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,
2010


or




 ̈  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.


(Exact
name of registrant as specified 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


(Registrant's
telephone number, including area code)




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
              OTCQB(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 Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.            Yes  x  No
 ̈




Indicate
by check mark 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 preceding
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.


Large
      accelerated filer  ̈
              Accelerated
      filer ̈Non-accelerated
      filer  ̈  (Do
      not check if a smaller reporting company)
              Smaller
      reporting company x




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




The
aggregate market value of the common stock of the registrant held by
non-affiliates as of September 30, 2009, the last business day of the
registrant’s most recently completed second fiscal quarter, was
$2,426,622.


The
number of shares outstanding of the registrant’s common stock as of June 30,
2010 was 28,903,112.


Documents
Incorporated by Reference:  None.





FORM
10-K


STATMON
TECHNOLOGIES CORP.


March
31, 2010




TABLE
OF CONTENTS




PagePART IITEM 1.
                                      Business.
                                      3ITEM 1A.
                                      Risk
      Factors.
                                      17ITEM 2.
                                      Properties.
                                      26ITEM 3.
                                      Legal
      Proceedings.
                                      26ITEM 4.
                                      (Removed
      and Reserved).
                                      26PART IIITEM 5.
                                      Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                                      27ITEM 6.
                                      Selected
      Financial Data.
                                      28ITEM 7.
                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                                      28ITEM 8.
                                      Financial
      Statements and Supplementary Data.
                                      35ITEM 9.
                                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.
                                      35ITEM 9A(T).
                                      Controls
      and Procedures.
                                      35ITEM 9B.
                                      Other
      Information.
                                      36PART IIIITEM 10.
                                      Directors,
      Executive Officers and Corporate Governance.
                                      37ITEM 11.
                                      Executive
      Compensation.
                                      43ITEM 12.
                                      Security
      Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters.
                                      44ITEM 13.
                                      Certain
      Relationships and Related Transactions, and Director
      Independence.
                                      45ITEM 14.
                                      Principal
      Accountant Fees and Services.
                                      46PART IVITEM 15.
                                      Exhibits,
      Financial Statement Schedules.
                                      47Signature
      Page
                                      49


2


Note
Regarding Forward Looking Statements




This
annual 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 "Risk
Factors" 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 our 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 networks of remote sites. “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 across
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, building management and
environmental control systems.




The
Statmon Platform is designed to proactively 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 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. There is a
tiered, severity level alarm system installed at every site, connected to the
individual devices and, reporting back to the network operations center, logging
automated adjustments or permitting manual adjustment or corrective action
eliminating the need for a field technician to physically travel to the remote
site. An authorized operator can drill down through the Axess software screens
to observe exactly what is taking place in real time at an individual device or
system at a remote site and make manual setting adjustments as
required.


3


The
optimization of network performance plus preemption of failure eliminates or
minimizes network or remote site downtime and 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 experience. Investment payback periods relative to the purchase cost of
the Statmon Platform, compared to the loss of revenue or hard costs of the
operator being “off the air,” typically make the return of investment highly
attractive. For example, advertisers do not pay for commercials that are not
broadcast, 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 allowing reallocation of resources.




The
Statmon Platform facilitates “green” policies effectively being implemented at
various levels of corporate and governmental entities. The reduction of truck
rolls and fuel saved related to the reduced truck rolls represent meaningful
environmental efficiencies for our customers.




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. For example, a
proactive alarm system reports in real time to a network operations center or
designated wireless device for appropriate attention or action. Adjusting the
HVAC, checking the health of the uninterrupted power supply, checking the
readiness of a diesel generator and level of the fuel tank, as well as disaster
recovery capabilities, emergency power management and back-up redundancy, are
all proactive management functionality of the Statmon Platform. Moreover, the
Statmon Platform will keep remote sites fully operational even when part or all
of the network is down and then will automatically bring the remote site back
online when normal network operations are restored.




Most
telecommunications infrastructure backbone, high speed and broadband networks in
developed and developing countries is being upgraded to meet the ever increasing
demand for subscriber services. In developing countries, wireless networks
provide an affordable alternative to the significantly more expensive hardwire
or landline infrastructure. Notable are the third and fourth generation (“3G”,
and “4G”) wireless and transmission networks, which are being enhanced to cope
with the rapid traffic increase, wireless broadband and convergence of media
delivery and additional data services for the wireless, VOIP and IPTV fiber
markets. Selective 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 radio frequency background and
know-how in the mainstream media broadcast industry places us in a position to
provide high-end solutions for the enhanced telecommunications networks offering
video and enriched multimedia content with their cell phone
offerings.




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
broadcast television market is undergoing a resurgence of activity and
reformatting as the high definition television (“HDMI HD TV”& “3D HD TV”),
cable and satellite delivery systems realign their operating technology 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 believe that all of these
developments are positive in regard to our possible role in the
industry.


4


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. Pursuant to the Qualcomm contract, we were engaged to deploy
our Axess software and related integration products for the control and
monitoring of the FLO TV national mobile TV transmission site 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 data casting 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 and recently, direct FLO TV subscribers.




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
their remote sites throughout the United States to optimize the FLO Platform
transmission performance and Verizon’s, AT&T and FLO TV all important mobile
TV customer experience and or satisfaction. We anticipate that the FLO TV mobile
TV platform will be adopted by additional wireless operators and delivery
systems 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 which overlay the cellular
coverage footprint. Qualcomm and/or FLO TV periodically issues purchase orders
to us under such agreement. Since the inception of the agreement through March
31, 2010, Qualcomm, MediaFLO and/or FLO TV has jointly purchased $7,523,455 from
us. Between April 1, 2009 and March 31, 2010, sales were $1,465,976. The FLO TV
agreement, dated September 7, 2006, specifies no minimum or maximum number of
purchase orders and was for an initial term of three years, with automatic
extension provisions predicated on annual support contracts being current. All
of our FLO TV deployed sites have current support contracts. The total number of
FLO TV remote sites is 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.




In
addition to broadcast and mobile TV, 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, VOIP, 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 universal
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 and expansion of government communication networks.


5


We expect
the wireless and infrastructure markets to maintain 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 over three year
involvement with wireless technology leader Qualcomm, places us in a strong
position to satisfy the operational needs of many 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 include or have included NewsCorp FOX TV,
Qualcomm - FLO TV; General Electric – NBC Universal (Comcast) & Telemundo
Television Networks; CBS Corporation Television and Radio Networks; The Walt
Disney Company - ABC Television and Radio Networks; Cox Communications; Belo
Corp. Television; Univision Communications, Television & Radio Network,
Maryland Public Television; Australian Government owned Air Services of
Australia (the Australian equivalent to the FAA); and Tribune Company
Television.




In the
telecom space, we are initially targeting all the Qualcomm-related CDMA carriers
in the United States and overseas, including US Cellular, AT&T, as well as
the Ericsson-related GSM carriers in Asia.




Included
among our current sales channel and integration partners are: NTC (National
TeleConsultants), Cascadiant, InfraCell, Harris Broadcast, Pixelmetrix, Nautel
Navigation, BTS Ireland and Sound Broadcast Services, Ltd.




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 facility
or our partners. 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 a high level operating history with large, high-tech corporations,
including Qualcomm, FLO TV, GE-NBC Universal, CBS, ABC, Belo, Cox
Communications, Univision and Harris Corporation, where for over 10 years
in the United States our products have continuously proven to be stable and
reliable and Statmon as a company has a solid reputation for being highly
responsive to meet 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 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.


6


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 alarm
system with our software, as well as monitoring their mission-critical
transmission, microwave links, studio and facilities management operations.
Localized Emergency Alert System broadcasting is expected to be integrated to
the mobile TV and wireless markets. The major satellite and cable operators,
including News Corp FOX, NBC Universal, Time Warner, Turner, CNN, Discovery
Channel and Direct TV, are all moving towards consolidating their worldwide
operations across all seven continents and to centralized master control
operations, which we believe will provide significant opportunities for
us.




In the
short term, we remain focused on expanding into the wireless and fiber building
management infrastructure vertical markets in broadcast and telecommunications.
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 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 engineering
design and construct firms, system integrators, 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.




Roving




Roving is
our "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.


7


Accurate




Accurate
is our 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 are universal interfaces designed to allow the Axess software to
collect up to 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;




·
            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;


8


·
            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
NewsCorp FOX TV, Qualcomm/FLO TV; General Electric – NBC Universal (Comcast)
& 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. Empire State Building and the Durst Organization, No. 4 Times
Square in New York City. Our engineering design, construct, integration and
sales channel partners include: NTC National TeleConsultants, Cascadiant,
InfraCell, Harris Broadcast, Pixelmetrix, Sound Broadcast Services, Ltd., and
Nautel Navigation.




We sold a
substantial portion of our products and services to FLO TV during the
fiscal years ended March 31, 2010 and 2009. Sales to FLO TV were
approximately 52% and 59% of total sales during the fiscal years ended March 31,
2010 and 2009, respectively.


9


Fiscal
2011 Goals




Our goals
for fiscal 2011, provided we are able to obtain sufficient working capital and
commercial prospects are attractive, include:




·
            Continue
      to develop the Qualcomm/FLO TV relationship, as well as the
      Qualcomm-related CDMA Telecom carriers, including US Cellular, AT&T
      and the international CDMA user
groups.;




·
            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 cellular infrastructure building
      management;




·
            Collaborate
      with Nautel, Inc. to expand our exposure across the aviation navigation
      market, including the FAA in the United States and other international air
      and sea navigational aid and beacon market
  opportunities;




·
            Aggressively
      promote our software products, “Axess”, “rOVIng” and “Accurate” into the
      existing and expanding international sales and distribution channels,
      including NTC, based in Los Angeles, California; Cascadiant, based in
      Singapore and Jakarta; InfraCell, based in the United States and
      Indonesia; Harris Broadcast, based in Melbourne, Australia and Florida;
      BTS, based in Dublin, Ireland; Pixelmetrix, based in Singapore; and Sound
      Broadcast Services, Ltd., based in the United
  Kingdom;




·
            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;




·
            Implement
      investor relations, internet and public market making programs to educate
      financial markets about us and to generate liquidity in our OTCQX 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; and




·
            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
generate sufficient internal cash flow or obtain the required additional
financing, on terms acceptable to us or at all, to fund these
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, more sophisticated building management
systems, increasingly intelligent remote sites all involving wide selections of
incompatible technologies, alarm systems, hardware, and devices from different
manufacturers with highly disparate connectivity and operating systems.
Management and control of these complex infrastructures require higher end
network-wide and local engineering systems and platforms. If 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.


10


The
communications infrastructure industry encompasses the traditional television
and radio broadcasters and all forms of telecommunications, including wireless
and 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 include multiple
remote sites, buildings, and operations centers, plus network element
operational issues that can be consolidated up to a single management system and
central location.




When a
commercial communications network goes 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 customer experience. Emergency
engineering or resource reallocations to solve mission critical malfunctions
usually have a high cost factor, which can be significant in cases involving
difficult to access or geographically remote sites, such as on mountaintops, or
locations in busy cities with access, safety and security issues. Many network
or infrastructure operational failures are power or weather related and can be
avoided entirely or minimized by the Statmon platform.




For
example, a storm comes through an area where a site is located, a power line
goes down, the 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 chain of
events can happen without the personnel at the network operations center or
monitoring entity being aware of little more than that the site is in fact
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, a field 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 proactively 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 that our Platform addresses the emerging need for a
highly flexible and universal manager of technologies in the multi-billion
dollar infrastructure network industry.




Radio
and Television Broadcasting Industry




Several
significant rules issued by the Federal Communications Commission (FCC) of the
United States in the late 1990s have 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 were 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.


11


Software
Industry




With the
solid benefits offered by a web-enabled system the majority of large enterprises
have transitioned their software to this architecture.




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 and commercial prospects are
attractive, 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.




Statmon’s
validation by technology industry leader Qualcomm, as well as the major
broadcasters including FOX TV, 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 Cascadiant and InfraCell, (both Ericsson
partners), Pixelmetrix and Harris Broadcast. We also intend to collaborate with
equipment suppliers, infrastructure contractors and systems integrators like
NTC, 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.


12


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.




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, Cisco, Hewlett-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 we
do.




Several
hardware-based vendors provide monitoring solutions to the radio and television
broadcast facility industry. IBM is a direct software based competitor ,as is
Computer Associates 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.


