vertical markets, including the wireless
telecommunications (cell phone), mobile TV, IPTV over fiber networks, microwave
telecommunications, multimedia, gaming, grid and emergency power management,
government infrastructure management, homeland security, military
communications, surveillance and other markets where centrally controlled 
network management, embedded industrial systems and wide scale remote monitoring
and control solutions are being implemented.




We
believe our products have broad application in the wireless, landline and fiber
segments of the telecommunications industries providing network management,
alarm monitoring and remote site control, transmission, buildings and facilities
management solutions for many of the new planned networks, as well as the
upgrades and wide scale infrastructure enhancements. In developing countries,
wireless infrastructure networks are being developed as viable alternatives to
wired networks. Economic remote site management is vital for viable carrier
operations.




We expect
the wireless and infrastructure markets to experience sustained growth over the
next ten to twenty years as the carriers and infrastructure service providers
compete to provide superior and additional wide-ranging services, including
enriched video and high quality content to mobile devices, wireless broadband
and other related mobile data delivery services customers expect. We believe
that our background in the mainstream broadcast transmission industry at the
highest TV and radio network levels plus our three year involvement with
wireless technology leader Qualcomm places us in a credible position to satisfy
the operational needs of the mainstream telecommunications, wireless and
infrastructure providers for radio frequency and content delivery, as well as
overall communications network, building and remote site management and
control.




Our past
and current significant clients include Qualcomm Inc. - FLO TV; General Electric
Company – NBC Universal & Telemundo Television Networks; CBS
Corporation, Television and Radio Networks; The Walt Disney Company - ABC
Television and Radio Networks; Cox Communications Inc.; Belo Corp. Television;
Australian Government owned Air Services of Australia (the Australian equivalent
to the FAA); Tribune Company, Television; and Univision Communications
Television and Radio Network. Some of our current sales channel and integration
partners include InfraCell Inc., Harris Corporation, Pixelmetrix Corporation,
Nautel Limited, Broadcast Technical Services, Ltd, Ireland and Sound
Broadcast Services, Ltd.




Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet debt nor did we have any transactions, arrangements,
obligations (including contingent obligations) or other relationships with any
unconsolidated entities or other persons that may have material current or
future effect on financial conditions, changes in the financial conditions,
result of operations, liquidity, capital expenditures, capital resources, or
significant components of revenue or expenses.




RESULTS
OF OPERATIONS




FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008




Revenues –
For the year ended March 31, 2009 total revenues increased to $2,980,513 from
$2,841,849 for the same period last year.  The increase in revenues of
approximately $140,000 is due principally to our sales to MediaFLO, which
increased approximately $325,000 from approximately $1,540,000 in the previous
year to approximately $1,865,000 for the year ended March 31, 2009 due to more
sites coming online in the year ended March 31, 2009.  This MediaFLO
increase was partially offset by a decrease in non-MediaFLO revenues of
approximately $185,000 for the year ended March 31, 2009.


27





Cost of
Sales - Cost of sales was $417,537 and $384,095 for the year ended March
31, 2009 and 2008, respectively. Overall gross profit margin remained at
86% for the year ended March 31, 2009 due to a similar sales mix of our product
and service offerings during the year.




Selling, General
and Administrative Expenses - For the year ended March 31, 2009 operating
expenses increased to $4,616,307 compared to $4,432,120 for the same period last
year.  Selling, general and administrative expenses were approximately 155%
of sales for the year ended March 31, 2009, compared to approximately 156% of
sales during the same period last year.The increase of
approximately $204,000 in selling, general and administrative expenses relates
generally to the Company’s efforts to ramp up its infrastructure and to prepare
for rapid top-line revenue growth.  Specifically, the increase is
attributed to increases of approximately $107,000, $85,000, and $470,000 in
insurance costs, marketing expenses and compensation, respectively which was
mitigated by a decrease in stock based compensation of approximately
$596,000.





Other
Expense - For the year ended March 31, 2009 other expense decreased to
$1,993,860 from $4,962,177 for the same period last year. Under the
terms of notes payable that were outstanding during 2008, the Company was
obligated to issue penalty shares and penalty warrants for all outstanding notes
that were in default. On February 20, 2008, the Company exchanged $4,073,975 of
notes and outstanding warrants for 4,073,975 shares of stock and was not
obligated to issue additional penalty warrants to the exchanged stockholders.
Interest expense related to penalty shares and warrants decreased $2,710,590 to
$157,485 for the year ended March 31, 2009 compared to $2,868,075 for the year
ended March 31, 2008.





Net Loss -
As a result of the above, for the year ended March 31, 2009 the Company recorded
a net loss of $4,047,191 compared to a net loss of $6,936,543 for the same
period last year.





LIQUIDITY
AND CAPITAL RESOURCES




Cash
balances totaled $1,000 as of March 31, 2009 compared to $73,076 at March 31,
2008. In April through June 2008, we have received net proceeds of $303,750 from
the sale of a portion of the third tranche of original issue discount notes, the
details of which are discussed below.





The
Company has financed its cash requirements primarily through operations,
short-term and long-term borrowings. From September 2000 to March 31, 2009, the
Company issued units primarily consisting of a promissory note, a share of
common stock and a warrant to purchase a share of common stock to various
lenders totaling approximately $6,500,000. From March 5, 2008 to March 31, 2009,
the Company issued original issue discount convertible debentures consisting of
a convertible debenture and a warrant totaling $2,538,000. At March 31, 2009,
$601,250 of short-term notes principal amount, all of which are in default,
$500,000 of long-term note principal amount and $2,538,000 of Senior Secured
Convertible Debentures remain outstanding.





Net cash
used in operating activities was $760,598 and $1,488,839 for the years ended
March 31, 2009 and 2008, respectively.  The use of cash in 2009 is the
result of a net loss of $4,047,191, partially offset by non-cash charges related
to (i) depreciation of $59,701; (ii) common stock and warrants issued in
association with debt of $157,485; (iii) amortization of debt discount of
$1,208,962; (iv) amortization of deferred financing costs of $444,974; and a net
increase in operating assets and liabilities of approximately $1,343,000. The
use of cash in 2008 is the result of a net loss of $6,936,543 partially offset
by non-cash charges related to (i) depreciation of $18,353; (ii) common stock
and warrants issued in association with debt of $3,050,576; (iii) amortization
of debt discount of $400,053; (iv) amortization of deferred financing costs of
$935,446; and a net increase in operating assets and liabilities of
approximately $426,000.


28





Net cash
used in investing activities was $12,701 and $65,941for the years ended March
31, 2009 and 2008, respectively.  The use of cash in 2009 was the result of
a computer purchases, network equipment and office equipment related to the
growth of the Company.  The primary use of cash in 2008 was the result of
leasehold improvements related to the build out of the corporate headquarters
located in Bannockburn, IL and computer and equipment purchases.





Net cash
provided by financing activities was $701,223 and $1,540,798 for the years ended
March 31, 2009 and 2008, respectively.  Net cash provided by financing
activities in fiscal 2009 was the result of proceeds from issuance of $865,000
of the second tranche of original issue discount convertible debentures
consisting of convertible debentures bearing interest at an effective rate of
10% per annum, a share of the Company’s common stock and a five-year warrant to
purchase shares at an exercise price of $1.20 per share, offset by deferred
financing costs of $113,027.  Net cash provided by financing activities in
fiscal 2008 was the result of proceeds from issuance of (i) $572,000 of units
consisting of promissory notes of various terms bearing interest generally at
10% per annum, 451,200 shares of the Company’s common stock and generally a
three or five-year warrant to purchase shares at an exercise price from $1.00 to
$1.50 per share, and (ii) net proceeds of $1,250,000 related to the issuance of
$1,500,000 Senior Secured Convertible Original Issue Discount Debentures due
March 5, 2010.  Financing costs of $281,202 were incurred related to the
raise of the capital for the Company.





Between
April 1 and July 31, 2009, the Company received $303,750 of net proceeds related
to a partial issuance of the third tranche of $1,500,000 of a $4,038,000
Original Issue Discount Senior Secured Convertible Debenture (for an aggregate
cash subscription amount of $3,365,000) conversion price of $0.25 per share and
five-year warrants to purchase an additional 1,438,000 shares of common stock at
$0.50 per share.   The Company anticipates closing the remaining
portion of the third tranche as capital requirements are needed.





As of
March 31, 2009, the Company had a working capital deficiency of approximately
$4,291,000 including short-term notes payable, short-term convertible notes
payable and accrued interest of approximately $1,639,000, net of applicable debt
discount of approximately $697,000 and long-term notes payable and convertible
notes payable totaling approximately $840,000, net of applicable debt discount
of approximately $697,000.





In order
to continue its operations beyond March 2010, the Company will need to increase
revenue and profit margins, repay or obtain extensions on its existing
short-term debt and possibly raise additional working capital through the sale
of debt or equity securities.





There can
be no assurance that the Company will be able to raise the capital it requires
in this time frame or at all or that it will be able to raise the capital on
terms acceptable to it. In addition, there can be no assurances that the Company
will be successful in obtaining extensions of its notes, if required. If it is
not successful, the Company would seek to negotiate other terms for the issuance
of debt, pursue bridge financing, negotiate with suppliers for a reduction of
debt through issuance of stock, and/or 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.




Except as
provided above, the Company has no present commitment that is likely to result
in its liquidity increasing or decreasing in any material way. In addition,
except as noted above, the Company knows of no trend, additional demand, event
or uncertainty that will result in, or that is reasonably likely to result in,
the Company’s liquidity increasing or decreasing in any material way. The
Company has no material commitments for capital expenditures. The Company knows
of no material trends, favorable or unfavorable, in its capital
resources.





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 $23,944,000 since its inception and had
working capital deficiency of approximately $4,291,000 at March 31, 2009. These
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.


29




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Our
financial statements are prepared in accordance with U.S. Generally Accepted
Accounting Principles. Preparation of the statements in accordance with these
principles requires that we make estimates, using available data and our
judgment, for such things as valuing assets, accruing liabilities and estimating
expenses. The following is a list of what we feel are the most critical
estimations that we must make when preparing our financial
statements.





Accounts
Receivable - Allowance for Doubtful Accounts





We
routinely review our accounts receivable, by customer account aging, to
determine the collectability of the amounts due based on information we receive
from the customer, past history and economic conditions. In doing so, we adjust
our allowance accordingly to reflect the cumulative amount that we feel is
uncollectible. This estimate may vary from the proceeds that we actually
collect. If the estimate is too low, we may incur higher bad debt expense in the
future resulting in lower net income. If the estimate is too high, we may
experience lower bad debt expense resulting in higher net income.





Revenue
Recognition





The
Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, issued by
the American Institute of Certified Public Accountants ("AICPA") and SOP 98-9,
“Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions,” applies to all entities that earn revenue from licensing,
selling, or otherwise marketing computer software. Management believes our
current revenue recognition policies and practices are consistent with SOP
97-2.





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 licensees limited rights for upgrades and enhancements for the version
they have licensed.





The
Company requires its software product sales to be supported by a written
contract or other evidence of a sale transaction, which generally consists of a
customer purchase order or on-line authorization. These forms of evidence
clearly indicate the selling price to the customer, shipping terms, payment
terms (generally 30 days) and refund policy, if any. The selling prices of these
products are fixed at the time the sale is consummated.





Deferred
revenue represents revenue billed for products and or/services not yet shipped
or rendered.





Convertible
Debentures and Freestanding Warrants





The
Company does not enter into derivative contracts for purposes of risk management
or speculation. However, from time to time, the Company enters into contracts
that are not considered derivative financial instruments in their entirety but
that include embedded derivative features and include freestanding
warrants.





The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133) and EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock
(EITF 00-19) which requires freestanding contracts that are settled in a
company’s own stock to be designated as an equity instruments and recorded in
accordance with Accounting Principles Board (APB) Opinion No. 14, Accounting for Convertible Debts and
Debts issued with Stock Purchase Warrants (APB 14). The proceeds of the
debt are allocated between the debt, the conversion features and the detachable
warrants based on the relative fair values of the debt security without the
conversion features and the warrants and the conversion features and the warrant
themselves.  The value allocated to the conversion features and the
warrants are recorded as a debt discount which is amortized on a straight-line
basis over the life of the loan.


30





Effects
of Recent Accounting Policies





In May
2008, the FASB issued FSP APB 14-1, Accounting For Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1) which impacts the accounting treatment
for convertible debt instruments that allow for either mandatory or optional
cash settlements. Furthermore, it requires recognition of interest expense in
prior periods pursuant to the retrospective accounting treatment. FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 (our fiscal 2010) and early adoption is not permitted.   We do
not expect the adoption of this FSP to have a material effect on our financial
position, results of operations or cash flows.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141(R)) which will significantly change how business acquisitions are
accounted for and will impact financial statements both on the acquisition date
and in subsequent periods. SFAS 141(R) establishes principles and
requirements for the recognition and measurement of identifiable assets
acquired, the liabilities assumed, contractual contingencies, and contingent
consideration at their fair value on the acquisition date. Some of the changes,
such as the accounting for contingent consideration and exclusion of transaction
costs from acquisition accounting may introduce more volatility into earnings.
SFAS 141(R) is effective for fiscal years beginning on or after
December 15, 2008 (our fiscal 2010). SFAS 141R would have an impact on
accounting for any business acquired after the effective date of this
pronounement.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB no. 51
(SFAS 160). SFAS 160 will change the accounting and reporting for
minority interests which will be recharacterized as noncontrolling interests and
classified as a separate component of equity rather than as a liability.
SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 (our fiscal 2010). We do not expect the adoption of
SFAS 160 to have a material impact on our financial position, results of
operations or cash flows.




In June
2008, the FASB reached consensus on EITF Issue No. 07-05 (‘EITF 07-05”), Determining Whether an Instrument
(or embedded feature) Is Indexed to an Entity’s Own Stock. EITF 07-05
clarifies the determination of whether an instrument (or an embedded feature) is
indexed to an entity’s own stock, which would qualify as a scope exception under
SFAS 133. EITF 07-05 is effective for financial statements issued for fiscal
years beginning after December 15, 2008 (our fiscal 2010). Early adoption of
EITF 07-05 is not permitted. In the first quarter of fiscal 2010, we issued OIDs
with conversion terms lower that earlier OID issuances which triggered reset
provision in certain conversion features and warrants which are presently
accounted for as equity and will be accounted for as a liability upon the
adoption of this EITF.  The fair value of the derivative liability as of
April 1, 2009 was approximately $2,109,000 and was recorded as a cumulative
adjustment to accumulated deficit and additional paid in capital.




In June
2009, the FASB issued SFAS No. 166, (“SFAS 166”), “Accounting for Transfers of
Financial Assets — an amendment of FASB Statement No. 140”. SFAS 166 requires
additional disclosures concerning a transferor’s continuing involvement with
transferred financial assets. SFAS 166 eliminates the concept of a “qualifying
special-purpose entity” and changes the requirements for derecognizing financial
assets. SFAS 166 is effective for fiscal years beginning after November 15,
2009. The Company is currently evaluating the impact that the adoption of SFAS
No. 166 will have on its consolidated financial statements.


31


In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation (“FIN”) No. 46(R),” which changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entity’s purpose and design
and the reporting entity’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic performance. SFAS
No. 167 will require a reporting entity to provide additional disclosures
about its involvement with variable interest entities and any significant
changes in risk exposure due to that involvement. A reporting entity will be
required to disclose how its involvement with a variable interest entity affects
the reporting entity’s financial statements. SFAS No. 167 is effective for
fiscal years beginning after November 15, 2009, and interim periods within
those fiscal years. Management is currently evaluating the requirements of SFAS
No. 167 and has not yet determined the impact on the Company’s consolidated
financial statements.





In July
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS
168”).  SFAS 168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting
literature.  SFAS 168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent
structure.  Also included is relevant Securities and Exchange Commission
guidance organized using the same topical structure in separate sections. 
SFAS 168 will be effective for financial statements issued for reporting periods
that end after September 15, 2009. The adoption of SFAS 168 is not expected to
have a material impact on the Company’s consolidated financial position or
results of operations.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which
establishes general standards of accounting  for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The Company is required to adopt SFAS
165 prospectively to both interim and annual financial periods ending after
June 15, 2009.




ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.




The
financial statements of the Company are included following the signature page to
this Form 10-K commencing on page F-1.




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




None





ITEM
9A(T).  CONTROLS AND PROCEDURES.




Evaluation
of Disclosure Controls and Procedures




We
maintain disclosure
controls and procedures that are designed to provide reasonable assurance
that material information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and communicated to the Company’s management as appropriate and
within the time periods specified in SEC rules and forms. In designing and
evaluating the disclosure controls and procedures, we recognized that a control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within a company have been detected.


32


As of
March 31, 2009, we carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective due to the material weakness
described below.




Management's
Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:




·
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;




·
            Provide
      reasonable assurance that the transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally
      accepted accounting principles, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and




·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.




In
connection with the filing of our Annual Report on Form 10-K, our
management, under the supervision of our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over
financial reporting as of March 31, 2009.  In making this assessment,
our management used the criteria set forth by Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control—Integrated
Framework.As a result of the material weaknesses described below, we
have concluded that the Company’s internal control over financial reporting was
not effective as of March 31, 2009 based on the criteria in Internal Control—Integrated
Framework.




Management
identified material weaknesses in the Company’s internal control over financial
reporting. A material weakness is a significant deficiency, or a combination of
significant deficiencies which when aggregated, results in there being more than
a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis by
employees in the normal course of their assigned functions.




The
material weaknesses identified by management relates to the lack of sufficient
accounting resources, the lack of documentation of the performance of key
controls and document retention.  Historically, We have only one full-time
employee in our accounting department (Chief Operating Officer) to perform
routine record keeping and his resignation in January 2009 has caused many key
controls to be performed by our CEO and CFO, or at the direction of our CEO and
CFO.  Consequently, our financial reporting function is limited and our
control environment has not provided for an appropriate level of
segregation of duties or documentation of the performance of key
controls.




In order
to correct the material weaknesses, the Company has hired outside consultants to
assist with financial statement preparation and reporting needs of the Company
and plans on hiring additional internal full-time accounting personnel in the
third calendar quarter of 2009 and intends to assist internal accounting
personnel with consultants as needed to ensure that management will have
adequate resources in order to attain complete reporting of financial
information in a timely manner and provide a further level of segregation of
financial responsibilities as the Company continues to expand.




This
Annual Report on Form 10-K does not include an attestation report of the
Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report on Form 10-K.


33




Changes
in Internal Control over Financial Reporting




The
Company’s Chief Operating Officer resigned in January 2009.  Many of his
functions in the internal control environment are being performed by, or at the
direction of, our Chief Executive Officer and Chief Financial Officer which has
increased the severity of the material weakness related to segregation of duties
and documentation noted above.  As stated above, we are attempting to
rectify this situation by hiring additional internal full-time accounting
personnel in the third calendar quarter of 2009.





ITEM
      9B.
            OTHER
      INFORMATION.




None.




34




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.




The
following table sets forth as of July 31, 2009, the name, age, and position of
each Executive Officer and Director and the term of office of each Director of
the Company.




Name
                    
                    Age
                    
                    Position
                    
                    Director
      and/or Officer SinceGeoffrey
      P. Talbot
                    
                    61
                    
                    Chairman,
      President, Chief Executive Officer & Chief Financial
      Officer
                    
                    Chairman,
      President, Chief Executive Officer and Chief Financial Officer since June
      2002Peter
      J. Upfold
                    
                    46
                    
                    Chief
      Technology Officer, Vice Chairman, Director and
      Treasurer/Secretary
                    
                    Vice
      Chairman, Chief Technology Officer and Director since June
      2002Leonard
      Silverman, Ph.D.
                    
                    69
                    
                    Director
                    
                    Director
      since June 2002Robert
      B. Fields
                    
                    71
                    
                    Director
                    
                    Director
      since June
2002




Each
Director of the Company serves for a term of one year and until his successor is
elected at the Company’s annual shareholders’ meeting and is qualified, subject
to removal by the Company’s shareholders.  Each officer serves, at the
pleasure of the Board of Directors, for a term of one year and until his
successor is elected at the annual meeting of the Board of Directors and is
qualified.




Set forth
below is certain biographical information regarding each of the current
executive officers and directors as of June 30, 2009.




Geoffrey P. Talbot is a
co-founder and has served as our Chairman, Chief Executive Officer and Chief
Financial Officer since our formation in June 2000.  From April 1997 to
July 2000, Mr. Talbot was the Chief Executive Officer and a Director of J.C.
Williamson Entertainment and J.C. Williamson Technologies in Los Angeles,
California, a company that was involved in digital film production and
technology.  Mr. Talbot holds no other public company
directorships.




Peter J. Upfold is a
co-founder and has served as our Vice Chairman, Chief Technical Officer and a
director since our formation in June 2000.  Mr. Upfold relocated to the
United States from Australia in 1998.  From 1998 to 2000 he introduced the
technology upon which our products are based to the North American market and
engaged in organizational activities for the Company.  Mr. Upfold holds no
other public company directorships




Leonard Silverman, Ph.D. has
been a member of our Board of Directors since our formation in June 2000. 
Dr. Silverman spent most of his professional career at the University of
Southern California (USC).  He joined the faculty of USC in 1968, became a
Full Professor of Electrical Engineering in 1977 and was elected Chairman of the
Electrical Engineering Systems Department in 1982.  He was appointed the
fifth Dean of Engineering in 1984 and retired as the Dean in June 2001. 
Dr. Silverman is a member of the U.S. National Academy of Engineering.  He
currently serves as a Director of Advanced MicroDevices (AMD). Dr. Silverman is
the Chairman of our Compensation Committee and a member of our Audit
Committee.  Dr. Silverman holds no other public company
directorships.


35


Robert B. Fieldshas been a
member of the Company’s Board of Directors since our formation in June
2000.  Since 1979 he served as the President of Tradestar Ltd., his wholly
owned consulting firm that specializes in asset appreciation.  Since
February 15, 2001, Mr. Fields has served as the Chairman of ActForex, Inc., a
New York fully hosted management service provider of proprietary software for
currency trading with over 40,000 registered traders. Until May 2006, Mr. Fields
was a member of the Board of Genoil Inc. (OTCBB: GNOLF.OB) and Chairman of the
Audit Committee. He was elected a Vice President and director of the Friars
National Association Foundation, Inc., a philanthropy of the arts based in New
York, in 1998, and has served as its Treasurer and was elected President in
2006. He is a member of the Board of Dorado Exploration Inc., an energy
exploration company with operations in Texas and Louisiana. Mr. Fields is the
Chairman of our Audit Committee and a member of our Compensation
Committee.




Our
bylaws allow our Board to fix the number of Directors between three and
five.  The number of Directors is currently fixed at four.




The Board
held four meetings during the year ended March 31, 2009.




Committees
of the Board of Directors




Audit
Committee




Our Audit
Committee appoints the Company’s independent auditors, reviews audit reports and
plans, accounting policies, financial statements, internal controls, audit fees,
and certain other expenses and oversees our accounting and financial reporting
process.  Specific responsibilities include selecting, hiring and
terminating our independent auditors; evaluating the qualifications,
independence and performance of our independent auditors; approving the audit
and non-audit services to be performed by our auditors; reviewing the design,
implementation, adequacy and effectiveness of our internal controls and critical
accounting policies; overseeing and monitoring the integrity of our financial
statements and our compliance with legal and regulatory requirements as they
relate to financial statements or accounting matters; reviewing any earnings
announcements and other public announcements regarding our results of
operations, in conjunction with management and our public auditors; and
preparing the report that the Securities and Exchange Commission will require in
our annual proxy statement.




The Audit
Committee is comprised of two Directors, each of whom is independent, as defined
by the rules and regulations of the Securities and Exchange Commission. In 2004,
the Audit Committee adopted a written charter. The members of our Audit
Committee are Robert B. Fields and Leonard Silverman, Ph.D.   Mr.
Fields is the Chairman of the Committee and the Board of Directors has
determined that Mr. Fields qualifies as an “audit committee financial
expert,” as defined under the rules and regulations of the Securities and
Exchange Commission, and is independent as noted above.




Compensation
Committee




Our
Compensation Committee assists our Board of Directors in determining the
development plans and compensation of our officers, directors and
employees.  Specific responsibilities include approving the compensation
and benefits of our executive officers; reviewing the performance objectives and
actual performance of our officers; administering our stock option and other
equity compensation plans; and reviewing and discussing with management the
compensation discussion and analysis that the Securities and Exchange Commission
will require in our Form 10-Ks and proxy statements.




Our
Compensation Committee is comprised of two Directors, whom the Board considers
to be independent under the rules of the Securities and Exchange Commission. In
2007, the Board of Directors adopted a written charter. The members of our
Compensation Committee are Leonard Silverman, Ph.D, Chairman of the Committee,
and Robert B. Fields.


36




Nominating
Committee




We do not
have a separate Nominating Committee.  Our full Board of Directors performs
the functions usually designated to a Nominating Committee.




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




Section
16(a) of the Securities Act of 1934, as amended, requires the Company’s
Directors and Executive Officers, and persons who own more than ten percent
(10%) of a registered class of the Company’s equity securities, to file with the
Securities and Exchange Commission (“SEC”) initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, Directors and greater than ten percent (10%) shareholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.




To the
Company's knowledge, based solely on a review of such materials as are required
by the Securities and Exchange Commission, no officer, director or beneficial
holder of more than ten percent of the Company's issued and outstanding shares
of Common Stock failed to file in a timely manner with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, during the
fiscal year ended March 31, 2009.




Code
of Ethics




We
adopted a Code of Ethics in 2004. A copy of our Code of Ethics may be obtained
by sending a written request to us at 3000 Lakeside Drive, Suite 300-S,
Bannockburn, IL 60015, att: Investor Relations.


37




ITEM
      11.
            EXECUTIVE
      COMPENSATION.




The table
below sets forth all cash compensation paid or proposed to be paid by the
Company to the chief executive officer and the most highly compensated executive
officers, and key employees for services rendered in all capacities to the
Company during fiscal years ended March 31, 2009 and 2008.




Summary
Compensation Table





Name and principal
                                                position (a)
                                              
                                              Year
                                                (b)
                                              
                                              Salary
                                                ($) (c)
                                              
                                              
                                              Bonus
                                                ($) (d)
                                              
                                              
                                              Stock
                                                Awards
                                                ($) (e)
                                              
                                              
                                              Option
                                                Awards
                                                ($) (f)
                                              
                                              
                                              Non-Equity
                                                Incentive
                                                Plan
                                                Compensation
                                                ($) (g)
                                              
                                              
                                              Change in
                                                Pension
                                                Value and
                                                Nonqualified
                                                Deferred
                                                Compensation
                                                Earnings
                                                ($) (h)
                                              
                                              
                                              All Other
                                                Compensation
                                                ($) (i)
                                              
                                              
                                              Total
                                                ($) (j)Geoffrey
      P. Talbot (1)
                                              
                                              2009
                                              
                                              $
                                              240,000
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              11,585
                                              (3)
                                              
                                              $
                                              251,585President,
      CEO, CFO
                                              
                                              2008
                                              
                                              $
                                              200,000
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              13,536
                                              (3)
                                              
                                              $
                                              213,536Peter
      J. Upfold (1)Chief
                                              
                                              2009
                                              
                                              $
                                              240,000
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              12,342
                                              (3)
                                              
                                              $
                                              252,342Technology
      Officer
                                              
                                              2008
                                              
                                              $
                                              200,000
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              9,171
                                              (3)
                                              
                                              $
                                              209,171Kevin
      R. Harris (2)
                                              
                                              2009
                                              
                                              $
                                              151,500
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              4,500
                                              (3)
                                              
                                              $
                                              156,000Chief
      Operating Officer
                                              
                                              2008
                                              
                                              $
                                              190,000
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              
                                              
                                              
                                              $
                                              6,000
                                              (3)
                                              
                                              $
                                              196,000




(1)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 subject employment agreements was
delayed until the satisfaction of certain conditions, which the Board of
Directors deemed satisfied as of July 1, 2004. The compensation paid or accrued
to Mr. Talbot and Mr. Upfold during the period prior to the commencement dates
of their employment agreements at approximately 50% of the contract rate was
treated as consulting fees as reported in SEC filings to date. Mr. Talbot and
Mr. Upfold have verbally agreed to defer a portion of their contractual
compensation until the Company receives at least $2 million of new capital and
positive cash flow. As such, Mr. Talbot and Mr. Upfold received $172,359 and
$202,895 respectively for the year ended March 31, 2009, each received gross pay
of $138,028 for the year ended March 31, 2008, and the Company has accrued
$67,641 and $37,105, respectively for the year ended March 31, 2008 and 
$61,972 each, for the year ended March 31, 2008.  Each of the foregoing
employment agreements has a five-year term through June 30, 2009. Effective July
1, 2004, the agreements were amended. Both Mr. Talbot and Mr. Upfold
subsequently verbally agreed to delay the annual contractual increase to
$200,000 until January 1, 2007 and $260,000 commencing June 2008. Therefore, for
years five and subsequent, the employment agreements, further 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
10-KSB or June 30, whichever event occurs first.  The Company is presently
working out revised terms with the employees for an extension of their
respective employment agreements.