13




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 is 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.




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;


14


·
            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 $1,307,000 in fiscal 2010 and $1,469,000 in fiscal 2009. 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 their
own outsourcing contacts if our volume grows beyond their capacity or they are
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.




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.


15


Our
Employees




As of
March 31, 2010, we had twelve full-time employees, of which two were engaged in
sales, marketing and sales channel development; three were engaged in technical
support and training; five were engaged in software development and engineering;
and two 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.


16


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 history of net losses and may never achieve or maintain
profitability




We have a
history of incurring losses from operations. At March 31, 2010, we had an
accumulated deficit of approximately $28,280,000. We anticipate that our
operating expenses will increase substantially in the foreseeable future as we
increase our sales and marketing activities, attempt to develop new market
verticals, and continue to develop our technology, products, and services. These
efforts may prove more expensive than we currently anticipate and we may incur
significant additional costs and expenses in connection with our business
development activities. Such costs and expenses could prevent us from achieving
or maintaining profitability in future periods.




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.


17


Substantially
all of our assets are pledged to secure our indebtedness and the maturity date
of such indebtedness has passed




In
connection with our tranche I, II, and III 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.




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
2010 and 2009, FLO TV accounted for approximately 52% and 59% of our revenues,
respectively. We expect the volume of our revenues derived from FLO TV and its
affiliates to grow in fiscal 2011 and the percentage to continue to decrease as
overall revenues and non-FLO TV 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.We are attempting to raise
additional capital as part of our 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 stockholders. 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, 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.


18


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.




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
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 FLO TV, 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.


19


The
inability to settle our outstanding payroll tax obligations could harm our
business




During
the years 2001 through 2008, The Company considered its Chief Executive Officer
and its Chief Technology Officer to be consultants of the Company rather than
employees, as a result of the Company’s non-compliance with the terms of their
original employment agreements. If the Chief Executive Officer and the Chief
Technology Officer were classified as employees during the above period, the
Company would have been required to withhold and remit payroll taxes to the
respective taxing authorities.




This
position may be subject to audit by the Internal Revenue Service and other state
and local taxing authorities, which, upon review, could result in an unfavorable
outcome if it is determined that such individuals’ compensation should have been
reported on the basis of an employee rather than a consultant.




The
Company has recorded charges of approximately $947,000 for additional
compensation (including penalties and interest) on behalf of the Chief Executive
Officer and the Chief Technology Officer should the Company be challenged by the
taxing authorities and it is determined their position is without
merit.




In
addition, the Company was delinquent in filing certain of its payroll returns
(including the remittance of taxes) totaling approximately $702,000 and related
penalties and interest approximated $275,000 (for other employees), computed
through March 31, 2010. The Company filed these tax returns on July 7, 2010 and
expects to have an agreement in place to pay these amounts as soon as possible.
Based on the results of a review of these tax filings, the Company may be
subject to additional interest and penalties by the taxing authorities if such
amounts are not forthcoming We will soon be in negotiations with the applicable
state and federal taxing authorities to schedule payment of these outstanding
taxes. We may become subject to tax liens if we cannot satisfactorily settle the
outstanding payroll tax liabilities. We cannot predict what, if any, actions may
be taken by the respective tax authorities or other parties or the effect the
actions may have on our results of operations, financial condition or cash
flows.




We
may fail to manage growth effectively, which 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.


20


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.




The
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.




The
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.


21




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.




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.


22


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.




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.


23




Risks
Related To Our Securities




The
Company may be ineligible for quotation by a NASD member if it is delinquent one
more time in our periodic filings with the SEC during the applicable 24-month
period.




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 Over the Counter markets is cited for delinquent filing of 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 theOver the Counter markets. If an issuer becomes ineligible to be
so quoted, such issuer would not become eligible for quotation on theOver the Counter markets until it has filed such periodic
reports for one year in a timely manner.




We have
been late in two of our filings with the SEC in 2009, of which the December 31,
2008 Form 10-Q filing and the March 31, 2009 Form 10-K filing were late.
Accordingly, the Company may be ineligible for quotation by a NASD member if it
is delinquent one more time in our periodic filings with the SEC during the
applicable 24-month period. If the Company is ineligible for quotation by a NASD
member, then the Company's common stock will be quoted on the "pink
sheets."




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 FLO TV 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 OTCQB of the OTC Markets (ticker symbol
“STCA.PK”) and is considered a “penny stock”.


24


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.




We
are controlled 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
19.7% of our outstanding shares of common stock and approximately 9.9% 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.




We
have not paid and do not expect to pay any 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."


25




ITEM
      2.
            Properties.




We lease
our office facilities and equipment under non-cancelable lease arrangements. The
Company leases and maintains our principal place of business at 3000 Lakeside
Drive, Suite 300 South, Bannockburn, IL 60015. We lease 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.




ITEM
      3.
            Legal
      Proceedings.




A.)
                  Legal
      ProceedingsNone




B.)
              Other – Payroll
      Tax




During
the years 2001 through 2008, The Company considered its Chief Executive Officer
and its Chief Technology Officer to be consultants of the Company rather than
employees, as a result of the Company’s non-compliance with the terms of their
original employment agreements. If the Chief Executive Officer and the Chief
Technology Officer were classified as employees during the above period, the
Company would have been required to withhold and remit payroll taxes to the
respective taxing authorities.




This
position may be subject to audit by the Internal Revenue Service and other state
and local taxing authorities, which, upon review, could result in an unfavorable
outcome if it is determined that such individuals’ compensation should have been
reported on the basis of an employee rather than a consultant.




The
Company has recorded charges of approximately $947,000 for additional
compensation (including penalties and interest) on behalf of the Chief Executive
Officer and the Chief Technology Officer should the Company be challenged by the
taxing authorities and it is determined their position is without
merit.




In
addition, the Company was delinquent in filing certain of its payroll returns
(including the remittance of taxes) totaling approximately $702,000 and related
penalties and interest approximated $275,000 (for other employees), computed
through March 31, 2010. The Company filed these tax returns on July 7, 2010 and
expects to have an agreement in place to pay these amounts as soon as possible.
Based on the results of a review of these tax filings, the Company may be
subject to additional interest and penalties by the taxing authorities if such
amounts are not forthcoming We will soon be in negotiations with the applicable
state and federal taxing authorities to schedule payment of these outstanding
taxes. We may become subject to tax liens if we cannot satisfactorily settle the
outstanding payroll tax liabilities. We cannot predict what, if any, actions may
be taken by the respective tax authorities or other parties or the effect the
actions may have on our results of operations, financial condition or cash
flows.




ITEM
      4.
            [Removed
      and Reserved].


26


PART
II




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




Market
Prices




Our
common stock, par value $0.01 per share, is currently quoted on the OTCQB of the
OTC Markets under the symbol “STCA.PK”. The high/low closing prices of our
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, 20104th
      Quarter
                  
                  $
                  0.34
                  
                  
                  $
                  0.153rd
      Quarter
                  
                  
                  0.24
                  
                  
                  
                  0.112nd
      Quarter
                  
                  
                  0.30
                  
                  
                  
                  0.101st
      Quarter
                  
                  
                  0.49
                  
                  
                  
                  0.20Fiscal
      Year Ended March 31, 20094th
      Quarter
                  
                  
                  0.52
                  
                  
                  
                  0.133rd
      Quarter
                  
                  
                  0.48
                  
                  
                  
                  0.252nd
      Quarter
                  
                  
                  1.04
                  
                  
                  
                  0.491st
      Quarter
                  
                  
                  1.43
                  
                  
                  
                  0.53




As of
June 30, 2010, we had approximately 1,693 stockholders of record for our common
stock.




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 ended March 31, 2010. 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.




Issuances
of stock and warrants in relation to new debt during the fiscal year ended March
31, 2010:




·
            We
      issued an additional $837,720 principal amount of debentures and received
      net proceeds of $672,500 related to the third tranche of the private
      placement of such debentures. In connection with the debentures, we issued
      five-year warrants to purchase 3,350,880 shares of common stock at $0.50
      per share. The debentures are convertible into common stock at $0.25 per
      share.


27


·
            We
      issued an additional 3,616,864 warrants to holders of tranche I and
      tranche II securities due to re-pricing provisions in the debenture
      agreements and the fact that tranche III warrants were exercisable at
      $0.50 per share. All 6,200,338 warrants held by tranche I, II and III
      holders are now exercisable at $0.50 per
share.




Other
issuances of stock and warrants during the fiscal year ended March 31,
2010:




·
            We
      issued 676,800 additional warrants to holders of tranche I and tranche II
      debentures pursuant to a penalty provision for not meeting certain revenue
      minimums. The fair value of these warrants is $124,743 based on a Black
      Scholes model. We have accrued for and will issue 145,800 warrants to
      certain holders in tranche III due to not meeting certain revenue minimums
      in the fiscal year ended March 31, 2010. The Black Scholes fair value for
      the tranche III penalty warrants is $38,000. These warrants are considered
      issuable at March 31, 2010.




·
            We
      issued (i) 160,000 shares of common stock; (ii) 160,000 additional
      warrants to tranche I debenture holders exercisable at a price of $0.01
      per share; (iii) 1,644,000 shares of common stock on the conversion of
      $411,000 in debentures; and (iv) 133,793 shares related to the settlement
      of interest on a note payable.




·
            We
      (i) granted 50,000 warrants, valued at $15,500 based on a Black Scholes
      model, in conjunction with the settlement of a lawsuit regarding a note in
      default in consideration for delaying payment of the note; (ii) issued
      90,000 shares of penalty warrants, valued at $13,965 based on a Black
      Scholes model, related to delinquent notes payable per the terms of the
      note agreement; (iii) issued 125,000 warrants, valued at $16,250 with a
      term of five years for investment advisory; and (iv) issued 128,000
      warrants valued at $22,000 related to an advance to allow us to purchase
      inventory.




ITEM
      6.
            Selected
      Financial Data.




Not
applicable.




ITEM
      7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.




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.


28


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.
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.




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.


29


Our past
and current significant clients 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;
Cox Communications; 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, Harris
Broadcast, Pixelmetrix, Nautel Navigation, BTS 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 fiscal years ended March 31, 2010 and 2009




Revenues.  For
the fiscal year ended March 31, 2010, total revenues decreased to $2,793,294
from $2,980,513 for the same period last year.  The decrease in revenues of
approximately $187,000 is due principally to many of our broadcast and
telecommunication customers having to delay capital expenditure purchases as
they incurred lower advertising revenues due to economic conditions and
additional expenses related to the federal government delaying the high
definition switchover by six months to June 2009.  The delay of the
capital expenditures from our customers began in October 2008, but we have begun
to see a steady increase in capital projects from our customers as we have
experienced increase revenues for the past five quarters.




Cost of
Sales.  Cost of sales was $264,573 and $417,537 for the fiscal
years ended March 31, 2010 and 2009, respectively.  Overall gross profit
percentage increased to 91% for the fiscal year ended March 31, 2010, compared
to 86% in the comparable prior year period due to an increase, as a percentage
of sales, in software sales and support services during the year.




Selling, General
and Administrative Expenses. For the fiscal year ended March
31, 2010, operating expenses decreased to $3,888,951 compared to $4,616,307 for
the same period last year.  Selling, general and administrative
expenses were approximately 139% of sales for the fiscal year ended March 31,
2010, compared to approximately 155% of sales during the same period last
year.  The decrease in selling, general and administrative expenses is
attributed to expense reductions that began in May 2009 including a decrease in
payroll costs of approximately $368,000 that is primarily based on headcount
reductions and a decrease in marketing expense of $154,000 due to a decreased
presence at the National Association of Broadcasters show.




Other
Expenses. For the fiscal year ended March 31, 2010, other
expenses increased to $3,466,698 from $1,993,860 for the same period in the
prior year.  The increase of approximately $1,473,000 can be
attributed to the adoption of new accounting rules in the first quarter of 2009
in which we are required to value the fair value of warrants and conversion
features for certain outstanding equity instruments and recognized the change in
fair value.