(2) Kevin
Harris was employed as our chief operating officer since April 1,
2004.  On January 1, 2009, Kevin Harris resigned as our chief
operating officer.  Mr. Harris’s resignation was not as the result of
a disagreement with Statmon Technologies Corp. on any matter relating to its
operations, policies or practices.  Mr. Harris provided consulting
services to the Company through February 17, 2009 for $12,000 and will receive
$3,000 per month to assist as needed until the Company has retained a chief
financial officer.   Mr. Harris’s salaries from April 1, 2008
through December 31, 2008, as well as his consulting services are included above
under the salary caption.





(3)
Represents amounts the Company paid related to leased automobiles or car
allowances provided to Mr. Talbot, Mr. Upfold and Mr. Harris during the fiscal
years indicated.




Compensation
Policy.  The Company’s executive compensation plan is based on
attracting and retaining qualified professionals who possess the skills and
leadership necessary to enable it to achieve earnings and profitability growth
to satisfy its stockholders.  The Company must, therefore, create
incentives for these executives to achieve both company and individual
performance objectives through the use of performance-based compensation
programs.


38




No one
component is considered by itself, but all forms of the compensation package are
considered in total.  Wherever possible, objective measurements will
be utilized to quantify performance, but many subjective factors still come into
play when determining performance.




Compensation
Components.  The main elements of our compensation package
consist of base salary, restricted stock, stock options/warrants and
bonus.




Base
Salary.  The base salary for each executive officer is reviewed
and compared to the prior year, with considerations given for
increase.  As the Company continues to grow and financial conditions
continue to improve, these base salaries will once again be reviewed for
possible adjustments.




Base
salary adjustments will be based on both individual and Company performance and
will include both objective and subjective criteria specific to each executive’s
role and responsibility with the Company.




Stock
Options. The Company did not issue stock options to any employees or
officers during the fiscal years ended 2009 and 2008.




Bonuses.
To date, bonuses have been granted on a limited basis, with these bonuses
related to meeting certain performance criteria that are directly related to
areas within the executive’s responsibilities with the Company, such as
production of product and sales of product to customers. As the Company
continues to grow, more defined bonus programs will be created to attract and
retain its employees at all levels.




Other. At
this time, the Company has no profit sharing plan in place for employees.
However, this is another area of consideration to add such a plan to provide yet
another level of compensation to its compensation plan.




Director
Compensation




Directors
who are neither employees of the Company nor of its affiliates receive no cash
compensation for serving on the Board.  The Company reimburses
directors for any travel or other out-of-pocket expenses related to their
service on the Board of Directors.




Employment
and any other arrangements between the Company and any named executive officer
are described in Part III. Item 12 of this Form 10-K and are incorporated herein
by this reference.


39




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




The
following table sets forth, as of July 31, 2009, certain information regarding
the beneficial ownership of the Company’s common stock by: (i) each person known
by the company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of common stock, (ii) each Director and Executive Officer of
the Company, and (iii) all Directors and the Executive Officers as a
group.





Name and Address of Beneficial Owner
                
                Amount of Common
                    Stock and Warrants and
                    Nature of Beneficial
                    Ownership
                
                
                Percent of ClassGeoffrey
      P. Talbot, Chairman, President, CEO, and CFO (1)
                
                
                1,746,180
                
                
                
                7.33
                %Peter
      J. Upfold, CTO, Vice Chairman, Secretary/Treasurer (1)
                
                
                2,811,603
                
                
                
                11.81
                %Leonard
      Silverman, Ph.D., Director (2)(3)
                
                
                303,219
                
                
                
                1.27
                %Robert
      B. Fields, Director (2)(3)
                
                
                216,300
                
                
                
                0.91
                %Thieme
      Consulting, Inc. (4)
                
                
                2,212,006
                
                
                
                9.29
                %Dean
      Delis (5)
                
                
                2,509,968
                
                
                
                10.48
                %All
      Executive Officers and Directors as a Group (four persons)
                
                
                5,077,302
                
                
                
                21.33
                %





(1)
            The
      address of Geoffrey P. Talbot and Peter J. Upfold is 3000 Lakeside Drive,
      Suite 300 South, Bannockburn, IL
60015.


(2)
            The
      address of Leonard Silverman, Ph.D. and Robert B. Fields is c/o Statmon
      Technologies Corp., 3000 Lakeside Drive, Suite 300 South, Bannockburn, IL
      60015.


(3)
            Dr.
      Leonard Silverman and Robert Fields each received 100,000 shares for their
      services as Directors on December 31, 2002.  The Company has
      granted a total of 108,000 and 9,000 warrants to purchase shares of its
      common stock to Dr. Silverman and Mr. Fields, respectively, in connection
      with loans that they made to the Company in previous years. The warrants
      are exercisable at $1.00 per share for three-year terms. See “Certain
      Relationships and Related Transactions.” These warrants were exchanged for
      shares of common stock as part of the Warrant
  Exchange.


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


(5)
            The
      address of Dean Delis is 2929 Campus Drive, Ste. 175, San Mateo, CA
      94405.  Includes warrants to purchase 150,000 shares of common
      stock exercisable at $1.00 per
share.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.




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 five-year term at
$2.00 per share which expired on October 31, 2006. The three Senior Notes
initial terms went into default 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 25,000 shares of common stock per month until full repayment
of the Senior Notes.  Subject to certain subordination agreements
entered into in March 2008, 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 extinguished.  The Company accrued $49,417
of interest and granted the note holder 275,000 penalty shares, valued at
$330,250, during the year ended March 31, 2008. The Company accrued $37,500 of
interest and granted the note holder 300,000 penalty shares, valued at $209,750,
during the year ended March 31, 2007.


40





On March
5, 2008, the Company entered into a new promissory note with Thieme Consulting,
Inc. for $250,000 and extinguished the original note from October 2001 described
above.  This new note is subordinated to the Senior Secured Original
Issue Discount Convertible Debentures.  The new note has a maturity
date of June 4, 2010 and bears interest at 10% per annum.  In
consideration for entering into the new note and subordinating their first
security position, the Company repaid all of the accrued interest due on the
October 2001 notes of $243,896.  The Company incurred interest expense
of $27,124, all of which is payable at March 31, 2009, for the year ended March
31, 2009 related to this note





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.  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 accrued $11,166 of interest on this note and issued 90,000 common stock
purchase warrants exercisable at $1.00 per share for a three-year term. This
Note and the related warrants were subsequently converted to equity on February
20, 2008 per the terms of the Note and Warrant Exchanges.




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.  In
connection with the note, the Company issued Dr. Silverman 10,000 restricted
shares of its common stock and issued him 10,000 common stock purchase warrants
exercisable at $1.00 per share for a three-year term.  The Company
accrued $6,253 of interest and issued 18,000 common stock purchase warrants
exercisable at $1.00 per share for a three-year term. This Note and the related
warrants were subsequently converted to equity on February 20, 2008 per the
terms of the Note and Warrant Exchanges.




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. In connection with the loan, the
Company issued Mr. Fields 5,000 restricted shares of its common stock and issued
him 5,000 common stock purchase warrants exercisable at $1.00 per share for a
three-year term.  The Company accrued $3,110 of interest and issued
9,000 common stock purchase warrants exercisable at $1.00 per share for a
three-year term. This Note and the related warrants were subsequently converted
to equity on February 20, 2008 per the terms of the Note and Warrant
Exchanges.




In June
2004, Martin E. Jacobs, one of the Company’s legal counsels, settled a lawsuit
for the Company that resulted in, among other things, the assignment of
1,120,000 shares of common stock back to the Company.  Of these
shares, Mr. Jacobs’s contingency fee arrangement with the Company entitled him
to 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.  In December 2004, Mr. Jacobs loaned
the Company $100,000 represented by a promissory note bearing interest at 10%
per annum maturing in November 2005 and in connection with the loan the Company
issued Mr. Jacobs 100,000 shares of its common stock and issued warrants to
purchase 100,000 shares of common stock exercisable at $1.50 per share for a
three-year term.  The Company accrued $42,507 of interest and issued
260,000 common stock purchase warrants exercisable at $1.00 per share for a
three-year term. During the fiscal year ended March 31, 2006, Mr. Jacobs loaned
the Company an additional $114,700 of which $91,700 is represented by promissory
notes bearing interest at 10% per annum due 365 days from the date of issuance,
$16,000 is represented by a promissory note bearing interest at 10% per annum
due 60 days from the date of issuance and $7,000 as a non-interest bearing loan
which was subsequently repaid.  In connection with these notes, the
Company issued 107,700 shares of common stock and warrants to purchase 91,700
shares of its common stock exercisable at $1.50 per share for a three-year term.
The Company accrued $34,778 of interest and issued 164,559 common stock purchase
warrants exercisable at $1.00 per share for a three-year term. These Notes,
Interest and the related warrants were subsequently converted to equity on
February 20, 2008 per the terms of the Note and Warrant
Exchanges.


41




Between
November 2003 and June 30, 2007, Dean Delis has loaned the Company $1,615,000
represented by promissory notes bearing interest at 10% per annum of which
$975,000 was outstanding prior to February 20, 2008.  In connection
with these loans, the Company had accrued $354,009 of interest, issued 1,633,170
shares of common stock and warrants to purchase 3,539,307 shares of its common
stock exercisable from $1.00 to $1.50 per share for a three and five-year terms.
At February 20, 2008, $775,000 of these notes along with the accrued interest of
$354,009 and 3,389,307 warrants to purchase share of common stock were converted
to equity per the terms of the Note and Warrant Exchanges. As of March 31, 2009,
one note with a principal value of $200,000 and the related 150,000 warrants to
purchase share of common stock exercisable at $1.00 per share remain
outstanding.  Interest on this note is paid current.


42




ITEM
14.             PRINCIPAL
ACCOUNTANT FEES AND SERVICES.





The
following table summarizes the fees of Marcum 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 Year Ended March 31,2009
                  
                  
                  2008Audit
      Fees
                  
                  $
                  183,950
                  
                  
                  $
                  175,000Audit
      Related Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees
                  
                  
                  10,000
                  
                  
                  
                  10,000All
      Other Fees
                  
                  
                  -
                  
                  
                  
                  -Total
      Fees
                  
                  $
                  193,950
                  
                  
                  $
                  185,000





Audit
Fees: Consists of fees for professional services rendered by our principal
accountants for the contemporaneous audit of the Company's 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.


43





EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.




Exhibit No.
              
              Description
              
              Reference2.1
              
              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
              
              [6]4.1
              
              Registration
      Rights Agreement dated October 12, 2001 between Statmon Technologies Corp.
      and Thieme Consulting, Inc.
              
              [6]4.2
              
              Form
      of Stock Certificate
              
              [6]4.3
              
              Form
      of Common Stock Purchase Warrant (exercisable at $5.00 per
      share)
              
              [6]4.4
              
              Form
      of Common Stock Purchase Warrant (exercisable at $2.00 per
      share)
              
              [6]4.5
              
              Form
      of Common Stock Purchase Warrant (exercisable at $1.00 per
      share)
              
              [6]4.6
              
              Form
      of Common Stock Purchase Warrant (exercisable at $1.50 per
      share)
              
              [8]4.7
              
              Form
      of Common Stock Purchase Warrant (exercisable at $1.25 per
      share)
              
              [8]4.8
              
              Form
      of Subscription Agreement for Exchange
              
              [10]4.9
              
              Form
      of Original Issue Discount Senior Secured Convertible
      Debenture
              
              [11]4.10
              
              Common
      Stock Purchase Warrant
              
              [11]4.11
              
              Form
      of Additional Investment Right
              
              [11]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.
              
              [6]10.6
              
              Employment
      Agreement, dated as of July 1, 2004, by and between Statmon Technologies
      Corp. and Peter J. Upfold, as amended.
              
              [6]10.7
              
              Agreement
      for Purchase and Sale of Remote Monitoring Products, dated February 25,
      2003 between Statmon Technologies Corp. and Harris Corporation, as
      amended.
              
              [6]10.8
              
              Premises
      lease by and between Statmon Technologies Corp. as tenant and Maple Plaza,
      Ltd. as Landlord
              
              [7]10.9
              
              Addendum
      to Premises lease by and between Statmon Technologies Corp. as tenant and
      Maple Plaza, Ltd. as Landlord
              
              [7]10.10
              
              Promissory
      Note dated as of October 15, 2001 in the amount of $125,000 issued by
      Statmon Technologies Corp. to Thieme Consulting, Inc.
              
              [6]10.11
              
              Promissory
      Note dated as of November 7, 2001 in the amount of $100,000 issued by
      Statmon Technologies Corp. to Global Opportunity Fund
    Limited.
              
              [6]10.12
              
              Promissory
      Note dated as of November 6, 2001 in the amount of $25,000 issued by
      Statmon Technologies Corp. to Veninvest.
              
              [6]10.13
              
              Promissory
      Note Extension Agreement dated as of February 7, 2003 between Statmon
      Technologies Corp. and Thieme Consulting, Inc., The Global Opportunity
      Fund and Veninvest.
              
              [6]10.14
              
              Pledge
      and Security Agreement between Statmon Technologies Corp. and Thieme
      Consulting, Inc.
              
              [6]10.15
              
              Subordination
      Agreement between Statmon Technologies Corp. and Thieme Consulting,
      Inc.
              
              [6]10.16
              
              Promissory
      Note dated December 2, 2002 issued by Statmon Technologies Corp. to
      L&F Silverman in the principal amount of $15,000.
              
              [6]


44




Exhibit No.
              
              Description
              
              Reference10.17
              
              Promissory
      Note dated October 31, 2003 issued by Statmon Technologies Corp. to
      L&F Silverman, PhD. in the principal amount of
$10,000.
              
              [6]10.18
              
              Promissory
      Note dated October 31, 2003 issued by Statmon Technologies Corp. to Robert
      B. Fields.
              
              [6]10.19
              
              Form
      of Promissory Note issued by Statmon Technologies Corp. to purchasers of
      Units from April 2002 to June 2007.
              
              [6]10.20
              
              Deal
      Point Memorandum regarding Statmon eBI Solutions, LLC. Between Statmon
      Technologies Corp. and eBI Solutions, LLC.
              
              [6]10.21
              
              Non-exclusive
      Reseller Agreement dated May 26, 2006 between Statmon Technologies Corp.
      and Harris Corporation.
              
              [8]10.22
              
              Form
      of Senior Subordinated Promissory Note issued by Statmon Technologies
      Corp. to Dean Delis.
              
              [8]10.23
              
              Form
      of Promissory Note issued by Statmon Technologies Corp. to Martin E.
      Jacobs
              
              [8]10.24
              
              Agreement
      for Purchase and Sale of Remote Monitoring Products, dated September 7,
      2006 between Statmon Technologies Corp. and MediaFLO USA,
    Inc.
              
              [9]10.25
              
              Premises
      lease by and between Statmon Technologies Corp. as tenant and YPI
      Bannockburn, LLC as Landlord.
              
              [9]10.26
              
              Securities
      Purchase Agreement dated March 5, 2008.
              
              [11]10.27
              
              Security
      Agreement dated March 5, 2008.
              
              [11]10.28
              
              Subsidiary
      Guarantee dated March 5, 2008.
              
              [11]14.1
              
              Code
      of Ethics.
              
              [6]14.2
              
              Charter
      of Audit Committee.
              
              [9]14.3
              
              Charter
      of Compensation Committee.
              
              [6]21.1
              
              List
      of Subsidiaries of the Company.
              
              [6]24.1
              
              Power
      of Attorney.
              
              Filed
      herewith.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.
              
              Filed
      herewith.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.
              
              Filed
      herewith.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.
              
              Filed
      herewith.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.


[6]
            Incorporated
      by reference to Statmon Technologies Corp.’s Form 10-KSB filed on
      September 14, 2004.


[7]
            Incorporated
      by reference to Statmon Technologies Corp.’s Form 10-KSB filed on July 14,
      2005.


[8]
            Incorporated
      by reference to Statmon Technologies Corp.’s Form 10-KSB filed on July 14,
      2006.


[9]
            Incorporated
      by reference to Statmon Technologies Corp.’s Form 10-KSB filed on July 14,
      2007.


[10]
            Incorporated
      by reference to Statmon Technologies Corp.’s Form 8-K filed on February
      22, 2008.


[11]
            Incorporated
      by reference to Statmon Technologies Corp.’s Form 8-K filed on March 7,
      2008.





(b)
            REPORTS
      ON FORM 8-K.





Form 8-K
filed on February 10, 2009


45





SIGNATURES





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





STATMON
      TECHNOLOGIES CORP.,a
      Nevada corporationBy:
              /s/ Geoffrey
      P. Talbot /s/Geoffrey
      P. TalbotChairman,
      CEO, President and Chief Financial Officer(Principal
      Financial and Accounting Officer)Date:
              August 19,
2009




Each
person whose signature appears below authorizes Geoffrey P. Talbot to execute in
the name of each such person who is then an officer or director of the
registrant, and to file, any amendments to this Annual Report on Form 10-K
necessary or advisable to enable the registrant to comply with the Securities
Exchange Act of 1934 and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make
such changes in such Report as such attorney-in-fact may deem
appropriate.




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




Signatures
                              
                              Title
                              
                              Date/s/ Geoffrey
      P. Talbot /s/
                              
                              Chairman,
      CEO, President and Chief
                              
                              August
      19, 2009GEOFFREY
      P. TALBOT
                              
                              Financial
      Officer/s/ Peter
      J. Upfold /s/
                              
                              Vice
      Chairman, CTO, Treasurer/Secretary
                              
                              August
      19, 2009PETER
      J. UPFOLD/s/ Leonard Silverman/s/
                              
                              Director
                              
                              August
      19, 2009LEONARD
      SILVERMAN, Ph. D./s/ Robert B. Fields/s/
                              
                              Director
                              
                              August
      19, 2009ROBERT
      B. FIELDS


46


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                                
                                F-1Financial
      Statements:Consolidated
      Balance Sheets as of March 31, 2009 and 2008
                                
                                F-2Consolidated
      Statements of Operations for the Years Ended March 31, 2009 and March 31,
      2008
                                
                                F-3Consolidated
      Statements of Stockholders’ Deficiency for the Years Ended March 31, 2009
      and March 31, 2008
                                
                                F-4Consolidated
      Statements of Cash Flows for the Years Ended March 31, 2009 and March 31,
      2008
                                
                                F-5Notes
      to Consolidated Financial Statements
                                
                                F-7







REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Board of
Directors and Stockholders of


Statmon
Technologies Corp.





We have
audited the accompanying consolidated balance sheet of Statmon Technologies
Corp. and Subsidiaries (the "Company") as of March 31, 2009, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the years ended March 31, 2009 and 2008. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our 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 as of March 31, 2009, and 2008 and the
consolidated results of their operations and their cash flows for the years
ended March 31, 2009 and 2008, 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 approximately $4.0
million and $6.9 million during the years ended March 31, 2009 and 2008,
respectively. In addition, as of March 31, 2009, the Company had a working
capital deficiency of approximately $4.3 million. 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 LLP


New York,
New York


August
19, 2009


F-1


STATMON
TECHNOLOGIES CORP. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





March 31,2009
                              
                              
                              2008ASSETSCurrent
      Assets:Cash
                              
                              $
                              1,000
                              
                              
                              $
                              73,076Accounts
      receivable, net
                              
                              
                              171,924
                              
                              
                              
                              394,735Inventories
                              
                              
                              140,384
                              
                              
                              
                              48,616Prepaid
      expense and other current assets
                              
                              
                              17,214
                              
                              
                              
                              159,614Total
      Current Assets
                              
                              
                              330,522
                              
                              
                              
                              676,041Property
      and equipment, net
                              
                              
                              194,429
                              
                              
                              
                              241,429Deferred
      financing costs, net
                              
                              
                              206,002
                              
                              
                              
                              222,363Security
      deposits and other assets
                              
                              
                              50,959
                              
                              
                              
                              128,640Total
      Assets
                              
                              $
                              781,912
                              
                              
                              $
                              1,268,473LIABILITIES AND STOCKHOLDERS'
      DEFICIENCYCurrent
      Liabilities:Notes
      payable (including $200,000 due to a related party), net of debt
      discount of $0 and $58,179, respectively
                              
                              $
                              601,250
                              
                              
                              $
                              593,821Convertible
      notes payable, net of debt discount of $696,575
                              
                              
                              803,425
                              
                              
                              
                              -Accounts
      payable
                              
                              
                              1,120,820
                              
                              
                              
                              989,100Accrued
      expenses
                              
                              
                              263,426
                              
                              
                              
                              312,387Accrued
      compensation
                              
                              
                              1,209,735
                              
                              
                              
                              574,801Interest
      payable (including $39,480 and $7,083 due to related party,
      respectively)
                              
                              
                              235,165
                              
                              
                              
                              151,806Deferred
      revenue
                              
                              
                              387,281
                              
                              
                              
                              194,883Total
      Current Liabilities
                              
                              
                              4,621,102
                              
                              
                              
                              2,816,798Long-term
      Liabilities:Notes
      payable (including $250,000 due to related party), net of debt discount of
      $53,856 and $99,677, respectively
                              
                              
                              446,144
                              
                              
                              
                              400,323Convertible
      notes payable, net of debt discount of $643,599 and$1,446,576,
      respectively
                              
                              
                              394,401
                              
                              
                              
                              53,424Total
      Liabilities
                              
                              
                              5,461,647
                              
                              
                              
                              3,270,545Commitments
      and ContingenciesStockholders'
      Deficiency:Preferred
      stock, $.01 par value, 10,000,000 shares authorized, none issued and
      outstandingCommon
      stock, $.01 par value, 100,000,000 shares authorized,23,807,474
      and 23,579,533 issued and outstanding, respectively
                              
                              
                              238,074
                              
                              
                              
                              235,794Additional
      paid-in capital
                              
                              
                              19,026,089
                              
                              
                              
                              17,658,841Accumulated
      deficit
                              
                              
                              (23,943,898
                              )
                              
                              
                              (19,896,707
                              )Total
      Stockholders' Deficiency
                              
                              
                              (4,679,735
                              )
                              
                              
                              (2,002,072
                              )Total
      Liabilities and Stockholders' Deficiency
                              
                              $
                              781,912
                              
                              
                              $
                              1,268,473





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


F-2


STATMON
TECHNOLOGIES CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





For the Years Ended March
    31,2009
                        
                        
                        2008Revenues
                        
                        $
                        2,980,513
                        
                        
                        $
                        2,841,849Cost
      of Sales
                        
                        
                        417,537
                        
                        
                        
                        384,095Gross
      Profit
                        
                        
                        2,562,976
                        
                        
                        
                        2,457,754Selling,
      General and Administrative Expenses
                        
                        
                        4,616,307
                        
                        
                        
                        4,432,120Operating
      Loss
                        
                        
                        (2,053,331
                        )
                        
                        
                        (1,974,366
                        )Other
      Expense:Interest
      (including $55,000 and $209,477 to related parties for for 2009 and 2008
      periods, respectively)
                        
                        
                        153,102
                        
                        
                        
                        576,102Common
      stock and warrants issued in association with debt (including $0 and
      $1,354,247 to related parties for 2009 and 2008)
                        
                        
                        186,822
                        
                        
                        
                        3,050,576Amortization
      of debt discount
                        
                        
                        1,208,962
                        
                        
                        
                        400,053Amortization
      of deferred financing costs
                        
                        
                        444,974
                        
                        
                        
                        935,446Total
      Other Expense
                        
                        
                        1,993,860
                        
                        
                        
                        4,962,177NET
      LOSS
                        
                        $
                        (4,047,191
                        )
                        
                        $
                        (6,936,543
                        )NET
      LOSS PER COMMON SHARE - Basic and Diluted
                        
                        $
                        (0.17
                        )
                        
                        $
                        (0.42
                        )Weighted
      Average Number of Common Shares Outstanding -Basic
      and Diluted
                        
                        
                        23,748,365
                        
                        
                        
                        16,566,039





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


F-3


STATMON
TECHNOLOGIES CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY


For the
Years Ended March 31, 2009 and 2008





Additional
                      
                      
                      
                      
                      
                      TotalCommon
      Stock
                      
                      
                      paid-in
                      
                      
                      Accumulated
                      
                      
                      Stockholders'Shares
                      
                      
                      Amount
                      
                      
                      capital
                      
                      
                      deficit
                      
                      
                      DeficiencyBalance,
      March 31, 2007
                      
                      
                      15,051,022
                      
                      
                      $
                      150,510
                      
                      
                      $
                      7,564,386
                      
                      
                      $
                      (12,960,164
                      )
                      
                      $
                      (5,245,268
                      )Issuance
      of debt related penalty common stock
                      
                      
                      544,995
                      
                      
                      
                      5,449
                      
                      
                      
                      610,440
                      
                      
                      
                      -
                      
                      
                      
                      615,889Issuance
      of common stock related to new debt
                      
                      
                      451,200
                      
                      
                      
                      4,512
                      
                      
                      
                      190,580
                      
                      
                      
                      -
                      
                      
                      
                      195,092Issuance
      of warrants related to new debt
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      836,662
                      
                      
                      
                      -
                      
                      
                      
                      836,662Issuance
      of common stock for note extensions
                      
                      
                      181,200
                      
                      
                      
                      1,812
                      
                      
                      
                      243,924
                      
                      
                      
                      -
                      
                      
                      
                      245,736Issuance
      of warrants for note extensions
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      203,034
                      
                      
                      
                      -
                      
                      
                      
                      203,034Issuance
      of debt related penalty warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,252,186
                      
                      
                      
                      -
                      
                      
                      
                      2,252,186Issuance
      of common stock to placement agent
                      
                      
                      149,525
                      
                      
                      
                      1,495
                      
                      
                      
                      155,506
                      
                      
                      
                      -
                      
                      
                      
                      157,001Issuance
      of warrants to placement agent
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      94,178
                      
                      
                      
                      -
                      
                      
                      
                      94,178Stock-based
      compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      649,650
                      
                      
                      
                      -
                      
                      
                      
                      649,650Issuance
      of warrants as forbearance on operating liabilities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      182,500
                      
                      
                      
                      -
                      
                      
                      
                      182,500Beneficial
      conversion related to convertible debentures
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      673,836
                      
                      
                      
                      -
                      
                      
                      
                      673,836Issuance
      of common stock related to debt exchange
                      
                      
                      4,073,975
                      
                      
                      
                      40,740
                      
                      
                      
                      4,033,235
                      
                      
                      
                      -
                      
                      
                      
                      4,073,975Issuance
      of common stock related to warrant exchange
                      
                      
                      3,127,636
                      
                      
                      
                      31,276
                      
                      
                      
                      (31,276
                      )
                      
                      
                      -
                      
                      
                      
                      -Net
      Loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6,936,543
                      )
                      
                      
                      (6,936,543
                      )Balance,
      March 31, 2008
                      
                      
                      23,579,553
                      
                      
                      $
                      235,794
                      
                      
                      $
                      17,658,841
                      
                      
                      $
                      (19,896,707
                      )
                      
                      $
                      (2,002,072
                      )Issuance
      of debt related penalty warrants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      157,485
                      
                      
                      
                      -
                      
                      
                      
                      157,485Issuance
      of common stock for financial advisory services
                      
                      
                      200,004
                      
                      
                      
                      2,000
                      
                      
                      
                      186,753
                      
                      
                      
                      -
                      
                      
                      
                      188,753Issuance
      of common stock for new debt
                      
                      
                      5,000
                      
                      
                      
                      50
                      
                      
                      
                      5,450
                      
                      
                      
                      -
                      
                      
                      
                      5,500Issuance
      of common stock for interest
                      
                      
                      22,917
                      
                      
                      
                      230
                      
                      
                      
                      11,917
                      
                      
                      
                      -
                      
                      
                      
                      12,147Issuance
      of warrants to placement agent
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      31,500
                      
                      
                      
                      -
                      
                      
                      
                      31,500Stock-based
      compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      53,250
                      
                      
                      
                      -
                      
                      
                      
                      53,250Issuance
      of warrants related to new debt
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      397,997
                      
                      
                      
                      -
                      
                      
                      
                      397,997Beneficial
      conversion related to convertible debentures
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      427,564
                      
                      
                      
                      -
                      
                      
                      
                      427,564Issuance
      of warrants for financial advisory services
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      95,332
                      
                      
                      
                      -
                      
                      
                      
                      95,332Net
      Loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,047,191
                      )
                      
                      
                      (4,047,191
                      )Balance,
      March 31, 2009
                      
                      
                      23,807,474
                      
                      
                      
                      238,074
                      
                      
                      
                      19,026,089
                      
                      
                      
                      (23,943,898
                      )
                      
                      
                      (4,679,735
                      )





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


F-4


STATMON
TECHNOLOGIES CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For the Years Ended March
    31,2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (4,047,191
                )
                
                $
                (6,936,543
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                
                
                59,701
                
                
                
                18,353Bad
      debt expense
                
                
                31,000
                
                
                
                -Common
      stock and warrants issued in association with debt
                
                
                157,485
                
                
                