We
recorded Interest expense of $1,830,965 related to warrants and conversion
features issued in association with debt and incurred a change of $5,936,000 due
to the difference in the fair value of tranche I and II warrants and conversion
features when they were issued compared to their fair value after they were
repriced in conjunction with our tranche III financing. We
recorded a gain on a change in the fair value of derivatives of $6,183,300
during the fiscal year ended March 31, 2010.  This gain is primarily
due to the fact that our stock price decreased during the year that made our
outstanding warrants and conversion features less valuable.  No such
gain or loss occurred during the fiscal year ended March 31,
2009.


30


Net
Loss. As a result of the above, for the fiscal year ended
March 31, 2010, we recorded a net loss of $4,826,928 compared to a net loss of
$4,047,191 for the same period last year.




Liquidity
and Capital Resources




Cash
balances totaled $0 as of March 31, 2010, compared to $1,000 at March 31,
2009.




Net cash
used in operating activities was $651,600 and $760,598 for the fiscal years
ended March 31, 2010 and 2009, respectively.  The use of cash in 2010
and 2009 is primarily the result of funding the net loss of $4,826,928 (which
included non-cash expenses of $3,349,215) and $4,047,191 (which included
non-cash expenses of $1,944,079) for the years ended March 31, 2010 and 2009,
respectively.




Net cash
used in investing activities was $23,500 and $12,701 for the fiscal years ended
March 31, 2010 and 2009, respectively.  The use of cash in 2010 was to
purchase office equipment.  The use of cash in 2009 was the result of
computer purchases, network equipment and office equipment related to our
growth.




Net cash
provided by financing activities was $674,100 and $701,223 for the fiscal years
ended March 31, 2010 and 2009, respectively.  Net cash provided by
financing activities in fiscal 2010 was the result of net proceeds of $672,500
related to the issuance of $837,720 principal amount of debentures related to
the tranche III of our private placement of such debentures.  Net cash
provided by financing activities in fiscal 2009 was the result of proceeds from
issuance of $865,000 of tranche II of the original issue discount convertible
debentures consisting of convertible debentures bearing interest at an effective
rate of 10% per annum, a share of our 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.




As of
March 31, 2010, we had a working capital deficiency of approximately $10,979,000
including short-term notes payable, convertible notes payable and accrued
interest of approximately $3,410,000, net of applicable debt discount of
$158,379.  We also have long-term convertible debentures of
approximately $192,000, net of an applicable debt discount of approximately
$609,000.  In addition, we are delinquent in filing certain payroll
returns (including the remittance of taxes) totaling approximately $702,000 and
related penalties and interest of approximately $275,000 and have accrued
$947,000 as additional compensation (including penalties and interest) on behalf
of the Chief Executive Officer and the Chief Technology Officer related to their
classification as our consultants.




In order
to continue our operations beyond March 2011, we will need to increase revenue
and profit margins, repay or obtain extensions on our existing short-term debt
and raise additional working capital through the sale of debt or equity
securities.




There can
be no assurance that we will be able to raise the capital we require in this
time frame or at all or that we will be able to raise the capital on terms
acceptable to us.  In addition, there can be no assurances that we
will be successful in obtaining extensions of our outstanding notes, if
required.  If we are not successful, we 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 our common stock.  At this time,
management cannot assess the likelihood of achieving these
objectives.  If we are unable to achieve these objectives, we may be
forced to cease business operations, sell our assets and/or seek further
protection under applicable bankruptcy laws.




Except as
provided above, we have no present commitment that is likely to result in our
liquidity increasing or decreasing in any material way.  In addition,
except as noted above, we know of no trend, additional demand, event or
uncertainty that will result in, or that is reasonably likely to result in, our
liquidity increasing or decreasing in any material way.  We have has
no material commitments for capital expenditures.  We know of no
material trends, favorable or unfavorable, in our capital
resources.


31


The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and assume that we
will continue as a going concern.  We have incurred net losses of
approximately $28,280,000 since our inception and have working capital
deficiency of approximately $10,979,000 at March 31, 2010.  These
conditions raise substantial doubt about our 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.




Critical
Accounting Policies and Estimates




Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.  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




Product
revenues from the sale of software licenses are recognized when evidence of a
license agreement exists, the fees are fixed and determinable, collectability 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.




We
require our 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




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


32


We
account for our embedded conversion features and freestanding warrants pursuant
to ASC Topic 815 on Derivatives and Hedging which requires freestanding
contracts that are settled in a company’s own stock to be designated as an
equity instruments and recorded by allocating the  proceeds of the
debt 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 that is amortized on a straight-line
basis over the life of the loan.




Effects
of Recent Accounting Policies




In
October 2009, the Financial Accounting Standards Board (“FASB”) updated topic
605 on Revenue Recognition authoritative guidance on revenue recognition that
will become effective for us beginning April 1, 2010, with earlier adoption
permitted.  Under the new guidance on arrangements that include
software elements, tangible products that have software components that are
essential to the functionality of the tangible product will no longer be within
the scope of the software revenue recognition guidance, and software- enabled
products will now be subject to other relevant revenue recognition
guidance.  Additionally, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are outside the scope of
the software revenue recognition guidance.  Under the new guidance,
when vendor specific objective evidence or third party evidence for deliverables
in an arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method.  The new guidance includes new
disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition.  We
believe adoption of this new guidance will not have a material impact on our
financial statements.




In June
2009, FASB issued Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)
- Accounting for Transfers of Financial Assets. ASU 2009-16 will require
more information about transfers of financial assets, including securitization
transactions, eliminates the concept of a qualifying special-purpose entity and
changes the requirements for derecognizing financial assets. ASU 2009-16 is
effective at the start of a reporting entity’s first fiscal year beginning after
November 15, 2009.  We are currently evaluating the impact that the
adoption of this guidance will have on our consolidated financial
statements.




In June
2009, FASB issued new accounting guidance, under SFAS No. 167 “Amendments to
FASB Interpretation 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. This standard has not yet
been integrated into the Codification.  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.  An ongoing
reassessment is required of whether a company is the primary beneficiary of a
variable interest entity.  A reporting entity will be required to
disclose how its involvement with a variable interest entity affects the
reporting entity’s financial statements.  This guidance is effective
for fiscal years beginning after November 15, 2009, and interim periods within
those fiscal years.  Management is currently evaluating the
requirements of this guidance and has not yet determined the impact on our
consolidated financial statements.


33


In
February 2010, FASB issued Accounting Standards Update 2010-10 (ASU 2010-10),
“Consolidation (Topic 810).”  The amendments to the consolidation
requirements of Topic 810 resulting from the issuance of Statement 167 are
deferred for a reporting entity’s interest in an entity (1) that has all the
attributes of an investment company or (2) for which it is industry practice to
apply measurement principles for financial reporting purposes that are
consistent with those followed by investment companies. An entity that qualifies
for the deferral will continue to be assessed under the overall guidance on the
consolidation of variable interest entities in Subtopic 810-10 (before the
Statement 167 amendments) or other applicable consolidation guidance, such as
the guidance for the consolidation of partnerships in Subtopic 810- 20. The
deferral is effective as of the beginning of a reporting entity’s first annual
period that begins after November 15, 2009, and for interim periods within that
first annual reporting period, which coincides with the effective date of
Statement 167. Early application is not permitted. At this time, management is
evaluating the potential implications of this pronouncement and has not yet
determined the impact on our consolidated financial statements.




In June
2009, FASB issued new accounting guidance that established the FASB Accounting
Standards Codification, ("Codification" or “ASC”) as the single source of
authoritative GAAP to be applied by nongovernmental entities, except for the
rules and interpretive releases of the SEC under authority of federal securities
laws, which are sources of authoritative GAAP for SEC
registrants.  FASB will no longer issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;
instead FASB will issue Accounting Standards Updates.  Accounting
Standards Updates will not be authoritative in their own right as they will only
serve to update the Codification.  These changes and the Codification
itself do not change GAAP.  This new guidance became effective for
interim and annual periods ending after September 15, 2009.  Other
than the manner in which new accounting guidance is referenced, the adoption of
this guidance did not have a material impact on our consolidated financial
statements.




In June
2008, FASB updated the ASC Topic 815 on Derivatives and Hedging.  The
update provides guidance on how to determine if certain instruments (or embedded
features) are considered indexed to our own stock.  It requires
companies to use a two-step approach to evaluate an instrument’s contingent
exercise provisions and settlement provisions in determining whether the
instrument is considered to be indexed to its own stock and thus exempt from the
application of derivative accounting.  Although this update is
effective for fiscal years beginning after December 15, 2008, any outstanding
instrument at the date of adoption requires retrospective application of the
accounting through a cumulative effect adjustment to retained earnings upon
adoption.  The adoption of this topic update has affected the
accounting for (i) certain freestanding warrants that contain exercise price
adjustment features and (ii) conversion features that also contain price
adjustment features.  Our warrants and conversion features with these
features are no longer deemed to be indexed to the Company’s own stock and are
no longer classified as equity. Instead, these warrants and conversion features
were reclassified as a derivative liability on April 1, 2009 as a result of this
updated ASC.  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 our stockholders’ deficiency.




In May
2009, FASB issued new accounting guidance, under ASC Topic 855 on Subsequent
Events, which sets forth:  (i) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.  This guidance was effective for interim and annual periods
ending after June 15, 2009.  The adoption of this guidance did not
have a material impact on our consolidated financial statements.




In
February 2010, FASB issued new accounting guidance, under ASC Topic 855 on
Subsequent Events, which requires an entity that is an SEC filer to evaluate
subsequent events through the date that the financial statements are issued and
removes the requirements that an SEC filer disclose the date through which
subsequent events have been evaluated. The guidance was effective upon issuance.
The adoption of the guidance did not have a material impact on our consolidated
financial statements.


34


FASB, the
Emerging Issues Task Force and the SEC have issued certain other accounting
standards updates and regulations as of March 31, 2010 that will become
effective in subsequent periods; however, management does not believe that any
of those updates would have significantly affected our financial accounting
measures or disclosures had they been in effect during 2010 or 2009, and it does
not believe that any of those pronouncements will have a significant impact on
our consolidated financial statements at the time they become
effective.




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 us in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that the information required to be disclosed by a company in
the reports it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.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.




As of
March 31, 2010, 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


35


·
            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, 2010.  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 weakness described
below, we have concluded that our internal control over financial reporting was
not effective as of March 31, 2010 based on the criteria in Internal Control—Integrated
Framework.




Management
identified a material weakness in our 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 weakness identified by management relates to the lack of sufficient
accounting resources and the lack of documentation of the performance of key
controls and document retention.  We have engaged outside consultants
to perform financial reporting functions to perform routine record
keeping.  Consequently, our financial reporting function is limited
which makes it difficult to report our financial information with the SEC timely
and our control environment does not provide for an appropriate segregation of
duties or documentation of the performance of key controls.




In order
to correct this material weakness, we have hired additional outside consultants
to assist with our financial statement preparation and reporting needs and plan
to hire internal full-time accounting personnel in the third calendar quarter of
2010.  We also intend to augment internal accounting personnel with
consultants as needed to ensure that management will have adequate resources in
order to ensure complete reporting of financial information in a timely manner
and provide a further level of segregation of financial
responsibilities.




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




Changes
in Internal Control over Financial Reporting




There
were no changes in the internal control over financial reporting identified in
management’s evaluation during the period covered by this annual report that
have materially affected, or are, reasonably likely to materially affect, the
internal controls over financial reporting.




ITEM
      9B.
            Other
      Information.




None.


36




ITEM
      10.
            Directors,
      Executive Officers, and Corporate
Governance.




The
following table sets forth as of June 30, 2010, 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
                
                62
                
                Chairman,
      President, Chief Executive Officer & Chief Financial
      Officer
                
                Chairman,
      President, Chief Executive Officer and Chief Financial Officer since June
      2002Peter
      J. Upfold
                
                47
                
                Chief
      Technology Officer, Vice Chairman, Director and
      Treasurer/Secretary
                
                Vice
      Chairman, Chief Technology Officer and Director since June
      2002Leonard
      Silverman, Ph.D.
                
                70
                
                Director
                
                Director
      since June 2002Robert
      B. Fields
                
                72
                
                Director
                
                Director
      since June 2002




Each of
our directors serves for a term of one year and until his or her successor is
elected at the our annual stockholders’ meeting and is qualified, subject to
removal by our stockholders.  Each officer serves, at the pleasure of
the Board of Directors, for a term of one year and until his or her 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, 2010.