                3,050,576Common
      stock issued for interest
                
                
                17,647
                
                
                
                -Amortization
      of debt discount
                
                
                1,208,962
                
                
                
                400,053Amortization
      of deferred financing costs
                
                
                444,974
                
                
                
                935,446Deferred
      rent expense
                
                
                (28,940
                )
                
                
                (33,082
                )Non-cash
      stock based compensation charge
                
                
                53,250
                
                
                
                649,650Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                191,811
                
                
                
                (165,683
                )Inventories
                
                
                (91,768
                )
                
                
                12,132Prepaid
      expense and other current assets
                
                
                142,400
                
                
                
                (97,393
                )Security
      deposits and other assets
                
                
                77,681
                
                
                
                88,425Accounts
      payable
                
                
                131,720
                
                
                
                414,009Accrued
      expenses
                
                
                (20,021
                )
                
                
                (224,599
                )Accrued
      compensation
                
                
                634,934
                
                
                
                157,165Interest
      payable
                
                
                83,359
                
                
                
                256,275Deferred
      revenue
                
                
                192,398
                
                
                
                (13,623
                )NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (760,598
                )
                
                
                (1,488,839
                )CASH
      FLOWS USED IN INVESTING ACTIVITIES:Purchase
      of property and equipment
                
                
                (12,701
                )
                
                
                (65,941
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
                
                
                185,000
                
                
                
                572,000Proceeds
      from convertible notes payable
                
                
                865,000
                
                
                
                1,250,000Repayment
      of notes payable
                
                
                (235,750
                )
                
                
                -Deferred
      financing costs
                
                
                (113,027
                )
                
                
                (281,202
                )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                701,223
                
                
                
                1,540,798NET
      DECREASE IN CASH
                
                
                (72,076
                )
                
                
                (13,982
                )CASH,
      BEGINNING OF YEAR
                
                
                73,076
                
                
                
                87,058CASH,
      END OF YEAR
                
                $
                1,000
                
                
                $
                73,076





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


F-5





STATMON
TECHNOLOGIES CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Continued)




For the year ended March
31,2009
                  
                  
                  2008SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for:Interest
                  
                  $
                  42,937
                  
                  
                  $
                  273,118Income
      Taxes
                  
                  $
                  -
                  
                  
                  $
                  -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Issuance
      of warrants related to debt acquisition
                  
                  $
                  397,997
                  
                  
                  $
                  836,662Issuance
      of common stock related to debt acquisition
                  
                  $
                  -
                  
                  
                  $
                  195,092Issuance
      of common stock for note extensions
                  
                  $
                  -
                  
                  
                  $
                  245,736Issuance
      of warrants for note extensions
                  
                  $
                  -
                  
                  
                  $
                  203,034Issuance
      of common stock to financial advisors
                  
                  $
                  188,753
                  
                  
                  $
                  -Issuance
      of warrants to financial advisors
                  
                  $
                  95,332
                  
                  
                  $
                  -Issuance
      of common stock to placement agents
                  
                  $
                  -
                  
                  
                  $
                  157,001Issuance
      of warrants to placement agents
                  
                  $
                  31,500
                  
                  
                  $
                  94,178Beneficial
      conversion related to convertible debentures
                  
                  $
                  427,564
                  
                  
                  $
                  673,836Issuance
      of common stock related to debt exchange
                  
                  $
                  -
                  
                  
                  $
                  4,073,975Capitalization
      of rent abatement
                  
                  $
                  -
                  
                  
                  $
                  167,636


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


F-6


1.
            BUSINESS
      DESCRIPTION, GOING CONCERN AND MANAGEMENT
  PLANS





Company
Overview




Statmon
Technologies Corp. (“the Company”) is a wireless and fiber infrastructure
network management solution provider. “Axess”, our proprietary flagship software
application, and our supporting integration products are deployed in
telecommunications, media broadcast and navigation aid transmission networks to
optimize operations and keep them fully functional 24 hours a day, 7 days a
week, 52 weeks a year. A typical infrastructure network comprises a network
operations center (“NOC” or “Master Control”) plus a network of remote
transmission sites incorporating a wide range of devices, facilities management
and environmental control systems.




The
Statmon Platform is designed to self heal or preempt transmission failure by
automating the integration of all the different devices and disparate
technologies under a single control system, or permit corrective action at the
NOC. A tiered severity level alarm system at every site, down to the device
level, reports back to the NOC permitting manual adjustment or corrective action
without having to visit the site.  An authorized operator can drill
down and make manual adjustments to an individual device at a remote site from
any connected location including a wireless device such as a laptop or
Blackberry.




Architecturally
designed as a universal “Manager of Technologies” (“MOT”) application or
platform, wide scale network operations, regardless of disparate equipment
brands or incompatible technologies deployed at a NOC or remote site, can
automatically interact with each other while being managed from a single point
of control or “dashboard” style computer screen.  In real time, a
proactive alarm system reports to a NOC or designated wireless device for
appropriate attention or action. Adjusting the HVAC, the health of the
uninterrupted power supply (“UPS”) and diesel generator and the level of the
fuel tank, as well as disaster recovery, emergency power
management,  and redundancy are all proactive management capabilities
of the Statmon Platform. The Statmon Platform will keep remote sites operating
even when part or all of the entire network are down, automatically bringing the
remote back on line when network operations are restored.




The
marketing and distribution of our products are primarily facilitated by
value-added resellers sales channel strategic partners and original equipment
manufacturer collaborations. Sales channel partners are developed and managed by
an internal business development team and supported by a direct sales force. The
Company is seeking additional partners with appropriate credentials for large
scale implementations.




Going
Concern




The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the Unites States of America
("US GAAP") and assume that the Company will continue as a going concern. The
Company has incurred net losses of approximately $23.9 million since inception.
Additionally, the Company had a net working capital deficiency of approximately
$4.3 million at March 31, 2009. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


F-7




1.
            BUSINESS
      DESCRIPTION, GOING CONCERN AND MANAGEMENT PLANS,continued




As more
fully described in the Notes below, the Company funded its operations during
fiscal 2009 and 2008 from the sale of Original Issue Discount Senior Secured
Convertible Debenture and related warrants from March 2008 through September
2008  and from the sale of Units in fiscal 2008 consisting of notes,
common stock and warrants to purchase shares of common stock resulting in net
proceeds to the Company of approximately $937,000 and $1,541,000 during fiscal
2009 and 2008, respectively, related to financing activities. In addition, as
more fully described in Note 12, the Company raised an additional $303,750 net
proceeds through June 2009 from the sale of Original Issue Discount Senior
Secured Convertible Debenture and related warrants with lower conversion
substantially similar terms and conditions as the March OID’s with greater
warrant coverage and a lower conversion rate.


Management
Plans




In order
to reduce debt and simultaneously maximize growth and expansion of operations,
the Company has required capital infusions to augment its total capital needs.
While the Company anticipates its future operations will be cash flow positive,
delays in customer’s implementation timelines, payment schedules and delivery
roll outs directly impact short-term cash flow expectations causing the Company
to increase its borrowings.  The Company and its sales channel
partners have developed a pipeline of qualified sales opportunities. The
revenues from such prospective sales pipelines are expected to grow as the
existing and new sales channel partner relationships develop.




As of the
filing of this report, the Company has closed $303,750 of net proceeds related
to the Tranche III  issuance of the OID financing, the net proceeds will be
used to reduce certain obligations and fund the expansion of the Company into
several new vertical markets. There can be no guarantee that the Company will be
successful in obtaining the aforementioned operating results, financing or
refinancing, converting and/or extending its notes payable. If 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, it may
be forced to cease business operations, sell assets and/or seek protection under
applicable bankruptcy laws.




2.
            SIGNIFICANT ACCOUNTING
      POLICIES





a.
            Basis of
      Consolidation - The consolidated financial statements include the
      accounts of the Company's wholly-owned subsidiaries, Statmon-eBI
      Solutions, LLC and STC Software Corp.  All inter-company
      accounts and transactions have been eliminated in
      consolidation.





b.
            Accounting
      Estimates- The preparation of
      financial statements in conformity with US GAAP 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.




F-8


2.
              SIGNIFICANT
      ACCOUNTING POLICIES,continued


c.
            Allowance for Doubtful
      Accounts - The Company recognizes an allowance for doubtful
      accounts to ensure accounts receivable are not overstated due to
      uncollectibility. Reserves are maintained for all customers based on a
      variety of factors, including the length of time the receivables are past
      due, significant one-time events and historical experience. An additional
      reserve for individual accounts is recorded when the Company becomes aware
      of a customer’s inability to meet its financial obligation, such as in the
      case of bankruptcy filings or deterioration in the customer’s operating
      results or financial position. If circumstances related to customers
      change, estimates of the recoverability of receivables would be further
      adjusted. As of March 31, 2009 and 2008 the allowance for doubtful
      accounts was $31,000 and $0,
respectively.





d.
            Property and
      Equipment-
      Property and equipment are stated at cost. The cost of property and
      equipment is depreciated on a straight-line basis over the estimated
      useful lives of the related assets.





Leasehold
improvements are amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. Maintenance and repairs are charged to
operations when incurred.





Betterments
and renewals are capitalized. When property and equipment are sold or otherwise
disposed of, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.





The
useful lives of property and equipment for the purposes of computing
depreciation are:





Computer
      Equipment
                5 -
      7 yearsSoftware
                5
      yearsOffice
      Equipment
                5
      yearsLeasehold
      improvements
                Lesser
      of the life of the lease or the estimated useful life of the related
      asset.





e.
            Research and
      Development- Research and
      development expenditures are charged to operations as
      incurred.  Research and development expenditures were
      approximately $1,469,000 and $1,280,000 for the years ended March 31, 2009
      and 2008, respectively.





f.
            Inventories- Inventories are
      priced at the lower of cost (first-in, first-out) or market and consists
      of finished goods.





g.
            Net Loss Per
      Share-Basic
      net 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 convertible notes and
      warrants would have been anti-dilutive.  Securities that could
      potentially dilute basic earnings per share (EPS), in the future, that
      were not included in the computation of diluted EPS because to do so would
      have been anti-dilutive for the periods presented, consist of the
      following:





March 31,2009
                                
                                
                                2008Warrants
      to purchase common stock
                                
                                
                                6,206,172
                                
                                
                                
                                5,044,574Convertible
      notes payable
                                
                                
                                2,583,474
                                
                                
                                
                                1,526,874Total
                                
                                
                                8,789,646
                                
                                
                                
                                6,571,448


F-9




2.
                SIGNIFICANT
      ACCOUNTING POLICIES,continued


Subsequent
to March 31, 2009, the Company issued the third tranche of convertible notes
payable with a conversion price of $.25 per share (See Note
12).  Based on the reduced conversion price of the debentures issued
in conjunction with the third tranche subsequent to year-end, the conversion
price of the Convertible notes payable were reduced to $0.25.  Based
on the reduced conversion price, the convertible notes payable that were
outstanding at March 31, 2009 can be converted into 10,152,000 shares of common
stock.    Based on the increased warrant coverage of the
Third tranche and the terms of the original debenture agreement, an additional
7,568,526 warrants were issued to the debenture holders in Tranche I and Tranche
II.





h.
            Income Taxes -
      Deferred taxes represent the tax effects of differences between the
      financial reporting and tax bases of the Company’s assets and liabilities
      at the enacted tax rates in effect for the years in which the differences
      are expected to reverse.  The Company evaluates the
      recoverability of deferred tax assets and establishes a valuation
      allowance when it is more likely than not that some portion or all of the
      deferred tax assets will not be realized. Income tax expense consists of
      the tax payable for the period and the change during the period in
      deferred tax assets and
liabilities.





Effective
April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. Differences between tax positions taken
or expected to be taken in a tax return and the benefit recognized and measured
pursuant to the interpretation are referred to as "unrecognized benefits". A
liability is recognized (or amount of net operating loss carry forward or amount
of tax refundable is reduced) for an unrecognized tax benefit because it
represents an enterprise's potential future obligation to the taxing authority
for a tax position that was not recognized as a result of applying the
provisions of FIN 48.




In
accordance with FIN 48, interest costs related to unrecognized tax benefits are
required to be calculated (if applicable) and would be classified as "Interest
expense, net" in the consolidated statements of operations. Penalties would be
recognized as a component of "General and administrative expenses". The
Company’s policy for recording interest and penalties associated with audits is
to record such items as a component of income before taxes. There were no such
items during the periods covered in this report. In many cases the Company's
uncertain tax positions are related to tax years that remain subject to
examination by relevant tax authorities. The Company files income tax returns in
the United States (federal) and in various state and local jurisdictions. In
most instances, the Company is no longer subject to federal, state and local
income tax examinations by tax authorities for years prior to 2005.




The Company believes that its income
tax filing positions and deductions would be sustained on audit and does not
anticipate any adjustments that would result in a material change to its
financial position. Therefore, no reserves for uncertain income tax positions
have been recorded pursuant to FIN 48. In addition, the Company did not record a
cumulative effect adjustment related to the adoption of FIN
48.





i.
            Fair Value of
      Financial Instruments- The carrying
      amounts reported in the consolidated balance sheet for cash, receivables,
      accounts payable and accrued expenses approximate fair value based on the
      short-term maturities of these instruments.  The carrying
      amounts of the Company’s notes payable and convertible notes approximate
      fair value based on the prevailing market interest rates for similar
      instruments.





j.
            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. As of March 31, 2009 and March 31, 2008, the Company does not
      believe that any impairment has
occurred.


F-10


2.
                    SIGNIFICANT
      ACCOUNTING POLICIES,continued


k.
            Revenue
      Recognition- The Statement of Position
      (“SOP”) 97-2, “Software Revenue Recognition”, issued by the American
      Institute of Certified Public Accountants ("AICPA") and SOP 98-9,
      “Modification of SOP 97-2, Software Revenue Recognition, with Respect to
      Certain Transactions,” applies
      to all entities that earn revenue from licensing, selling, or otherwise
      marketing computer software. Management believes our current revenue
      recognition policies and practices are consistent with SOP
      97-2.





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 licensees limited rights for upgrades and enhancements for the version
they have licensed.





The
Company requires its software product sales to be supported by a written
contract or other evidence of a sale transaction, which generally consists of a
customer purchase order or on-line authorization. These forms of evidence
clearly indicate the selling price to the customer, shipping terms, payment
terms (generally 30 days) and refund policy, if any. The selling prices of these
products are fixed at the time the sale is consummated.





Deferred
revenue represents revenue billed or collected for support services not yet
rendered.





l.
            Stock-Based
      Compensation - The Company reports stock based compensation under
      Statements of Financial Accounting Standards ("SFAS") No. 123R ("123R")
      "Share Based Payment." SFAS 123R requires all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the financial statements based on their fair
  values.




The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS 123R and the Emerging Issues Task Force ("EITF")
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services"
("EITF 96-18") which require that such equity instruments are recorded at their
fair value on the measurement date, which is typically the date the services are
performed.




The
Black-Scholes option valuation model is used to estimate the fair value of the
options or their equivalent granted. The model includes subjective input
assumptions that can materially affect the fair value estimates. The model was
developed for use in estimating the fair value of traded options or warrants
that have no vesting restrictions and that are fully transferable. The expected
volatility is estimated based on the most recent historical period of time equal
to the weighted average life of the options granted.





m.
            Shipping
      and Handling–
      Shipping and handling costs incurred are either billed to the customer and
      included as revenue and cost of sales, or charged to cost of sales as
      incurred if not billed to the
customer.




n.
            Convertible Debentures
      and Freestanding Warrants-The Company does not enter into
      derivative contracts for purposes of risk management or speculation.
      However, from time to time, the Company enters into contracts that are not
      considered derivative financial instruments in their entirety but that
      include embedded derivative features and include freestanding
      warrants.


F-11


2.
                    SIGNIFICANT
      ACCOUNTING POLICIES,continued


The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133) and EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock
(EITF 00-19) which requires freestanding contracts that are settled in a
company’s own stock to be designated as an equity instruments and recorded in
accordance with Accounting Principles Board (APB) Opinion No. 14, Accounting for Convertible Debts and
Debts issued with Stock Purchase Warrants (APB 14). The proceeds of the
debt are allocated between the debt, the conversion features and the detachable
warrants based on the relative fair values of the debt security without the
conversion features and the warrants and the conversion features and the warrant
themselves.  The value allocated to the conversion features and the
warrants are recorded as a debt discount which is amortized on a straight-line
basis over the life of the loan.





o.
            New
      Accounting Pronouncements- In May 2008, the FASB
      issued FSP APB 14-1, Accounting For Convertible
      Debt Instruments That May Be Settled in Cash Upon Conversion (Including
      Partial Cash Settlement) (FSP APB 14-1) which impacts the
      accounting treatment for convertible debt instruments that allow for
      either mandatory or optional cash settlements. Furthermore, it requires
      recognition of interest expense in prior periods pursuant to the
      retrospective accounting treatment. FSP APB 14-1 is effective for
      fiscal years beginning after December 15, 2008 (our fiscal 2010) and
      early adoption is not permitted.   We do not expect the
      adoption of this FSP to have a material effect on our consolidated
      financial position, results of operations or cash
  flows.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141(R)) which will significantly change how business acquisitions are
accounted for and will impact financial statements both on the acquisition date
and in subsequent periods. SFAS 141(R) establishes principles and
requirements for the recognition and measurement of identifiable assets
acquired, the liabilities assumed, contractual contingencies, and contingent
consideration at their fair value on the acquisition date. Some of the changes,
such as the accounting for contingent consideration and exclusion of transaction
costs from acquisition accounting may introduce more volatility into
earnings.  SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008 (our fiscal 2010). SFAS 141R would have an impact
on accounting for any business acquired after the effective date of this
pronounement.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB no. 51
(SFAS 160). SFAS 160 will change the accounting and reporting for
minority interests which will be recharacterized as noncontrolling interests and
classified as a separate component of equity rather than as a liability.
SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 (our fiscal 2010). We do not expect the adoption of SFAS
160 to have a material impact on our consolidated financial position, results of
operations or cash flows.




In June
2008, the FASB reached consensus on EITF Issue No. 07-05 (‘EITF 07-05”), Determining Whether an Instrument
(or embedded feature) Is Indexed to an Entity’s Own Stock. EITF 07-05
clarifies the determination of whether an instrument (or an embedded feature) is
indexed to an entity’s own stock, which would qualify as a scope exception under
SFAS 133. EITF 07-05 is effective for financial statements issued for fiscal
years beginning after December 15, 2008 (our fiscal 2010). Early adoption of
EITF 07-05 is not permitted. In the first quarter of fiscal 2010, we issued OIDs
with conversion terms lower that earlier OID issuances which triggered reset
provision in certain conversion features and warrants which are presently
accounted for as equity and will be accounted for as a liability upon the
adoption of this EITF. The fair value of the derivative liability as of April 1,
2009 was approximately $2,109,000 and will be recorded as a cumulative
adjustment to accumulated deficit and additional paid in capital in the first
quarter of fiscal 2010.


F-12


2.
                    SIGNIFICANT
      ACCOUNTING POLICIES,continued


In June
2009, the FASB issued SFAS No. 166, (“SFAS 166”), “Accounting for Transfers of
Financial Assets — an amendment of FASB Statement No. 140”. SFAS 166 requires
additional disclosures concerning a transferor’s continuing involvement with
transferred financial assets. SFAS 166 eliminates the concept of a “qualifying
special-purpose entity” and changes the requirements for derecognizing financial
assets. SFAS 166 is effective for fiscal years beginning after November 15,
2009. The Company is currently evaluating the impact that the adoption of SFAS
No. 166 will have on its consolidated financial statements.




In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation (“FIN”) No. 46(R),” which changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entity’s purpose and design
and the reporting entity’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic performance. SFAS
No. 167 will require a reporting entity to provide additional disclosures
about its involvement with variable interest entities and any significant
changes in risk exposure due to that involvement. A reporting entity will be
required to disclose how its involvement with a variable interest entity affects
the reporting entity’s financial statements. SFAS No. 167 is effective for
fiscal years beginning after November 15, 2009, and interim periods within
those fiscal years. Management is currently evaluating the requirements of SFAS
No. 167 and has not yet determined the impact on the Company’s consolidated
financial statements.




In July
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS
168”).  SFAS 168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting
literature.  SFAS 168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent
structure.  Also included is relevant Securities and Exchange Commission
guidance organized using the same topical structure in separate sections. 
SFAS 168 will be effective for financial statements issued for reporting periods
that end after September 15, 2009. The adoption of SFAS 168 is not expected to
have a material impact on the Company’s consolidated financial
statements.




In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which
establishes general standards of accounting  for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. The Company is required to adopt
SFAS 165 prospectively to both interim and annual financial periods ending after
June 15, 2009.




F-13




3.
            PROPERTY AND
      EQUIPMENT




Property
and equipment at March 31, 2009 and 2008 consists of the following:




As ofMarch 31, 2009
                      
                      
                      March 31, 2008Computer
      Equipment
                      
                      $
                      80,911
                      
                      
                      $
                      75,865Software
                      
                      
                      14,915
                      
                      
                      
                      13,008Office
      Equipment
                      
                      
                      39,210
                      
                      
                      
                      33,462Leasehold
      Improvements
                      
                      
                      209,910
                      
                      
                      
                      209,910344,946
                      
                      
                      
                      332,245Less:
      accumulated depreciation
                      
                      
                      150,517
                      
                      
                      
                      90,816$
                      194,429
                      
                      
                      $
                      241,429




Depreciation
of property and equipment was $59,701 and $18,353 for the years ended March 31,
2009 and 2008, respectively.





4.
            DEFERRED FINANCING
      COSTS





At March
31, 2009 and 2008, the deferred financing costs consist of costs incurred in
connection with the issuance of the Company’s outstanding debt as
follows:





As ofMarch 31, 2009
                      
                      
                      March 31, 2008Deferred
      financing costs
                      
                      $
                      664,231
                      
                      
                      $
                      235,618Less:
      accumlated amortization
                      
                      
                      (458,229
                      )
                      
                      
                      (13,255
                      )Deferred
      financing costs, net
                      
                      $
                      206,002
                      
                      
                      $
                      222,363





Deferred
financing costs include commissions paid and the value of equity issued to
placement agents, the value of common stock and warrants issued to extend notes
payable, legal fees associated with new debt and the value of equity issued and
fees paid to consultants for financing related services. These costs are
capitalized as deferred financing costs and amortized over the term of the
related debt. If any or all of the related debt is converted or repaid prior to
its maturity date, a pro-rata share of the related deferred financing costs are
written off and recorded as amortization expense in the period of the conversion
or repayment in the consolidated statement of operations. During the year ended
March 31, 2009 and 2008, the Company capitalized $428,613 and $232,071 of
deferred financing costs, respectively. For the years ended March 31, 2009 and
2008, amortization of deferred financing costs was $444,974 and $935,446,
respectively.





5.
            SENIOR SECURED
      ORIGINAL ISSUE DISCOUNT CONVERTIBLE
  DEBENTURE




On March
5, 2008, the Company issued and sold debentures in a total principal amount of
$1,500,000, due March 5, 2010 (the “Debentures”) to accredited investors in a
private placement pursuant to a securities purchase agreement (the “Purchase
Agreement”).  The Debentures are the first tranche of up to an
aggregate of $4,038,000 of Original Issue Discount Senior Secured Convertible
Debentures (for an aggregate cash subscription amount of up to
$3,365,000).  The Debentures have an effective interest rate of
approximately 10% per annum. After deducting the expenses of the private
placement, including prepaid interest, the Company received net proceeds of
approximately $1,190,000 related to the first tranche.




During
the six month ended September 30, 2008, the Company issued and sold the second
tranche of debentures in total principal amount of $1,038,000, due two years
from the issuance of the securities, under the same debenture
facility.  The terms are substantially the same and the Company
received net proceeds after deducting the expenses of the private placement of
approximately $865,000 related to the second tranche.


F-14


5.
              SENIOR SECURED
      ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE,
      continued


In
connection with the Tranche I and II issuance, the investors also initially
received warrants (the “Warrants”) to purchase up to 2,583,474 shares of the
Company’s common stock, which terminate five years from the closing date (the
“Termination Date”) and initially had an exercise price of $1.20 per share.
Based on the terms of the agreement, the Warrants may also be exercised by means
of a cashless exercise at their exercise price on the date of
termination.  On the Termination Date, the Warrant shall be
automatically exercised via cashless exercise. Based on the reduced exercise
price of the warrants issued in conjunction with the third tranche subsequent to
year-end (See Note 12), the exercise price of the Warrants were reduced to $0.50
and by the terms of the original agreement, the investors were
issued subsequent to year-end an additional 7,568,526 warrants to
obtain the same warrant coverage as the Tranche III agreement subsequent to
year-end.




In
connection with the Tranche I and II issuance, the Company issued to the
investors an additional investment right (the “AIRs”).  Pursuant to
the AIRs, each investor will have the right to purchase, for 270 days from the
issuance of the debenture, up to an additional principal amount of Debentures
equal to such investor's principal amount of the Debentures and Warrants
pursuant to the Purchase Agreement, along with additional Warrants to purchase
up to a number of shares of the Company’s common stock equal to 100% of the
shares issuable upon conversion of the additional Debentures so purchased by the
investor.  The AIRs from both Tranche I and II have expired
unexercised.




The
initial conversion price (“Conversion Price”) of the Debentures was $0.9824 per
share.  Based on the reduced conversion price of the debentures issued
in conjunction with Tranche III subsequent to year-end (See Note 12), the
conversion price of the Debentures were reduced to $0.25 based on the terms of
the original agreement.




The
Company accounted for the debentures under accounting guidance provided by
Emerging Issues Task Force ("EITF") No 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios"  and EITF 00-27 "Application of Issue No. 98-5 to
Certain Convertible Instruments".




The gross
proceeds of $2,538,000 were recorded net of a discount of $2,499,000.  The
debt discount consisted of $423,000 related to the original issue discount and
$973,000 related to the allocated fair value of the warrants and the remaining
$1,103,000 relates to the beneficial conversion feature of the note.  The
debt discount is charged to interest expense ratably over the life of the loan.
During the years ended March 31, 2009 and 2008, the Company amortized $1,161,651
and $56,689 of debt discount related to the Tranche I and II
issuance.




Under
additional provisions of the agreement, the Company was required to meet certain
revenue minimums in fiscal year 2009 which were not met.  Based on not
meeting the revenue minimums,  the Company was required to issue to
each investor, on a pro-rata basis, additional warrants (the “Additional
Warrants”) to purchase up to, in the aggregate, 630,667 shares of the Company’s
common stock.  The Additional Warrants are in the same form as the
Warrants described above, have a term of exercise equal to five (5) years
following their issuance, and shall have an exercise price of $0.01 per share.
Subsequent to year-end, The Company has issued 400,000 shares of penalty
warrants to the debenture holders in Tranche I related to this
penalty.  The fair value of these warrants is $80,000 based on a Black
Scholes model.  The Company also expects to issue 230,667 penalty
warrants to the debenture holders in Tranche II in anticipation of not
meeting the revenue minimums in the Tranche II purchase
agreement.  The Company has recorded the expected Black Scholes fair
value of $44,743 in relation to the expected issuance of tranche two penalty
warrants at March 31, 2009.


F-15




6.
            NOTES
      PAYABLE




Notes
payable at March 31, 2009 and 2008 consist of the following:





As
      ofMarch
      31, 2009
                                                                  
                                                                  
                                                                  March
      31, 2008Current:Notes
      Payable - Delis - related party
                                                                  [a]
                                                                  
                                                                  $
                                                                  200,000
                                                                  
                                                                  
                                                                  $
                                                                  200,000Notes
      Payable - various
                                                                  [b]
                                                                  
                                                                  
                                                                  401,250
                                                                  
                                                                  
                                                                  
                                                                  452,000$
                                                                  601,250
                                                                  
                                                                  
                                                                  $
                                                                  652,000Less:
      Debt Discount
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (58,179
                                                                  )Total
      Current Notes Payable
                                                                  
                                                                  
                                                                  $
                                                                  601,250
                                                                  
                                                                  
                                                                  $
                                                                  593,821Long-term:Senior
      Subordinated Notes Payable - Thieme Consulting, Inc. - related
      party
                                                                  [c]
                                                                  
                                                                  
                                                                  250,000
                                                                  
                                                                  
                                                                  
                                                                  250,000Senior
      Subordinated Notes Payable
                                                                  [d]
                                                                  
                                                                  
                                                                  250,000
                                                                  
                                                                  
                                                                  
                                                                  250,000$
                                                                  500,000
                                                                  
                                                                  
                                                                  $
                                                                  500,000Less:
      Debt Discount
                                                                  
                                                                  
                                                                  
                                                                  (53,856
                                                                  )
                                                                  
                                                                  
                                                                  (99,677
                                                                  )Total
      Long-term Notes Payable
                                                                  
                                                                  
                                                                  $
                                                                  446,144
                                                                  
                                                                  
                                                                  $
                                                                  400,323




[a]
            On
      April 27, 2007, the Company sold a unit consisting of (i) a $200,000
      principal amount secured promissory note bearing interest at 10% per annum
      and due 180 days from the date of issuance, (ii) 150,000 shares of common
      stock and (iii) warrants to purchase 150,000 shares of common stock
      exercisable at a price of $1.00 per share for a term of five years. This
      note matured on October 24, 2007. The Company entered into a
      new note and issued an additional 100,000 shares of common stock
      and warrants to purchase 100,000 shares of its common stock at an exercise
      price of $1.00 per share with a term of five years. The note became due
      on October 24, 2008. The Company is
      negotiating an extension or conversion to shares of common stock
      that would supersede such extension agreement subject approval from the
      majority of the secured debenture holders. There can be no assurance that
      it will be able to obtain such an extension or approval from the majority
      of the debenture holders.  This note is secured by a second lien
      on all of the assets of the Company.