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.  We believe that Mr. Talbot's broad
entrepreneurial, financial and business expertise, along with his experience
with micro-cap public companies and his role as President and Chief Executive
Officer, give him the qualifications and skills to serve as a
director.




Peter J.
Upfoldis 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.  We believe that Mr. Upfold's technical knowledge of
our products and industry give him the qualifications and skills to serve as a
director.




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.  We believe that Mr. Silverman's engineering
experience, educational background and years in academia give him the
qualifications and skills to serve as a director.


37




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.  He has been a member of eight public company
boards and a director of more than a dozen companies.  Mr. Fields is
the Chairman of our Audit Committee and a member of our Compensation
Committee.   We believe that Mr. Field's extensive experience in
our industry and as an officer or director of public companies give him the
qualifications and skills to serve as a director.




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




Board
of Directors and Committee Meetings




Our Board
of Directors held three meetings during the fiscal year ended March 31,
2010.  Each of our directors attended all of the meetings of the Board
and the committees on which he served in the fiscal year ended March 31,
2010.  Our directors are expected, absent exceptional circumstances,
to attend all Board meetings and meetings of committees on which they
serve.




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.


38


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.




Nominating
Committee




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




Compensation
Committee Interlocks and Insider Participation




The
Compensation Committee is made up of two independent, non-employee directors,
Messrs. Silverman and Fields.  No interlocking relationship exists
between the members of our Compensation Committee and the board of directors or
compensation committee of any other company.




Board
of Director’s Role in the Oversight of Risk Management




We face a
variety of risks, including credit, liquidity, and operational
risks.  In fulfilling its risk oversight role, our Board of Directors
focuses on the adequacy of our risk management process and overall risk
management system.  Our Board of Directors believes that an effective
risk management system will (i) adequately identify the material risks that we
face in a timely manner; (ii) implement appropriate risk management strategies
that are responsive to our risk profile and specific material risk exposures;
(iii) integrate consideration of risk and risk management into our business
decision-making; and (iv) include policies and procedures that adequately
transmit necessary information with respect to material risks to senior
executives and, as appropriate, to the Board or relevant committee.




Our Board
of Directors has designated the Audit Committee to take the lead in overseeing
risk management at the Board of Directors level.  Accordingly, the
Audit Committee schedules time for periodic review of risk management, in
addition to its other duties.  In this role, the Audit Committee
receives reports from management, its independent public accountants and other
advisors, and strives to generate attention to our risk management process and
system, the nature of the material risks we face, and the adequacy of our
policies and procedures designed to respond to and mitigate these
risks.




Although
the Board of Directors has assigned the primary risk oversight to the Audit
Committee, it also periodically receives information about our risk management
system and the most significant risks that we face.  This is
principally accomplished through Audit Committee reports to the Board of
Directors and summary versions of the briefings provided by management and
advisors to the Audit Committee.




In
addition to the formal compliance program, our Board of Directors and the Audit
Committee encourage management to promote a corporate culture that understands
risk management and incorporates it into our overall corporate strategy and
day-to-day business operations.  Our risk management structure also
includes an ongoing effort to assess and analyze the most likely areas of future
risk for us.  As a result, the Board of Directors and the Audit
Committee periodically ask our executives to discuss the most likely sources of
material future risks and how we are addressing any significant potential
vulnerability.


39


Board
Leadership Structure




Our Board
of Directors does not have a policy on whether or not the roles of Chief
Executive Officer and Chairman of the Board of Directors should be separate and,
if they are to be separate, whether the Chairman of the Board should be selected
from the non-employee directors or be an employee.  Our Board of
Directors believes that it should be free to make a choice from time to time in
any manner that is in the best interests of us and our
stockholders.  Our Board of Directors believes that Mr. Talbot's
service as both Chief Executive Officer and Chairman of the Board is in the best
interest of the Company and our stockholders.  Mr. Talbot possesses
detailed and in-depth knowledge of our business and the opportunities and
challenges we face and is thus best positioned to develop agendas that ensure
that the Board is focused on the most critical matters.  Our Board
believes that our leadership structure is appropriate given its size and
composition and the nature of our business.




Stockholder
Communications with the Board of Directors




Stockholders
may communicate with the Board of Directors by writing to us as
follows:  Statmon Technologies Corp., 3000 Lakeside Drive, Suite 300
South, Bannockburn, IL 60015; Attn: Corporate Secretary.  Stockholders
who would like their submission directed to a particular member of the Board of
Directors may so specify and the communication will be forwarded as
appropriate.




Process
and Policy for Director Nominations




Our Board may consider candidates for
Board membership suggested by its members, management and our
stockholders.  In evaluating the suitability of potential nominees for
membership on the Board, the Board members will consider the Board's current
composition, including expertise, diversity, and balance of inside, outside and
independent directors.  The Board considers the general qualifications
of the potential nominees, including integrity and honesty; recognized
leadership in business or professional activity; a background and experience
that will complement the talents of the other board members; the willingness and
capability to actively participate in board and committee meetings; the extent
to which the candidate possesses pertinent technological, business or financial
expertise and experience; the absence of realistic possibilities of conflict of
interest or legal prohibition; the ability to work well with the other
directors; and the extent of the candidate's familiarity with issues affecting
our business.




Our Board
of Directors strives for a Board composed of individuals who bring a variety of
complementary skills, expertise or background and who, as a group, will possess
the appropriate skills and experience to oversee our business. The diversity of
the members of the Board relates to the selection of its
nominees.  While the Board considers diversity and variety of
experiences and viewpoints to be important factors, it does not believe that a
director nominee should be chosen solely or mainly because of race, color,
gender, national origin or sexual identity or orientation. Thus, although
diversity may be a consideration in the Board's process, it does not have a
formal policy regarding the consideration of diversity in identifying director
nominees.




A
director candidate recommended by our stockholders will be considered in the
same manner as a nominee recommended by a Board member, management or other
sources.  When the Board of Directors has either identified a
prospective nominee or determined that an additional or replacement director is
required, the Board of Directors may take such measures as it considers
appropriate in connection with its evaluation of a director candidate, including
candidate interviews, inquiry of the person or persons making the recommendation
or nomination, engagement of an outside search firm to gather additional
information, or reliance on the knowledge of the members of the Board of
Directors or management.  In its evaluation of director candidates,
including the members of the Board eligible for re-election, the Board considers
a number of factors, including: the current size and composition of the Board of
Directors, the needs of the Board of Directors and the respective committees of
the Board, and such factors as judgment, independence, character and integrity,
age, area of expertise, diversity of experience, length of service, and
potential conflicts of interest.


40


The Board
of Directors has specified the following minimum qualifications that it believes
must be met by a nominee for a position on the Board:  the highest
personal and professional ethics and integrity; proven achievement and
competence in the nominee’s field and the ability to exercise sound business
judgment; skills that are complementary to those of the existing Board; the
ability to assist and support management and make significant contributions to
our success; an understanding of the fiduciary responsibilities that are
required of a member of the Board of Directors; and the commitment of time and
energy necessary to diligently carry out those responsibilities.




Stockholder Recommendations for
Director Nominations.Our Board of Directors does not have a formal
policy with respect to consideration of any director candidate recommendation by
stockholders.  While the Board of Directors may consider candidates
recommended by stockholders, it has no requirement to do so.  To date,
no stockholder has recommended a candidate for nomination to the
Board.  Given that we have not received director nominations from
stockholders in the past and that we do not canvass stockholders for such
nominations, we believe it is appropriate not to have a formal policy in that
regard.  We do not pay a fee to any third party to identify or
evaluate or assist in identifying or evaluating potential nominees.





Stockholder
recommendations for director nominations may be submitted to us at the following
address:  Statmon Technologies Corp., 3000 Lakeside Drive, Suite 300
South, Bannockburn, IL 60015; Attn: Corporate Secretary.  Such
recommendations will be forwarded to the Board for consideration, provided that
they are accompanied by sufficient information to permit the Board to evaluate
the qualifications and experience of the nominees, and provided that they are in
time for the Board to do an adequate evaluation of the candidate before the
annual meeting of stockholders.  The submission must be accomplished
by a written consent of the individual to stand for election if nominated by the
Board of Directors and to serve if elected and to cooperate with a background
check.





Stockholder Nominations of
Directors.Our bylaws provide that in order for a stockholder
to nominate a director at an annual meeting, the stockholder must give timely,
written notice to our Corporate Secretary and such notice must be received at
our principal executive offices not less than 120 days before the date of its
release of the proxy statement to stockholders in connection with its previous
year’s annual meeting of stockholders.  Such stockholder’s notice
shall include, with respect to each person whom the stockholder proposes to
nominate for election as a director, all information relating to such person,
including such person’s written consent to being named in the proxy statement as
a nominee, serving as a director, that is required under the Securities Exchange
Act of 1934, as amended, and cooperating with a background
investigation.  In addition, the stockholder must include in such
notice his name and address, as they appear on our records, of the stockholder
proposing the nomination of such person, and the name and address of the
beneficial owner, if any, on whose behalf the nomination is made, the class and
number of shares of our capital stock that are owned beneficially and of record
by such stockholder of record and by the beneficial owner, if any, on whose
behalf the nomination is made, and any material interest or relationship that
such stockholder of record and/or the beneficial owner, if any, on whose behalf
the nomination is made may respectively have in such business or with such
nominee. At the request of the Board of Directors, any person nominated for
election as a director shall furnish to our Corporate Secretary the information
required to be set forth in a stockholder’s notice of nomination which pertains
to the nominee.


41


To be timely in the case of a special
meeting or if the date of the annual meeting is changed by more than thirty (30)
days from such anniversary date, a stockholder’s notice must be received at our
principal executive offices no later than the close of business on the tenth day
following the earlier of the day on which notice of the meeting date was mailed
or public disclosure of the meeting date was made.




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




Section
16(a) of the Securities Act of 1934, as amended (the "1934 Act"), requires our
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of our 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%)
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file.




To our
knowledge, based solely on a review of such materials as are required by the
SEC, no officer, director or beneficial holder of more than ten percent of our
issued and outstanding shares of common stock failed to file in a timely manner
with the SEC any form or report required to be so filed pursuant to Section
16(a) of the 1934 Act during the fiscal year ended March 31, 2010.




Code
of Ethics




Our Board of Directors has adopted a
Code of Ethicsthat is applicable to all of our
employees, officers and directors.  Our Code of Ethicsis intended to ensure that such persons
act in accordance with the highest ethical standards.  A copy of ourCode
of Ethicsmay be obtained
by sending a written request to us at3000 Lakeside Drive, Suite 300-S,
Bannockburn, IL 60015, Attention:  Corporate
Secretary.


42




ITEM
      11.
            Executive
      Compensation.




The table
below sets forth all cash compensation paid or proposed to be paid by us to the
chief executive officer and the most highly compensated executive officers, and
key employees for services rendered in all capacities to us during fiscal years
ended March 31, 2010 and 2009.




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)
                                                
                                                2010
                                                
                                                $
                                                260,000
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                13,016
                                                (2)
                                                
                                                $
                                                273,016President,
      CEO, CFO
                                                
                                                2009
                                                
                                                $
                                                240,000
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                11,585
                                                (2)
                                                
                                                $
                                                251,585Peter
      J. Upfold (1)Chief
                                                
                                                2010
                                                
                                                $
                                                260,000
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                13,252
                                                (2)
                                                
                                                $
                                                273,252Technology
      Officer
                                                
                                                2009
                                                
                                                $
                                                240,000
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                12,342
                                                (2)
                                                
                                                $
                                                252,342




(1) Both
Messrs. Talbot and Upfold’s employment contracts with the Company expired on
July 1, 2009.  The Company is currently in discussions in regard to
new five-year contracts with Messrs. Talbot and Upfold.  Effective
June 30, 2008, their respective annual compensation increased to $260,000 per
annum.  In the fiscal year ended March 31, 2010, Mr.  Talbot
deferred $34,412 and Mr. Upfold deferred $25,742 of their
compensation.




(2)
Represents amounts the Company paid related to leased automobiles or car
allowances provided to Messrs. Talbot and Upfold during the fiscal years
indicated.




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




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.  If we have positive results of operation and our financial
condition improves substantially, we will review these base salaries 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 March 31, 2010 and
2009.


43


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.  If we have positive
results of operation and our financial condition improves substantially, we plan
to create a more defined bonus programs to attract and retain our employees at
all levels.




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




Director
Compensation




We do not
pay our directors who are not our employees, nor any of their affiliates, any
cash compensation for serving on the Board.  We reimburse our
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 us and any named executive officer are
described in Part III., Item 12 of this Form 10-K and are incorporated herein by
this reference.




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




The
following table sets forth, as of June 30, 2010, certain information regarding
the beneficial ownership of our common stock by: (i) each person known by us to
be the beneficial owner of more than five percent (5%) of the outstanding shares
of common stock, (ii) each of our directors and executive officers, 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
                
                
                
                6.78
                %Peter
      J. Upfold
                  CTO,
      Vice Chairman, Secretary/Treasurer (1)
                
                
                2,811,603
                
                
                
                10.92
                %Leonard
      Silverman, Ph.D.
                  Director
      (2)
                
                
                303,219
                
                
                
                1.18
                %Robert
      B. Fields
                  Director
      (2)
                
                
                216,300
                
                
                
                0.84
                %Thieme
      Consulting, Inc. (3)
                
                
                2,212,006
                
                
                
                8.59
                %Dean
      Delis (4)
                
                
                1,797,000
                
                
                
                6.93
                %All
      executive officers and directors as a group (four persons)
                
                
                5,077,302
                
                
                
                19.72
                %





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


(4)
            The
      address of Dean Delis is 2929 Campus Drive, Ste. 175, San Mateo, CA
      94405.  Includes warrants to purchase 175,000 shares of common
      stock exercisable at $1.00 per
share.


44


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




In
October 2001, we 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, we
have 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, our obligations under the Senior Notes are secured by a UCC
perfected lien on our assets plus certain priority rights over first new equity
capital we raise, effective until the Senior Notes are
extinguished.  We 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. We 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.




On March
5, 2008, we 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, we repaid all of the accrued interest due on the October 2001
notes of $243,896.  We 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.




Between
November 2003 and June 30, 2007, Dean Delis has loaned us $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, we 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.




Director
Independence




In
accordance with the Nasdaq Stock Market listing standards, our Board of
Directors undertook its annual review of the independence of the directors and
considered whether any director had a material relationship with us or our
management that could compromise his ability to exercise independent judgment in
carrying out his responsibilities.  As a result of this review, the
Board of Directors affirmatively determined that the current board members,
other than Mr. Talbot, our President and Chief Executive Officer, are
“independent directors” under the Nasdaq rules.  Additionally, each of
the members of our two standing committees are required to be, and the Board of
Directors has determined that each member is, independent in accordance with the
Nasdaq and SEC rules.


45


ITEM
      14.
            Principal
      Accounting 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 fiscal year ended March 312010
                  
                  
                  2009Audit
      Fees
                  
                  $
                  190,000
                  
                  
                  $
                  183,950Audit
      Related Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  10,000All
      Other Fees
                  
                  
                  -
                  
                  
                  
                  -Total
      Fees
                  
                  $
                  190,000
                  
                  
                  $
                  193,950




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


46


ITEM
      15.
            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]10.17
                                                                                              
                                                                                              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]


47




Exhibit No.
                      
                      Description
                      
                      Reference10.21
                      
                      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 April 16, 2010.


48


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 corporation/s/ Geoffrey
      P. TalbotGeoffrey
      P. TalbotChairman,
      CEO, President and Chief Financial Officer(Principal
      Financial and Accounting Officer)Date:
                  July 14,
2010




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
                            
                            Chairman,
      CEO, President and Chief
                            
                            July
      14, 2010Geoffrey
      P. Talbot
                            
                            Financial
      Officer/s/
      Peter
      J. Upfold
                            
                            Vice
      Chairman, CTO, Treasurer/Secretary
                            
                            July
      14, 2010Peter
      J. Upfold/s/
      Leonard
      Silverman
                            
                            Director
                            
                            July
      14, 2010Leonard
      Silverman, Ph.D./s/
      Robert
      B. Fields
                            
                            Director
                            
                            July
      14, 2010Robert
      B. Fields


49





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                
                F-1Financial
      Statements:Consolidated
      Balance Sheets as of March 31, 2010 and 2009
                
                F-2Consolidated
      Statements of Operations for the Years Ended March 31, 2010 and March 31,
      2009
                
                F-3Consolidated
      Statements of Stockholders’ Deficiency for the Years Ended March 31, 2010
      and March 31, 2009
                
                F-4Consolidated
      Statements of Cash Flows for the Years Ended March 31, 2010 and March 31,
      2009
                
                F-5Notes
      to Consolidated Financial Statements
                
                F-7


50


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Board of
Directors and Stockholders of


Statmon
Technologies Corp.





We have
audited the accompanying consolidated balance sheets of Statmon Technologies
Corp. and Subsidiaries (the "Company") as of March 31, 2010 and 2009, and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for the years ended March 31, 2010 and 2009.  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, 2010 and 2009, and the
consolidated results of their operations and their cash flows for the years
ended March 31, 2010 and 2009, 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 $4.8
million and $4.0 million during the years ended March 31, 2010 and 2009,
respectively.  In addition, as of March 31, 2010, the Company had a working
capital deficiency of approximately $11.0 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


July 14,
2010


F-1


STATMON
TECHNOLOGIES CORP. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





March
      31,2010
                                                                
                                                                
                                                                2009ASSETSCurrent
      Assets:Cash
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                1,000Accounts
      receivable, net
                                                                
                                                                
                                                                436,013
                                                                
                                                                
                                                                
                                                                171,924Inventories
                                                                
                                                                
                                                                39,485
                                                                
                                                                
                                                                
                                                                140,384Prepaid
      expense and other current assets
                                                                
                                                                
                                                                77,154
                                                                
                                                                
                                                                
                                                                17,214Total
      Current Assets
                                                                
                                                                
                                                                552,652
                                                                
                                                                
                                                                
                                                                330,522Property
      and equipment, net
                                                                
                                                                
                                                                157,443
                                                                
                                                                
                                                                
                                                                194,429Deferred
      financing costs, net
                                                                
                                                                
                                                                8,871
                                                                
                                                                
                                                                
                                                                206,002Security
      deposits
                                                                
                                                                
                                                                50,959
                                                                
                                                                
                                                                
                                                                50,959Total
      Assets
                                                                
                                                                $
                                                                769,925
                                                                
                                                                
                                                                $
                                                                781,912LIABILITIES AND STOCKHOLDERS'
      DEFICIENCYCurrent
      Liabilities:Notes
      payable (including $450,000 and $200,000 due to a relatedparty),
      net of debt discount of $8,034 and $58,179, respectively
                                                                
                                                                $
                                                                1,093,216
                                                                
                                                                
                                                                $
                                                                601,250Convertible
      notes payable, net of debt discount of $150,345 and$696,575,
      respectively
                                                                
                                                                
                                                                2,012,655
                                                                
                                                                
                                                                
                                                                803,425Accounts
      payable
                                                                
                                                                
                                                                1,275,245
                                                                
                                                                
                                                                
                                                                1,120,820Accrued
      expenses
                                                                
                                                                
                                                                584,230
                                                                
                                                                
                                                                
                                                                263,426Accrued
      compensation and payroll taxes
                                                                
                                                                
                                                                1,924,210
                                                                
                                                                
                                                                
                                                                1,209,735Interest
      payable (including $53,713 and $39,480 due to relatedparty,
      respectively)
                                                                
                                                                
                                                                303,749
                                                                
                                                                
                                                                
                                                                235,165Derivative
      liability
                                                                
                                                                
                                                                3,885,000
                                                                
                                                                
                                                                
                                                                -Deferred
      revenue
                                                                
                                                                
                                                                453,326
                                                                
                                                                
                                                                
                                                                387,281Total
      Current Liabilities
                                                                
                                                                
                                                                11,531,631
                                                                
                                                                
                                                                
                                                                4,621,102Long-term
      Liabilities:Notes
      payable (including $0 and $250,000 due to related party),net
      of debt discount of $0 and $53,856, respectively
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                446,144Convertible
      notes payable, net of debt discount of $609,316 and$643,599,
      respectively
                                                                
                                                                
                                                                192,404
                                                                
                                                                
                                                                
                                                                394,401Total
      Liabilities
                                                                
                                                                
                                                                11,724,035
                                                                
                                                                
                                                                
                                                                5,461,647Commitments
      and ContingenciesStockholders'
      Deficiency:Preferred
      stock, $0.01 par value, 10,000,000 shared authorized,none
      issued and outstanding
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Common
      stock, $0.01 par value, 100,000,000 shares authorized,25,745,447
      and 23,807,474 issued and outstanding,respectively
                                                                
                                                                
                                                                257,454
                                                                
                                                                
                                                                
                                                                238,074Additional
      paid-in capital
                                                                
                                                                
                                                                17,068,256
                                                                
                                                                
                                                                
                                                                19,026,089Accumulated
      deficit
                                                                
                                                                
                                                                (28,279,820
                                                                )
                                                                
                                                                
                                                                (23,943,898
                                                                )Total
      Stockholders' Deficiency
                                                                
                                                                
                                                                (10,954,110
                                                                )
                                                                
                                                                
                                                                (4,679,735
                                                                )Total
      Liabilities and Stockholders' Deficiency
                                                                
                                                                $
                                                                769,925
                                                                
                                                                
                                                                $
                                                                781,912





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 31,2010
                                                  
                                                  
                                                  2009Revenues
                                                  
                                                  $
                                                  2,793,294
                                                  
                                                  
                                                  $
                                                  2,980,513Cost
      of Sales
                                                  
                                                  
                                                  264,573
                                                  
                                                  
                                                  
                                                  417,537Gross
      Profit
                                                  
                                                  
                                                  2,528,721
                                                  
                                                  
                                                  
                                                  2,562,976Selling,
      General and Administrative Expenses
                                                  
                                                  
                                                  3,888,951
                                                  
                                                  
                                                  
                                                  4,616,307Operating
      Loss
                                                  
                                                  
                                                  (1,360,230
                                                  )
                                                  
                                                  
                                                  (2,053,331
                                                  )Other
      Expense:Interest
      (including $55,000 to related parties for2010
      and 2009 periods)
                                                  
                                                  
                                                  201,802
                                                  
                                                  
                                                  
                                                  153,102Interest
      expense related to warrants and conversion featuresissued
      in association with debt
                                                  
                                                  
                                                  1,830,965
                                                  
                                                  
                                                  
                                                  186,822Interest
      expense related to change in fair value of warrantsand
      conversion features granted for ratchet provisions
                                                  
                                                  
                                                  5,936,000
                                                  
                                                  
                                                  
                                                  -Amortization
      of debt discount
                                                  
                                                  
                                                  1,483,801
                                                  
                                                  
                                                  
                                                  1,208,962Amortization
      of deferred financing costs
                                                  
                                                  
                                                  197,130
                                                  
                                                  
                                                  
                                                  444,974(Gain)/Loss
      on fair value of derivatives
                                                  
                                                  
                                                  (6,183,000
                                                  )
                                                  
                                                  
                                                  -Total
      Other Expense
                                                  
                                                  
                                                  3,466,698
                                                  
                                                  
                                                  
                                                  1,993,860NET
      LOSS
                                                  
                                                  $
                                                  (4,826,928
                                                  )
                                                  
                                                  $
                                                  (4,047,191
                                                  )NET
      LOSS PER COMMON SHARE - Basic and Diluted
                                                  
                                                  $
                                                  (0.20
                                                  )
                                                  
                                                  $
                                                  (0.17
                                                  )Weighted
      Average Number of Common Shares Outstanding – Basic and
      Diluted
                                                  
                                                  
                                                  24,640,260
                                                  
                                                  
                                                  
                                                  23,748,365





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, 2010 and 2009





Common
      Stock
                                  
                                  
                                  Additional
                                    paid-in
                                  
                                  
                                  Accumulated
                                  
                                  
                                  Stockholders'Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  capital
                                  
                                  
                                  deficit
                                  
                                  
                                  DeficiencyBalance,
      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
                                  )Cumulative
      effect of a change in accounting principle - reclassification of
      equity-linked financial instruments to derivative
    liabilities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,600,261
                                  )
                                  
                                  
                                  491,006
                                  
                                  
                                  
                                  (2,109,255
                                  )Warrant
      exercise
                                  
                                  
                                  160,000
                                  
                                  
                                  