[b]
            These
      Units generally consisted of (i) a promissory note bearing interest
      generally at 10% per annum, (ii) a share of the Company’s common stock and
      (iii) three or five-year warrant to purchase shares of common stock at an
      exercise price between $1.00 and $1.20 per share.  The total
      amount of these notes is $401,250 and represents eight notes with initial
      maturity dates between November 19, 2002 and October 21, 2008. Of these
      eight notes, two were entered into during the year ended March 31, 2008
      for a total principal value of $175,000. In association with these notes,
      the Company issued 175,000 shares of common stock and warrants to purchase
      175,000 shares of common stock for a term of five years and exercisable
      between $1.20 and a $1.25 per share. In addition, during the year ended
      March 31, 2008, the Company sold units to seven other investors for a
      total principal amount of $197,000 that were exchanged per the Note
      exchange described in Note 9.In association with these notes, the Company
      issued 126,200 shares of common stock and warrants to purchase 126,200
      shares of common stock for a term of five years at an exercise price of
      $1.00 to $1.50 per share.


F-16


6.
              NOTES PAYABLE,
      continued


At March
31, 2009, all of these notes became due, plus interest of $202,055. Upon
maturity, most notes accrue interest at 15% per annum and provide for the
issuance of monthly warrants, exercisable at the same price as the original
warrants granted with the Unit, as a penalty until the repayment of the notes in
full. During the year ended March 31, 2009, the Company recorded $79,545 of
interest and granted 90,000 penalty warrants, valued at $33,750 based on a Black
Scholes model, related to such notes. During the year ended March 31, 2008, the
Company recorded $66,825 of interest and granted 90,000 penalty warrants, valued
at $71,475 related to such notes. The Company continues to grant 7,500 penalty
warrants per month related to such notes in default until the notes are
repaid.





[c]
            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. Subject to certain
      subordination agreements entered into in March 2008, 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 repaid. The Company recorded interest of $25,000 during the year ended
      March 31, 2009. The Company accrued $49,417 of interest and granted the
      note holder 275,000 penalty shares, valued at $330,250, during the year
      ended March 31, 2008.





On
      March 5, 2008, the Company entered into a new promissory note with Thieme
      Consulting, Inc. for $250,000.  This new note is subordinated to
      the debentures in note 5  above.  The new note has a
      maturity date of June 4, 2010 and bears interest at 10% per
      annum.  In consideration for entering into the new note and
      subordinating their first security position, the Company repaid all of the
      accrued interest due on the October 2001 notes of
  $243,896.





[d]
            An
      existing note in the amount of $250,000 matured and on March 5, 2008, the
      Company entered into a new promissory note with a secured promissory note
      holder.  This new note is subordinated to the notes in Note 6
      and [c] above. The new note has a maturity date of June 4, 2010 and bears
      interest at 10% per annum.  In consideration for entering into
      the new note, the Company converted all of the accrued interest due on the
      August 2004 note of $125,445 into shares of restricted common stock at
      $1.00 per share, issued 703,871 shares of restricted common stock in
      exchange for 1,759,676 warrants (as more fully described below), and
      issued a new warrant to purchase 250,000 shares of common stock
      exercisable for a five-year term at $1.20 per share which expire on March
      5, 2013.  During the year ended March 31, 2009, the Company
      issued 22,917 shares of common stock valued at $12,147 in lieu of interest
      through February 2009.  During the year ended March 31, 2008,
      the Company accrued $36,541 of interest and granted the note holder
      penalty warrants to purchase 550,000 share of common stock exercisable at
      $1.00 related to the August 2004 note during the year ended March 31,
      2008.





During
the year ended March 31, 2008, the Company granted three-year and five-year
warrants to purchase 1,559,600 shares of common stock at $1.00 per share and
three-year and five-year warrants to purchase 1,124,365 shares of common stock
at $1.50 per share in accordance with the penalty provisions of the various loan
agreements for notes in default.  In addition, the Company issued
181,200 shares of common stock valued at $245,736 and granted five-year warrants
to purchase 181,200 shares of common stock at $1.00 per share per the automatic
extension terms of eight promissory notes, the Company issued 100,000 shares of
common stock valued at $90,000 to one note holder as an extension settlement
related to a note in default, issued 120,000 shares of common stock valued at
$135,600 related to the penalty provisions of eight promissory notes that went
into default at November 30, 2007 and issued 49,995 shares of common stock
valued at $60,039 related to the penalty provisions of one promissory note that
was exchanged as part of the Note Exchange.


F-17


6.
                NOTES PAYABLE,
      continued


In
addition, during the year ended March 31, 2008, the Company granted warrants to
purchase 7,500 shares of common stock exercisable at a price of $1.00 per share
for a term of five years as commission for $75,000 of capital raised in October
of 2006, warrants to purchase 20,000 shares of common stock exercisable at a
price of $1.00 per share for a term of five years as commission for $200,000 of
capital raised in April of 2007, warrants to purchase 20,000 shares of common
stock exercisable at a price of $1.00 per share for a term of five years as
commission for $200,000 of capital raised in March and April of 2007, warrants
to purchase 10,200 shares of common stock exercisable at a price of $1.00 per
share for a term of five years as commission for $102,000 of capital raised in
May and June of 2007 . These warrants were valued at $54,098.  On
February 20, 2008, the Company granted 149,525 shares of common stock to two
broker/dealers related to consulting contracts for financing services related to
the Note and Warrant Exchanges.





7.
            EQUITY
      TRANSACTIONS





[a]
Common Stock




During
the year ended March 31, 2009, the Company issued 200,004 shares of restricted
common stock valued at $188,753 associated with consulting agreements for
investor relations and financial advisor services, 5,000 shares of restricted
common stock valued at $5,500 associated with a short-term bridge loan that was
repaid and 22,917 shares of restricted stock valued at $12,147 in lieu of cash
interest payments related to the Senior Subordinated Notes Payable. All values
of common stock issuances are based on the closing stock price on grant
date.




During
the year ended March 31, 2008, the Company issued 275,000 penalty shares of
common stock valued at $330,250 associated with the secured Senior Subordinated
Notes to Thieme that were in default (Note 7[c]), 49,995 penalty shares of
common stock valued at $60,039 associated with a secured Senior Subordinated
Note that was in default and exchanged as part of the Note Exchange (Note 4),
120,000 shares of common stock valued at $135,600 per the penalty provisions of
a group of previously extended notes, 451,200 shares of common stock related to
new debt transactions during the period, 100,000 shares of common stock valued
at $90,000 as an extension settlement to one note holder, 181,200 shares of
common stock valued at $245,736 per the automatic extension terms of eight
promissory notes, 149,525 shares of Common Stock valued at $157,001 to two
broker/dealers related to consulting contracts for financing services related to
the Note and Warrant Exchanges and 7,201,611 shares of common stock related to
the Note and Warrant Exchanges (Note 5). All values of common stock issuances
are based on the closing stock price on grant date.




[b] Stock
Options and Warrants





The
following table illustrates the Company’s warrant issuances and balances
outstanding through March 31, 2009. The Company generally issues warrants to
purchase shares of common stock in connection with debt and equity financing, to
employees, vendors and non-employee consultants.




Weighted AverageShares
                          
                          
                          Exercise Price
                          
                          
                          ExercisableWarrants
      outstanding and exercisable at March 31, 2007
                          
                          
                          9,225,176
                          
                          
                          $
                          1.28
                          
                          
                          
                          9,225,176Granted
                          
                          
                          6,340,606
                          
                          
                          
                          1.17Canceled
                          
                          
                          (9,030,942
                          )
                          
                          
                          -Expired
                          
                          
                          (1,490,266
                          )
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          -Warrants
      outstanding and exercisable at March 31, 2008
                          
                          
                          5,044,574
                          
                          
                          $
                          1.28
                          
                          
                          
                          5,044,574Granted
                          
                          
                          1,466,598
                          
                          
                          
                          1.18Canceled
                          
                          
                          -
                          
                          
                          
                          -Expired
                          
                          
                          (305,000
                          )
                          
                          
                          1.21Exercised
                          
                          
                          -
                          
                          
                          
                          -Warrants
      outstanding and exercisable at March 31, 2009
                          
                          
                          6,206,172
                          
                          
                          $
                          1.13
                          
                          
                          
                          6,206,172




F-18


7.
              EQUITY TRANSACTIONS,
      continued


The
following is additional information with respect to the Company’s warrants as of
March 31, 2009.





Weighted Average
                                  
                                  
                                  WeightedNumber
                                  
                                  
                                  Remaining Years of
                                  
                                  
                                  Average
                                  
                                  
                                  NumberExercise Price
                                  
                                  
                                  Outstanding
                                  
                                  
                                  Contractual Life
                                  
                                  
                                  Exercise Price
                                  
                                  
                                  Exercisable$
                                  1.00
                                  
                                  
                                  
                                  2,407,700
                                  
                                  
                                  
                                  2.25
                                  
                                  
                                  $
                                  1.00
                                  
                                  
                                  
                                  2,407,700$
                                  1.20
                                  
                                  
                                  
                                  3,403,472
                                  
                                  
                                  
                                  4.05
                                  
                                  
                                  
                                  1.20
                                  
                                  
                                  
                                  3,425,972$
                                  1.25
                                  
                                  
                                  
                                  335,000
                                  
                                  
                                  
                                  2.65
                                  
                                  
                                  
                                  1.25
                                  
                                  
                                  
                                  335,000$
                                  1.50
                                  
                                  
                                  
                                  60,000
                                  
                                  
                                  
                                  3.39
                                  
                                  
                                  
                                  1.50
                                  
                                  
                                  
                                  60,000$
                                  1.00
      - 1.50
                                  
                                  
                                  
                                  6,206,172
                                  
                                  
                                  
                                  3.29
                                  
                                  
                                  $
                                  1.13
                                  
                                  
                                  
                                  6,206,172





The fair
value of warrants issued is calculated using the Black Scholes pricing model
using the Company’s closing stock price on the date of the warrant grant as the
Company stock price, the contractual exercise price is used as the warrant
exercise price, the Company’s expected volatility and the risk free interest
rate matched to the warrants’ expected life. The company does not anticipate
paying dividends during the term of the warrants. The Company uses historical
data to estimate volatility assumptions used in the valuation model. The
expected term of warrants granted is derived from an analysis that represents
the period of time that warrants granted are expected to be outstanding. The
risk-free rate for periods within the contractual life of the warrant is based
on the U.S. Treasury yield curve in effect at the time of grant.  The
assumptions used for the warrant issuances are as follows:





For the year endedMarch 31, 2009
                  
                  
                  March 31, 2008Weighted-average
      exercise price
                  
                  $
                  1.18
                  
                  
                  $
                  1.17Volatility
      Range
                  
                  
                  105.1%-155.1
                  %
                  
                  
                  105.5%-110.7
                  %Expected
      Dividends
                  
                  
                  -
                  
                  
                  
                  -Weighted-average
      expected term (years)
                  
                  
                  4.81
                  
                  
                  
                  4.84Risk
      free rate range
                  
                  
                  0.5%-2.0
                  %
                  
                  
                  2.5%-5.0
                  %





The
Company granted warrants to purchase 100,000 shares of common stock valued at
$68,000 at an exercise price of $1.00 to one employee during the years ended
March 31, 2009. 50,000 of the employee warrants granted this year vested during
the year ended March 31, 2009 and the remaining 50,000 will vest in the next
fiscal year.  The Company granted warrants to purchase 670,000 shares
of common stock valued at $756,100 at an exercise prices between $1.00 and
$1.25, to seven employees during the year ended March 31,
2008.  Stock-based compensation expense is primarily based on the
vesting schedules of employee warrants.  Based on the vesting
schedule, the Company expensed $53,250 and $649,650 for the year ended March 31,
2009 and 2008, respectively. As of March 31, 2009, compensation cost of
nonvested awards not yet recognized totaled $34,000 and it will be recognized in
the first fiscal quarter of 2010.





F-19


7.
              EQUITY TRANSACTIONS,
      continued


A summary
of the status of the Company’s nonvested shares as of March 31, 2009, and
changes during the twelve month period then ended is presented
below:




WeightedAverageGrant
      DateNonvested
      Shares
                                          
                                          Shares
                                          
                                          
                                          Fair
      ValueNonvested
      at March 31, 2008
                                          
                                          
                                          25,000
                                          
                                          
                                          $
                                          0.80Granted
                                          
                                          
                                          100,000
                                          
                                          
                                          $
                                          0.68Vested
                                          
                                          
                                          (75,000
                                          )
                                          
                                          $
                                          0.72Expired
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          —Nonvested
      at March 31, 2009
                                          
                                          
                                          50,000
                                          
                                          
                                          $
                                          .68




During
the year ended March 31, 2009, the Company granted 90,000 penalty warrants,
valued at $32,742 based on a Black Scholes model, related to delinquent notes
payable per the terms of the note agreement.  On July 15, 2009, The
Company issued 400,000 shares of penalty warrants to the debenture holders in
Tranche I related to not meeting certain revenue minimums as called for in the
original Tranche I Debenture agreement (Note 5).  The fair value of
these warrants is $80,000 based on a Black Scholes model.  The Company
also expects to issue 230,667 penalty warrants to the debenture holders in
Tranche II in anticipation of not meeting the revenue minimums in the Tranche II
Debenture agreement.  The Company has recorded the expected Black
Scholes fair value of $44,743 in relation to the expected issuance of tranche
two penalty warrants.


During
the year ended March 31, 2009, The
Company granted warrants to purchase 45,000 shares of common stock valued at
$31,500 at an exercise price of $1.20 with a term of 5 years for placement agent
services related to the Tranche I financing. Additionally,The Company
granted warrants to purchase 199,998 shares of common stock valued at $95,332 at
an exercise price of $1.20 with a term of five years for financial advisory
services.


Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios.




During
the year ended March 31, 2008, The Company granted warrants to purchase 60,000
shares of common stock at an exercise price of $1.00 with a term of five years
for financial services and warrants to purchase 250,000 shares of common stock
at an exercise price of $1.20 with a term of five years as forbearance on
amounts owed to one vendor.


[c]
Preferred Stock





On
November 5, 2004 the Company amended and restated its Articles of Incorporation
to authorize 5,000,000 shares of preferred stock with a par value of $.01 per
share.  At the time of this filing, there are no shares of preferred
stock issued and outstanding.





8.
            INCOME
      TAXES




Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.  The realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.  The
Company considers projected future taxable income and tax planning strategies in
making this assessment.  At present, the Company does not have a
sufficient history of income to conclude that it is more likely than not that
the Company will be able to realize all of its tax benefits in the near future
and therefore a valuation allowance was established in the full value of the
deferred tax asset.
  The
Company recognized a deferred tax asset of approximately $3.7 million as of
March 31, 2009 primarily relating to net operating loss carryforwards of
approximately $12.1 million.  This represents a $773,000 increase from
the previous year and has been offset by a corresponding valuation
allowance.
  In
accordance with Section 382 of the Internal Revenue Code, deductibility of the
Company’s net operating loss carryforward (which expires for Federal and State
tax purposes between 2009 and 2029) may be subject to an annual limitation in
the event of a change of ownership.
  A
reconciliation between the statutory federal income tax rate (34%) and the
Company’s effective rate is as follows:


For
      the year ended March
      31,2009
                
                
                2008Federal
      statuatory rate
                
                
                34
                %
                
                
                34
                %State
      income tax rate, net of federal benefit
                
                
                6
                %
                
                
                6
                %Permanent
      differences
                
                
                ‐18
                %
                
                
                ‐28
                %Deferred
      tax writeoff
                
                
                ‐6
                %
                
                
                0
                %Net
      operating loss true‐
      up
                
                
                4
                %
                
                
                0
                %Valuation
      allowance
                
                
                ‐20
                %
                
                
                ‐12
                %Effective
      Income Tax Rate
                
                
                0
                %
                
                
                0
                %




Temporary
differences between the financial statement and tax basis of assets and
liabilities may give rise to deferred assets deferred tax
liabilities.  The composition of deferred taxes is approximately as
follows:


Deferred
tax assets
  Fixed Assets
              
              
              4,711
              
              
              
              4,496Bad
      Debt Expense
              
              
              12,177
              
              
              
              0Non-Deductible
      Compensation
              
              
              170,352
              
              
              
              425,880Accrued
      Interest
              
              
              46,949
              
              
              
              0Accrued
      Expenses
              
              
              319,749
              
              
              
              0NOL
              
              
              3,172,246
              
              
              
              2,522,413Less:
      valuation allowance
              
              
              -3,726,184
              
              
              
              -2,952,789Net
      deferred tax assets
              
              
              0
              
              
              
              0




F-20




9.
            EXCHANGE
      AGREEMENT




On
February 20, 2008, the Company entered into an Exchange Agreement with 52 of its
secured and unsecured promissory note holders to exchange $4,073,975 of
principal and interest accrued through February 28, 2008 for unregistered shares
of the Company’s common stock on a basis of one share for every $1.00 of
principal and interest exchanged (the “Note Exchange”).  The Company
issued 4,073,975 shares of common stock valued at $4,277,674 based on the stock
price on the date of the exchange related to the Note Exchange. The $203,699
difference between the notes exchanged and the common stock issued was charged
to interest expense. In addition, the Company exchanged 9,030,942 outstanding
warrants with a Black-Scholes value of $4,946,013 held by the promissory note
holders participating in the Note Exchange for 3,127,636 shares of the Company’s
common stock valued at $3,284,018 (the “Warrant Exchange”). In total, the
Company issued 7,201,611 shares of common stock related to both the Note
Exchange and the Warrant Exchange.




10.
            COMMITMENTS AND
      CONTINGENCIES




[a]
            Leases
      - The Company leases its office facilities and equipment under
      non-cancelable lease arrangements. The Company leases and maintains its
      principal place of business at 3000 Lakeside Drive, Suite 300 South,
      Bannockburn, IL 60015.  The Company leases approximately 10,000
      square feet in this facility.  The lease term began on February
      1, 2007 and continues to July 31, 2012.  The straight line rent
      expense is $17,480 per month, including current estimates for property
      taxes and operating costs.




The
Company subleases its former offices located at 345 N. Maple Drive, Suite 120,
Beverly Hills, California 90210.  The term of the sublease began on
July 5, 2007, and continues through January 31, 2010.  Per the terms
of the sublease, the first two months of rent have been abated.  Total
minimum future rental payments noted below have not been reduced by $124,520 of
sublease rentals to be received under non-cancelable subleases in fiscal year
2010. The Company leases 3,953 square feet in this facility. The straight-line
rent expense is $10,374 per month.





Rent
expense, net of sublease receipts, for the fiscal years ended March 31, 2009 and
2008 was $229,252 and $273,140 respectively





Future
annual net minimum lease payments under non-cancellable operating leases for
office facilities and equipment for the fiscal years ending March 31 are as
follows:




2010
                      
                      
                      472,8872011
                      
                      
                      357,7862012
                      
                      
                      290,7852013
                      
                      
                      94,028$
                      1,215,486




F-21


10.
              COMMITMENTS AND
      CONTINGENCIES, continued


[b]
            Legal
      Proceedings - On May 17, 2007, an action was filed in Los
      Angeles Superior Court for breach of contract and similar causes of action
      by the Epstein Family Trust against the Company in relation to two
      outstanding promissory notes issued by the Company totaling $75,000
      ($25,000 and $50,000) plus accrued interest. The Epstein Family Trust is
      seeking attorney’s fees and costs in addition to the principal and
      interest.  These notes were guaranteed by Mr. Geoffrey Talbot,
      the Company's CEO, for up to $25,000, and therefore Mr. Talbot was joined
      in the legal action as a third-party defendant.  The case number
      is BC 371 276. The parties have reached a conditional settlement agreement
      where the plaintiff has agreed to convert all principal and interest into
      shares of common stock at a price of $1.00 per share provided the Company
      completes the proposed Convertible Debenture and warrant financing in a
      timely manner. The parties have reached a settlement agreement where the
      plaintiff has agreed to convert all principal and interest into shares of
      common stock at a price of $1.00 per share and where the Company will pay
      legal fees of approximately $12,000 to plaintiff.  The
      settlement documentation is currently being reviewed and will be finalized
      shortly. This obligation is recorded as Accounts Payable at March 31,
      2009




On
December 20, 2007, a complaint was filed in the United States District Court for
the District of Colorado alleging additional commissions are due to a third
party introducer. The plaintiff demanded payment of additional commission of
$143,000 for the period ended September 30, 2007 and additional commissions
through December 31, 2007. The Company has settled the matter and as of June 30,
2008 accrued a payment due on or before July 7, 2008 of $89,683 as final
settlement of all past and future amounts due to said party.  On July
1, 2008 all amounts related to this settlement have been paid and the
matter has been dismissed




On
December 18, 2008,  Ira J. Gaines filed an action for breach of contract
and unjust enrichment against the Company in the Superior Court of the State of
Arizona, Maricopa County, case number CV2008-032043. The action is based
demanding payment on a promissory note in default and was seeking immediate
payment of a principal balance of $145,200 plus additional accrued
interest, costs and attorneys' fees totaling $215,996. The
settlement called for two payments of $5,000 to be applied against accrued
interest, first on dismissal and second on November 1, 2009. The remainder of
the debt was to be paid in 24 equal payments of $12,183 beginning June 1, 2009.
The Company is in default of the payment plan. As provided for in the settlement
agreement, the Company issued a warrant to purchase 50,000 shares of the
Company’s stock at $0.50 per share valued at $15,500 based on a Black-Scholes
model.This matter has been finalized and the first payment made on May
18, 2009. This obligation is accrued in notes payable and accrued interest at
March 31, 2009




[c]
            Product Liability
      Insurance - 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.




[e]
            Other - The
      Company has reported to the IRS the taxable income of the Chief Executive
      Officer and Chief Technology Officer to date using forms 1099 and 1096.
      Since 2001, the Company has accrued approximately $720,000 as accrued
      compensation which was calculated as the difference between their gross
      and net compensation for the period. The Company plans to pay this accrued
      compensation of approximately $720,000 to the Chief Executive Officer and
      Chief Technology Officer to satisfy the tax obligations related to the
      income reported. This obligation is recorded as Accrued Compensation at
      March 31, 2009




Such
payroll tax reporting classification is subject to audit by the Internal Revenue
Service and other state and local taxing authorities, which, upon review, could
determine that such individuals’ compensation should have been reported on the
basis that such individuals are employees.  Accordingly, depending on
such potential audit, the Company may be subject to additional payroll related
liabilities the amount of which, if any, is not determinable at this
time.


The
Company is delinquent in the payment of its payroll tax liabilities with the
Internal Revenue Service.  As of March 31, 2009, unpaid payroll taxes
total approximately $416,000 and related penalties and interest approximated
$78,000 computed through March 31, 2009.  These liabilities have been
recorded as accrued compensation and selling, general and administrative
expenses at March 31, 2009. The Company expects to pay these delinquent payroll
tax liabilities as soon as possible.  The final amount due will be
subject to negotiations with the Internal Revenue
Service.


F-22


10.
                COMMITMENTS AND
      CONTINGENCIES, continued


On
November 16, 2005, the Securities and Exchange Commission approved a change to
NASD rule 6530 providing that if an issuer with securities quoted by a NASD
member on the OTC board quoted by a NASD member on the OTC bulletin board is
cited for delinquent filing of its periodic reports under the exchange act of
1934 with the Securities and Exchange Commission three times in a 24 month
period or is removed from such quotation for failure to timely make such filings
three times in a 24 month period then the securities of such issuer will be
ineligible for quotation by a NASD member on the OTC bulletin
board.  If an issuer becomes ineligible to be so quoted, such issuer
would not become eligible for quotation on the OTC bulletin board until it has
filed such periodic reports for one year in a timely manner.




The
Company has been late in one of its periodic filings with the SEC during 2009,
of which the December 31, 2008 10-Q was filed late.  Accordingly, the
Company may be ineligible for quotation by a NASD member if it is delinquent two
more times in its periodic filings with the SEC during the applicable 24-month
period.  The Company is currently late on its filing of this
10-K.  The Company has requested a hearing with the NASD to see if the
Company can continue to be listed as a NASD member.  If the Company is
not successful at the hearing, the Company will be listed on the “pink
sheets.”




11.
            MAJOR
      CUSTOMERS, FOREIGN REVENUE AND CONCENTRATION OF CREDIT
      RISK




[a]
            Major
      Customer




The
Company sold a substantial portion of its product and services to one customer
during the year ended March 31, 2009 and 2008. Sales to this customer were
approximately 59% and 54% of total sales, respectively. Accounts receivable
balance for this customer was approximately $119,000 and $126,000 at March 31,
2009 and 2008, respectively.




[b]
            Foreign
      Revenue




The
Company generated approximately $51,000 and $235,000 of revenue from the sale of
its product and services to foreign customers during the years ended March 31,
2009 and 2008, respectively.




12.
            SUBSEQUENT
      EVENTS





In April
and June of 2009, the Company issued and sold debentures in a total principal
amount of $364,500, due two years from the date of closing to accredited
investors in a private placement pursuant to a securities purchase agreement.
The Debentures are part of Tranche III financing of up to an aggregate
of $1,500,000 of Original Issue Discount Senior Secured Convertible Debentures
(for an aggregate cash subscription amount of up to $1,250,000).  The
Debentures have an effective interest rate of approximately 10% per annum. After
deducting the expenses of the private placement, including prepaid interest, the
Company received net proceeds of approximately $303,750.




In
connection with the private placement, the investors also received warrants to
purchase up to 1,458,000 shares of the Company’s common stock, which terminate
in five years and have an exercise price of $0.50 per share. Based on the terms
of the agreement, the Warrants may also be exercised by means of a cashless
exercise.  On the Termination Date, the Warrant shall be automatically
exercised via cashless exercise. Based on the reduced exercise price of the
warrants in this issuance, warrants issued in conjunction with the Tranche I and
II (See Note 5) the exercise price of the Warrants were reduced from $1.20 to
$0.50 and an additional 7,568,526 warrants were issued to the Tranche I and
Tranche II holders based on the terms of the original agreement. The
difference in the fair value of the initial warrants compared to the new
warrants is $3,289,000 based on a Black Scholes model and that difference will
be charged to interest expense in the first quarter of Fiscal
2010.


The
initial conversion price (“Conversion Price”) of the Debentures is $0.25 per
share.  Based on the reduced conversion price of the debentures issued
in conjunction with this issuance, the conversion feature of the debentures
issued with the first and second tranche (See Note 5), were reduced to $0.25
based on the terms of the original agreement. The
difference in the fair value of the initial  conversion features
compared to the new conversion features is $2,647,000 and that difference will
be charged to interest expense in the first quarter of Fiscal
2010.




The gross
proceeds of $364,500 related to Tranche III were recorded net of a discount of
$364,500.  The debt discount consisted of $60,750 related to the
original issue discount, $582,000 related to the fair value of the warrants and
$512,000 related to the fair value of the conversion feature of the note
mitigated by $790,250 of deemed interest that was expensed
immediately.  During the quarter ended June 30, 2009, the Company
amortized $35,077 of debt discount related to Tranche III.
  Under
provisions of the Tranche I and II debenture agreements, the Company was
required to meet certain revenue minimums in fiscal year 2009 which were not
met.  Based on not meeting the revenue minimums,  the
Company was required to issue to each investor, on a pro-rata basis, additional
warrants (the “Additional Warrants”) to purchase up to, in the aggregate,
630,667 shares of the Company’s common stock related to Tranche I and
II.  The Additional Warrants are in the same form as the Warrants
described above, have a term of exercise equal to five (5) years following their
issuance, and shall have an exercise price of $0.01 per share. On July 15, 2009,
The Company has issued 400,000 shares of penalty warrants to the debenture
holders in tranche one related to this penalty.  The fair value of
these warrants is $80,000 based on a Black Scholes model.  The Company
also expects to issue 230,667 penalty warrants to the debenture holders in
Tranche II in anticipation of not meeting the revenue minimums in the Tranche II
purchase agreement.  The fair value of these warrants is $44,733 based
on a Black Scholes model.  The fair value of these penalty warrants
have been recorded as interest expense in the year ended March 31, 2009
financial statements.  Tranche III has similar provisions to purchase
up to 146,000 similar warrants if the Company fails to meet revenue minimums for
the year ended March 31, 2010.


F-23