                                  1,600
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,600Conversion
      of convertible debentures
                                  
                                  
                                  1,644,000
                                  
                                  
                                  
                                  16,440
                                  
                                  
                                  
                                  394,560
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  411,000Reclassification
      of derivative liability to equity
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  136,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  136,000Stock-based
      compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  34,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  34,000Issuance
      of debt related penalty warrants
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,965
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,965Issuance
      of warrants related to a settlement agreement
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  15,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  15,500Issuance
      of common stock for interest
                                  
                                  
                                  133,973
                                  
                                  
                                  
                                  1,340
                                  
                                  
                                  
                                  32,153
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  33,493Issuance
      of warrants for financial advisory services
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  16,250
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  16,250Net
      Loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (4,826,928
                                  )
                                  
                                  
                                  (4,826,928
                                  )Balance,
      March 31, 2010
                                  
                                  
                                  25,745,447
                                  
                                  
                                  $
                                  257,454
                                  
                                  
                                  $
                                  17,068,256
                                  
                                  
                                  $
                                  (28,279,820
                                  )
                                  
                                  $
                                  (10,954,110
                                  )





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 31,2010
                                          
                                          
                                          2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                          
                                          $
                                          (4,826,928
                                          )
                                          
                                          $
                                          (4,047,191
                                          )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
                                          
                                          
                                          60,486
                                          
                                          
                                          
                                          59,701Bad
      debt expense
                                          
                                          
                                          10,000
                                          
                                          
                                          
                                          31,000Interest
      expense related to warrants and conversion featuresissued
      in association with debt
                                          
                                          
                                          1,830,965
                                          
                                          
                                          
                                          157,485Interest
      expense related to change in fair value of warrantsand
      conversion features granted for ratchet provisions
                                          
                                          
                                          5,936,000
                                          
                                          
                                          
                                          -Gain/Loss
      on change in fair value of derivatives
                                          
                                          
                                          (6,183,000
                                          )
                                          
                                          
                                          -Warrants
      issued for financial advisory services
                                          
                                          
                                          16,250
                                          
                                          
                                          
                                          -Common
      stock issued for interest
                                          
                                          
                                          33,493
                                          
                                          
                                          
                                          17,647Amortization
      of debt discount
                                          
                                          
                                          1,483,801
                                          
                                          
                                          
                                          1,208,962Amortization
      of deferred financing costs
                                          
                                          
                                          197,130
                                          
                                          
                                          
                                          444,974Deferred
      rent expense
                                          
                                          
                                          (69,910
                                          )
                                          
                                          
                                          (28,940
                                          )Non-cash
      stock based compensation charge
                                          
                                          
                                          34,000
                                          
                                          
                                          
                                          53,250Changes
      in operating assets and liabilities:Accounts
      receivable
                                          
                                          
                                          (274,089
                                          )
                                          
                                          
                                          191,811Inventories
                                          
                                          
                                          100,899
                                          
                                          
                                          
                                          (91,768
                                          )Prepaid
      expense and other current assets
                                          
                                          
                                          (59,940
                                          )
                                          
                                          
                                          142,400Security
      deposits
                                          
                                          
                                          -
                                          
                                          
                                          
                                          77,681Accounts
      payable and accrued expenses
                                          
                                          
                                          210,139
                                          
                                          
                                          
                                          111,699Accrued
      compensation and payroll taxes
                                          
                                          
                                          714,475
                                          
                                          
                                          
                                          634,934Interest
      payable
                                          
                                          
                                          68,584
                                          
                                          
                                          
                                          83,359Deferred
      revenue
                                          
                                          
                                          66,045
                                          
                                          
                                          
                                          192,398NET
      CASH USED IN OPERATING ACTIVITIES
                                          
                                          
                                          (651,600
                                          )
                                          
                                          
                                          (760,598
                                          )CASH
      FLOWS USED IN INVESTING ACTIVITIES:Purchase
      of property and equipment
                                          
                                          
                                          (23,500
                                          )
                                          
                                          
                                          (12,701
                                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          185,000Proceeds
      from convertible notes payable, net of debt offering costs of $165,220 in
      2010 and $173,000 in 2009, respectively
                                          
                                          
                                          672,500
                                          
                                          
                                          
                                          865,000Proceeds
      from warrant exercise
                                          
                                          
                                          1,600
                                          
                                          
                                          
                                          -Repayment
      of notes payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (235,750
                                          )Deferred
      financing costs
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (113,027
                                          )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                          
                                          
                                          674,100
                                          
                                          
                                          
                                          701,223NET
      DECREASE IN CASH
                                          
                                          
                                          (1,000
                                          )
                                          
                                          
                                          (72,076
                                          )CASH,
      BEGINNING OF YEAR
                                          
                                          
                                          1,000
                                          
                                          
                                          
                                          73,076CASH,
      END OF YEAR
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          1,000





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 31,2010
                                                
                                                
                                                2009SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for:Interest
                                                
                                                $
                                                62,421
                                                
                                                
                                                $
                                                18,502Income
      Taxes
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Cumulative
      effect of change in accounting principalon
      accumulated deficit
                                                
                                                $
                                                491,006
                                                
                                                
                                                $
                                                -Cumulative
      effect of change in accounting principalon
      paid in capital
                                                
                                                $
                                                (2,600,261
                                                )
                                                
                                                $
                                                -Issuance
      of common stock for conversion of convertible debentures
                                                
                                                $
                                                411,000
                                                
                                                
                                                $
                                                -Reclassification
      of derivative liability to equity
                                                
                                                $
                                                136,000
                                                
                                                
                                                $
                                                -Fair
      Value of warrants and conversion features issued with
      debentures
                                                
                                                $
                                                1,960,000
                                                
                                                
                                                $
                                                -Issuance
      of warrants related to debt acquisition
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                397,997Issuance
      of common stock and warrants to financial advisors
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                284,085Issuance
      of warrants to placement agents
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                31,500Beneficial
      conversion related to convertible debentures
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                427,564


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 (“VAR’s”), sales channel strategic partners, and original
equipment manufacturer (“OEM”) 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 $28.3 million since
inception.  Additionally, the Company had a net working capital deficiency
of approximately $11.0 million at March 31, 2010.  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.




As more
fully described in the Notes below, the Company funded its operations during
fiscal 2010 and 2009 through the sale of senior secured convertible
debentures.  The sale resulted in net proceeds to the Company of
approximately $672,500 and $865,000 during fiscal 2010 and 2009,
respectively.


F-7


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




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 to be cash flow
positive, delays in customers’ 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
March 31, 2010, the Company has $2,163,000 of convertible debentures due before
March 31, 2011 of which $1,125,000 became due on May 31, 2010.  The Company
is currently in negotiations to extend the due date or to obtain additional
financing to settle the outstanding debentures.  The Company also has
$1,101,250 in notes payable ($601,250 that are in default and $500,000 that
became due on June 4, 2010) and has accrued delinquent payroll tax obligations
of $1,924,210 including penalties and interest.




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 or amounts due in outstanding
payroll tax obligations are unable to be paid it may be forced to cease business
operations.




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.




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, 2010 and 2009
      the allowance for doubtful accounts was $13,066 and $31,000,
      respectively.




F-8


2.
                SIGNIFICANT ACCOUNTING
      POLICIES,
continued


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 $1,307,000 and
      $1,469,000 for the years ended March 31, 2010 and 2009,
      respectively.




f.
            Inventories- Inventories are
      priced at the lower of cost (first-in, first-out) or market and consists
      primarily of finished goods.  Raw materials and Work In Process are
      deemed immaterial.




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
      312010
                            
                            
                            2009Warrants
      to purchase common stock
                            
                            
                            13,449,516
                            
                            
                            
                            6,206,172Convertible
      notes payable
                            
                            
                            11,858,880
                            
                            
                            
                            2,583,474Total
                            
                            
                            25,308,396
                            
                            
                            
                            8,789,646




h.
            Income Taxes -
      Deferred income taxes arise from temporary differences resulting from
      income and expense items reported for financial accounting and tax
      purposes in different periods. Deferred taxes are classified as current or
      non-current, depending on the classification of the assets and liabilities
      to which they relate.  Deferred taxes arising from temporary
      differences that are not related to an asset or liability are classified
      as current or non-current depending on the periods in which the temporary
      differences are expected to
reverse.




F-9


2.
                  SIGNIFICANT ACCOUNTING
      POLICIES,
continued




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, 2010 and March 31, 2009, the Company does
      not believe that any impairment has
occurred.




k.
            Revenue
      Recognition- Product revenues from the sale
      of software licenses are recognized when evidence of a license agreement
      exists, the fees are fixed and determinable, collectability 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 services not yet
rendered.




l.
            Stock-Based
      Compensation - The Company measures and recognizes the cost of
      stock-based awards granted to employees and directors based on the
      grant-date fair value of the award and recognizes expense over the vesting
      period.  The Company estimates the grant date fair value of each
      award using a Black-Scholes option-pricing
  model.




F-10


2.
                  SIGNIFICANT ACCOUNTING
      POLICIES,
continued




From time
to time, in lieu of, or in addition to cash, the Company issues equity
instruments as a contract incentive or as payment for non-employee
services.  Such payments may include the issuance of stock, stock purchase
warrants, or both.  The amount recorded for shares issued is based on the
closing price of the Company’s common stock on the effective date of the stock
issuance or the agreement.  The grant date fair value of warrants awarded
is estimated using the Black-Scholes option-pricing model.  The fair value
of the awards is charged to expense as they are earned.  The Company has
not classified outstanding stock options as liabilities because the underlying
shares are not classified as liabilities and the Company is not required to
settle the options by transferring cash or other assets.




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.




o.
            New Accounting
      Pronouncements – In October 2009, the Financial Accounting
      Standards Board (“FASB”) updated topic 605 on Revenue Recognition
      authoritative guidance on revenue recognition that will become effective
      for us beginning April 1, 2010, with earlier adoption permitted. 
      Under the new guidance on arrangements that include software elements,
      tangible products that have software components that are essential to the
      functionality of the tangible product will no longer be within the scope
      of the software revenue recognition guidance, and software- enabled
      products will now be subject to other relevant revenue recognition
      guidance.  Additionally, the FASB issued authoritative guidance on
      revenue arrangements with multiple deliverables that are outside the scope
      of the software revenue recognition guidance.  Under the new
      guidance, when vendor specific objective evidence or third party evidence
      for deliverables in an arrangement cannot be determined, a best estimate
      of the selling price is required to separate deliverables and allocate
      arrangement consideration using the relative selling price
      method.




The new
guidance includes new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue
recognition.  We believe adoption of this new guidance will not have a
material impact on our financial statements.




In June
2009, the FASB has issued Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)
- Accounting for Transfers of Financial Assets. ASU 2009-16 will require
more information about transfers of financial assets, including securitization
transactions, eliminates the concept of a qualifying special-purpose entity and
changes the requirements for derecognizing financial assets. ASU 2009-16 is
effective at the start of a reporting entity’s first fiscal year beginning after
November 15, 2009.  The Company is currently evaluating the impact that the
adoption of this guidance will have on its consolidated financial
statements.


F-11


2.
                  SIGNIFICANT ACCOUNTING
      POLICIES,
continued


In
February 2010, the FASB issued Accounting Standards Update 2010-10 (ASU
2010-10), “Consolidation (Topic 810).” The amendments to the consolidation
requirements of Topic 810 resulting from the issuance of Statement 167 are
deferred for a reporting entity’s interest in an entity (1) that has all the
attributes of an investment company or (2) for which it is industry practice to
apply measurement principles for financial reporting purposes that are
consistent with those followed by investment companies. An entity that qualifies
for the deferral will continue to be assessed under the overall guidance on the
consolidation of variable interest entities in Subtopic 810-10 (before the
Statement 167 amendments) or other applicable consolidation guidance, such as
the guidance for the consolidation of partnerships in Subtopic 810- 20. The
deferral is effective as of the beginning of a reporting entity’s first annual
period that begins after November 15, 2009, and for interim periods within that
first annual reporting period, which coincides with the effective date of
Statement 167. Early application is not permitted. At this time, management is
evaluating the potential implications of this pronouncement and has not yet
determined its impact on the Company’s consolidated financial
statements.




p.
            Recently Adopted
      Accounting Pronouncements - In June 2009, the FASB issued new
      accounting guidance that established the FASB Accounting Standards
      Codification, ("Codification" or “ASC”) as the single source of
      authoritative GAAP to be applied by nongovernmental entities, except for
      the rules and interpretive releases of the SEC under authority of federal
      securities laws, which are sources of authoritative GAAP for SEC
      registrants.  The FASB will no longer issue new standards in the form
      of Statements, FASB Staff Positions, or Emerging Issues Task Force
      Abstracts; instead the FASB will issue Accounting Standards Updates. 
      Accounting Standards Updates will not be authoritative in their own right
      as they will only serve to update the Codification. These changes and the
      Codification itself do not change GAAP.  This new guidance became
      effective for interim and annual periods ending after September 15,
      2009.  Other than the manner in which new accounting guidance is
      referenced, the adoption of this guidance did not have a material impact
      on the Company’s consolidated financial
  statements.




In June
2008, the FASB updated the ASC Topic 815 on Derivatives and Hedging.  The
update provides guidance on how to determine if certain instruments (or embedded
features) are considered indexed to our own stock.  It requires companies
to use a two-step approach to evaluate an instrument’s contingent exercise
provisions and settlement provisions in determining whether the instrument is
considered to be indexed to its own stock and thus exempt from the application
of derivative accounting.  Although this update is effective for fiscal
years beginning after December 15, 2008, any outstanding instrument at the date
of adoption requires retrospective application of the accounting through a
cumulative effect adjustment to retained earnings upon adoption.




The
adoption of this topic update has affected the accounting for (i) certain
freestanding warrants that contain exercise price adjustment features and (ii)
conversion features that also contain price adjustment features.  Our
warrants and conversion features with these features are no longer deemed to be
indexed to the Company’s own stock and are no longer classified as equity.
Instead, these warrants and conversion features were reclassified as a
derivative liability on April 1, 2009 as a result of this updated ASC.  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 our stockholders’
deficiency.


F-12


2.
                  SIGNIFICANT ACCOUNTING
      POLICIES,
continued


In May
2009, the FASB issued new accounting guidance, under ASC Topic 855 on Subsequent
Events, which sets forth: 1) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; 2) the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements; and 3) the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. This guidance was
effective for interim and annual periods ending after June 15, 2009.  The
adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.




In
February 2010, the FASB issued new accounting guidance, under ASC Topic 855 on
Subsequent Events, which requires an entity that is an SEC filer to evaluate
subsequent events through the date that the financial statements are issued and
removes the requirements that an SEC filer disclose the date through which
subsequent events have been evaluated. The guidance was effective upon issuance.
The adoption of the guidance did not have a material impact on the Company’s
consolidated financial statements.




The FASB,
the Emerging Issues Task Force and the SEC have issued certain other accounting
standards updates and regulations as of March 31, 2010 that will become
effective in subsequent periods; however, management of the Company does not
believe that any of those updates would have significantly affected the
Company’s financial accounting measures or disclosures had they been in effect
during 2010 or 2009, and it does not believe that any of those pronouncements
will have a significant impact on the Company’s consolidated financial
statements at the time they become effective.




q.
            Subsequent Events –Management has evaluated subsequent events or transactions
      occurring through the date the accompanying financial statements were
      issued to determine if such events or transactions required adjustments or
      disclosure in the financial
statements.




F-13




3.
            PROPERTY AND
      EQUIPMENT




Property
and equipment at March 31, 2010 and 2009 consists of the following:




As
      ofMarch
      31, 2010
                              
                              
                              March
      31, 2009Computer
      Equipment
                              
                              $
                              84,361
                              
                              
                              $
                              80,911Software
                              
                              
                              14,915
                              
                              
                              
                              14,915Office
      Equipment
                              
                              
                              59,260
                              
                              
                              
                              39,210Leasehold
      Improvements
                              
                              
                              209,910
                              
                              
                              
                              209,910368,446
                              
                              
                              
                              344,946Less:
      Accumulated Depreciation
                              
                              
                              211,003
                              
                              
                              
                              150,517$
                              157,443
                              
                              
                              $
                              194,429


Depreciation
of property and equipment was $60,486 and $59,701 for the years ended March 31,
2010 and 2009, respectively.




4.
            DEFERRED FINANCING
      COSTS




At March
31, 2010 and 2009, the deferred financing costs consist of costs incurred in
connection with the issuance of the Company’s outstanding debt as
follows:




As
      ofMarch
      31, 2010
                          
                          
                          March
      31, 2009Deferred
      financing costs
                          
                          $
                          63,028
                          
                          
                          $
                          664,231Less:
      accumulated amortization
                          
                          
                          (54,157
                          )
                          
                          
                          (458,229
                          )Deferred
      financing costs, net
                          
                          $
                          8,871
                          
                          
                          $
                          206,002





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, 2010, the Company reduced gross deferred
financing cost and accumulated amortization by $601,203 since the costs were
fully amortized.  During the year ended March 31, 2009 the Company
capitalized $428,613 of deferred financing costs.  For the years ended
March 31, 2010 and 2009, amortization of deferred financing costs was $197,130
and $444,974, respectively.


F-14


5.
            SENIOR SECURED
      ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE AND DERIVATIVE
      LIABILITIES




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 Tranche
I.




During
the six month ended September 30, 2008, the Company issued and sold the second
tranche (“Tranche II”) 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 Tranche II.




In
connection with the private placement, the investors of the Tranche I and
Tranche II debentures 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.  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 in April 2009, the exercise price of the
Warrants was reduced to $0.50 and by the terms of the original agreement, the
investors were issued an additional 3,616,864 warrants based on the terms of the
original Tranche I and II agreements.




During
the year ended March 31, 2010, the Company issued and sold a portion of the
third tranche (“Tranche III”) of debentures in the total principal amount of
$837,720, due two years from the issuance of the securities, under the same
debenture facility.  In connection with the private placement, the
investors also received warrants to purchase up to 3,350,880 shares of the
Company’s common stock, which terminate five years from issuance and have an
exercise price of $0.50 per share.  The Company received net proceeds of
$672,500 related to Tranche III during the year ended March 31, 2010. 
Based on the terms of the agreement, the Warrants may also be exercised by means
of a cashless exercise.




The
initial conversion price of the Debentures was $0.9824 per share.  Based on
the reduced conversion price of the debentures issued in conjunction with the
Tranche III, the conversion price of the Tranche I and Tranche II Debentures
were reduced to $0.25 based on the terms of the original agreement.  To
record the change in the fair value of the conversion price reduction and
warrant exercise price reduction, the Company recorded a $5,936,000 interest
charge which is recorded in “Common stock and warrants issued in association
with debt” on the consolidated statement of operations for the year ended March
31, 2010.




The
Company adopted the provisions of an update on ASC Topic 815 Derivatives and
Hedging on April 1, 2009 and the warrants and convertible features on the
debentures, which were previously classified as equity, are now classified as
liabilities and are recorded at fair value.  The Company used a
Black-Scholes pricing model to determine the value of the warrants and
conversion features.  The model uses sourced inputs such as interest
rates, stock price and volatility, the selection of which requires management
judgment and requires that the fair value of these liabilities be remeasured at
the end of every reporting period with the change in fair value reported in the
statement of operations.


F-15


5.
              SENIOR SECURED
      ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE AND DERIVATIVE LIABILITIES,
      continued




On
Tranche I and II, the gross redemption value of $2,538,000 was recorded net of a
discount of $2,526,000.  The debt discount consisted of $423,000 related to
the original issue discount, $1,815,000 related to the allocated fair value of
the warrants, $1,323,000 relates to the beneficial conversion feature of the
note reduced by deemed interest of $1,035,000 due to the fact that the proceeds
in some of the issuances were less than the fair value issued in the
transaction.   This amortization as well as the deemed interest
is recorded as part of the cumulative adjustment in the accumulated
deficit.   During the year ended March 31, 2010, the Company
amortized $1,209,575 of debt discount related to Tranches I and
II.  The debt discount is charged to interest expense ratably over the
life of the loan. Amortization related to the debt discount on Tranche I and II
totaled $1,166,079 through March 31, 2009.




The gross
proceeds of $837,720 related to Tranche III were recorded net of a discount of
$837,720.  The debt discount consisted of $139,620 related to the
original issue discount, $1,046,000 related to the fair value of the warrants
and $914,000 related to the fair value of the conversion feature of the note
mitigated by $1,261,900 of deemed interest that was expensed
immediately.  During the year ended March 31, 2010, the Company
amortized $228,404 of debt discount related to Tranche III.




The
derivative liabilities were valued using the Black-Scholes model with the
following assumptions.




March 31,
                          
                          
                          Tranche III
                          
                          
                          March 31,
                          
                          
                          Tranche I & II2010
                          
                          
                          Inception
                          
                          
                          2009
                          
                          
                          InceptionConversion
      Feature:Risk-free
      interest rate
                          
                          
                          0.43
                          %
                          
                          
                          0.86%-1.26
                          %
                          
                          
                          0.83
                          %
                          
                          
                          2.0%
      -4.25
                          %Expected
      volatility
                          
                          
                          176.79
                          %
                          
                          
                          154.9%-176.8
                          %
                          
                          
                          155.02
                          %
                          
                          
                          106.7%-112.0
                          %Expected
      life (in years)
                          
                          
                          0.17-2.00
                          
                          
                          
                          2.00
                          
                          
                          
                          .93-1.50
                          
                          
                          
                          2.00Expected
      dividend yield
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Warrants:Risk-free
      interest rate
                          
                          
                          2.60
                          %
                          
                          
                          1.74%-2.75
                          %
                          
                          
                          1.65
                          %
                          
                          
                          0.50%-2.50
                          %Expected
      volatility
                          
                          
                          176.79
                          %
                          
                          
                          154.9%-167.2
                          %
                          
                          
                          155.02
                          %
                          
                          
                          105.1%-155.1
                          %Expected
      life (in years)
                          
                          
                          2.93-5.00
                          
                          
                          
                          5.00
                          
                          
                          
                          3.93-4.50
                          
                          
                          
                          5.00Expected
      dividend yield
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -




Under
additional provisions of the securities purchase agreements related to such
Debentures, the Company was required to meet certain revenue minimums which were
not met.  Based on not meeting the revenue minimums during Fiscal
2009, the Company was required to issue to each Tranche I and Tranche II
investor, on a pro-rata basis, additional warrants (the “Additional Warrants”)
to purchase up to, in the aggregate, 676,800 shares of the Company’s common
stock related to Tranches 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. During the year ended March 31, 2010, The Company has issued
400,000 and 276,800 shares of Additional Warrants to the debenture holders in
Tranche I and Tranche II, respectively related to this penalty.  The
fair value of these warrants is $124,743 based on a Black Scholes model and The
Company recorded this penalty during the year ended March 31, 2009 as that is
the period when the revenue shortfall occurred.


F-16


5.
                SENIOR SECURED
      ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE AND DERIVATIVE LIABILITIES,
      continued




We also
failed to meet revenue minimums in Fiscal 2010 and are required to issue to
certain Tranche III investors 145,800 warrants.  The fair value of
these warrants is $38,000 based on a Black-Scholes model and the Company
recorded this penalty during the year ended March 31, 2010 as that is the period
when the revenue shortfall occurred.  Based on similar provisions in
Tranche III issuances, we may have to issue an additional 189,288 if we have
revenue shortfalls in later periods.




During
the year ended March 31, 2010, Tranche I and II holders converted $411,000 of
their debentures into 1,644,000 shares of common stock of the
Company.




On March
5, 2010, $1,125,000 of Tranche I debentures became due.  We entered
negotiations with the Tranche I holders and obtained an extension to May 31,
2010 by issuing 1,341,665 shares of our common stock as an extension fee. The
common stock was valued at $0.25 and we recorded $335,000 related to this
issuance as interest expense in the year ended March 31, 2010. We have not yet
settled these debentures which became due on May 31, 2010 and are presently
negotiating another extension or another method of settlement.




The gross
amount of maturities under the Secured Senior Secured Original Issue Discount
Convertible Debentures (not netted to include the debt discount and assuming
that the debenture is not converted into common stock) is $2,163,000 and
$801,720 for the years ended March 31, 2011 and 2012, respectively.




6.
            NOTES
      PAYABLE




Notes
payable at March 31, 2010 and 2009 consist of the following:




As ofMarch 31, 2010
                                            
                                            
                                            March 31, 2009Notes
      Payable - Delis - related party
                                            [a
                                            ]
                                            
                                            $
                                            200,000
                                            
                                            
                                            $
                                            200,000Notes
      Payable - various
                                            [b
                                            ]
                                            
                                            
                                            401,250
                                            
                                            
                                            
                                            401,250Senior
      Subordinated Notes Payable - Thieme Consulting, Inc. - related
      party
                                            [c
                                            ]
                                            
                                            
                                            250,000
                                            
                                            
                                            
                                            250,000Senior
      Subordinated Notes Payable, net of debt discount of $8,034 and $53,856,
      respectively
                                            [d
                                            ]
                                            
                                            
                                            241,966
                                            
                                            
                                            
                                            196,144Notes
      Payable
                                            
                                            
                                            
                                            $
                                            1,093,216
                                            
                                            
                                            $
                                            1,047,394Less:
      Current Maturities
                                            
                                            
                                            
                                            
                                            1,093,216
                                            
                                            
                                            
                                            601,250Long-term
      Notes Payable
                                            
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            446,144





[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.  Since
      the Company did not repay the note by the maturity date, per the default
      terms of the note, the Company 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 as
      consideration for an extension of the due date of the note to October 24,
      2008.




F-17


6.
              NOTES PAYABLE,
      continued


The
Company is negotiating an extension or conversion to shares of common
stock that would supersede such extension agreement subject to 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 $2.00 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.




At March
31, 2010, all these notes are in default, plus interest of $250,036. Upon
default, 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.  The Company accrued $74,636 of interest and granted 90,000
penalty warrants, valued at $13,965 related to such notes during fiscal year
ended March 31, 2010.  The Company will continue to grant 7,500
penalty warrants per month related to such notes in default until the notes are
repaid.




[c]
            An
      existing note in the amount of $250,000 has matured and 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 described in Note 5 above.  The new note had a
      maturity date of June 4, 2010 and bears interest at 10% per annum. The
      Company is presently in discussions to extend the due date of the
      note.  In consideration for entering into the new note and
      subordinating its first security position, the Company repaid all of the
      accrued interest due on the October 2001 notes of $243,896.  For
      the fiscal year ended March 31, 2010, the Company accrued $52,124 of
      interest due on this note.




[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 5
      and [c] above.  The new note had a maturity date of June 4, 2010
      and bears interest at 10% per annum.  The Company is presently
      in discussions to extend the due date of the note. 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 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.  The fair
      value of the instruments issued in the exchange agreement approximated the
      instruments that were exchanged for and no gain or loss was recorded
      related to this transaction during the year ended March 31,
      2008.   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.  On October 20, 2009, the Company issued
      133,973 shares of common stock valued at $0.25 per share in lieu of cash
      interest payments for $15,959 of accrued interest on the note through
      October 20, 2009 as well as to prepay $17,534 for future interest on the
      note through maturity.




F-18


7.
            EQUITY
      TRANSACTIONS




[a]
            Common
      Stock




During
the year ended March 31, 2010, the Company issued 160,000 shares of common stock
for the exercise of $0.01 Warrants to Tranche I Debenture holders, 1,644,000
shares of common stock on the conversion of $411,000 in Debentures, and 133,973
shares related to the settlement of interest on a note payable in the amount of
$33,493.




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.




[b]
            Stock
      Options and Warrants




The
following table illustrates the Company’s warrant issuances and balances
outstanding through March 31, 2010.  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.




Shares
                          
                          
                          Weighted
      Average
                            Exercise
      Price
                          
                          
                          ExercisableWarrants
      outstanding and exercisable at March 31, 2008
                          
                          
                          5,044,574
                          
                          
                          $
                          1.28
                          
                          
                          
                          5,044,574Granted
                          
                          
                          1,466,598
                          
                          
                          
                          1.18
                          
                          
                          
                          1,466,598Canceled
                          
                          
                          -
                          
                          
                          
                          -Expired
                          
                          
                          (305,000
                          )
                          
                          
                          1.21
                          
                          
                          
                          (305,000
                          )Exercised
                          
                          
                          -
                          
                          
                          
                          -Warrants
      outstanding and exercisable at March 31, 2009
                          
                          
                          6,206,172
                          
                          
                          $
                          1.13
                          
                          
                          
                          6,206,172Granted
                          
                          
                          8,233,344
                          
                          
                          
                          0.46
                          
                          
                          
                          8,233,344Canceled
                          
                          
                          -
                          
                          
                          
                          -Expired
                          
                          
                          (830,000
                          )
                          
                          
                          1.00
                          
                          
                          
                          (830,000
                          )Exercised
                          
                          
                          (160,000
                          )
                          
                          
                          0.01
                          
                          
                          
                          (160,000
                          )Warrants
      outstanding and exercisable at March 31, 2010
                          
                          
                          13,449,516
                          
                          
                          $
                          0.61
                          
                          
                          
                          13,449,516




The
following is additional information with respect to the Company’s warrants as of
March 31, 2010.




Weighted AverageRemaining Years of
                            
                            
                            Weighted AverageExercise Price
                            
                            Number Outstanding
                            
                            
                            Contractual Life
                            
                            
                            Exercise Price
                            
                            
                            Number Exercisable$0.01
                            
                            
                            662,600
                            
                            
                            
                            4.50
                            
                            
                            $
                            0.01
                            
                            
                            
                            662,600$0.50
                            
                            
                            9,793,142
                            
                            
                            
                            3.39
                            
                            
                            $
                            0.50
                            
                            
                            
                            9,793,142$1.00
                            
                            
                            1,667,700
                            
                            
                            
                            2.09
                            
                            
                            $
                            1.00
                            
                            
                            
                            1,667,700$1.20
                            
                            
                            931,074
                            
                            
                            
                            3.08
                            
                            
                            $
                            1.20
                            
                            
                            
                            931,074$1.25
                            
                            
                            335,000
                            
                            
                            
                            1.65
                            
                            
                            $
                            1.25
                            
                            
                            
                            335,000$1.50
                            
                            
                            60,000
                            
                            
                            
                            2.39
                            
                            
                            $
                            1.50
                            
                            
                            
                            60,000$0.01 - $1.50
                            
                            
                            13,449,516
                            
                            
                            
                            3.21
                            
                            
                            $
                            0.61
                            
                            
                            
                            13,449,516


F-19


7.
              EQUITY TRANSACTIONS,
      continued




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, 2010
                            
                            
                            March
      31, 2009Weighted-Average
      Exercise Price
                            
                            $
                            0.61
                            
                            
                            $
                            1.13Volatility
      Range
                            
                            
                            154.9%-176.8
                            %
                            
                            
                            105.1%-155.1
                            %Expected
      Dividends
                            
                            
                            -
                            
                            
                            
                            -Weighted-Average
      Expected Term (Years)
                            
                            
                            5.00
                            
                            
                            
                            4.81Risk
      Free Rate Range
                            
                            
                            1.7%-2.6
                            %
                            
                            
                            0.5%-2.0
                            %





The
Company granted warrants to purchase 100,000 shares of common stock at an
exercise price of $1.00 to one employee during the years ended March 31,
2009.  Of the warrants issued, 50,000 warrants vested during the year
ended March 31, 2010 and 50,000 warrants vested during the year ended March 31,
2009. Stock-based compensation expense is primarily based on the vesting
schedules of employee warrants.  Based on the vesting schedule, the
Company expensed $34,000 and $53,250 for the year ended March 31, 2010 and 2009,
respectively.  As of March 31, 2010, there is no compensation cost of
nonvested awards not yet recognized.





A summary
of the status of the Company’s nonvested warrants as of March 31, 2010, and
changes during the twelve month period then ended is presented
below:




Nonvested
      Warrants
                  
                  Amount
                  
                  
                  Weighted
      Average
                    Grant
      Date Fair
                    ValueNonvested
      at March 31, 2009
                  
                  
                  50,000
                  
                  
                  $
                  0.68Granted
                  
                  
                  -
                  
                  
                  
                  -Vested
                  
                  
                  (50,000
                  )
                  
                  
                  0.68Expired
                  
                  
                  -
                  
                  
                  
                  -Nonvested
      at March 31, 2010
                  
                  
                  -
                  
                  
                  $
                  -




F-20


7.
                EQUITY TRANSACTIONS,
      continued




During
the year ended March 31, 2010, The Company granted 50,000 warrants, valued at
$15,500 based on a Black Scholes model, in conjunction with the settlement of a
lawsuit regarding a note in default in consideration for delaying payment of the
note.  The Company also issued 90,000 shares of penalty warrants,
valued at $13,965 based on a Black Scholes model, related to delinquent notes
payable per the terms of the note agreement. The Company issued 125,000
warrants, valued at $16,250 with a term of five years for investment advisory
services.




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
to issued  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. The Company also issued 128,000 warrants valued at $22,000
related to an advance to allow us to purchase inventory that were immediately
classified as a liability due to certain repricing features included in the
agreement.




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.




During
the year ended March 31, 2010 and 2009, The Company granted warrants as part of
a Secured Debenture Facility which is discussed in Note 5.




[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.
            FAIR VALUE
      MEASUREMENTS




On April
1, 2008, the Company implemented ASC 850 Fair Value Measurements and Disclosures
which provides a single definition of fair value, a framework for measuring fair
value, and expanded disclosures concerning fair value and clarifies that the
exchange price is the price in an orderly transaction between market
participants to sell an asset or transfer a liability at the measurement date
and emphasizes that fair value is a market-based measurement and not an
entity-specific measurement.




It also
established the following hierarchy used in fair value measurements and expanded
the required disclosures of assets and liabilities measured at fair
value:




·
            Level
      1 – Inputs use quoted prices in active markets for identical assets or
      liabilities that the Company has the ability to
  access.




·
            Level
      2 – Inputs use other inputs that are observable, either directly or
      indirectly. These inputs include quoted prices for similar assets and
      liabilities in active markets as well as other inputs such as interest
      rates and yield curves that are observable at commonly quoted
      intervals.




F-21


8.
              FAIR VALUE
      MEASUREMENTS,
continued




·
            Level
      3 – Inputs are unobservable inputs, including inputs that are available in
      situations where there is little, if any, market activity for the related
      asset or liability.




In
instances where inputs used to measure fair value fall into different levels in
the above fair value hierarchy, fair value measurements in their entirety are
categorized based on the lowest level input that is significant to the
valuation. The Company’s assessment of the significance of particular inputs to
these fair measurements requires judgment and considers factors specific to each
asset or liability.




Liabilities measured at fair value on a
recurring basis at March 31, 2010 are as follows:




Quoted Prices in
                    Active Markets for
                    Identical Liabilities
                    (Level 1)
                  
                  
                  Significant
                    Other
                    Observable
                    Inputs
                    (Level 2)
                  
                  
                  Significant
                    Unobservable
                    Inputs
                    (Level 3)
                  
                  
                  Balance at
                    March 31, 2010Conversion
      Features
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,445,000
                  
                  
                  $
                  1,445,000Warrant
      liability
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2,440,000
                  
                  
                  $
                  2,440,000$
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  3,885,000
                  
                  
                  $
                  3,885,000




Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable.  Our
Level 3 liabilities consist of derivative liabilities associated with the
debentures and warrants that contain exercise price reset
provisions.




The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial assets measured at fair value on a
recurring basis using significant unobservable inputs during the quarter ended
March 31, 2010




Conversion
                  
                  
                  WarrantFeature
                  
                  
                  Liability
                  
                  
                  TotalBalance
      April, 1, 2009
                  
                  $
                  904,000
                  
                  
                  $
                  1,205,000
                  
                  
                  $
                  2,109,000Total
      realized/unrealized (gains) or lossesIncluded
      in other income (expense)
                  
                  
                  (2,896,000
                  )
                  
                  
                  (3,287,000
                  )
                  
                  
                  (6,183,000
                  )Included
      in stockholder's equity
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Purchases,
      issuances or settlements
                  
                  
                  3,437,000
                  
                  
                  
                  4,522,000
                  
                  
                  
                  7,959,000Transfers
      in and /or out of Level 3
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance
      March 31, 2010
                  
                  $
                  1,445,000
                  
                  
                  $
                  2,440,000
                  
                  
                  $
                  3,885,000




The
Company does not enter into derivative contracts for purposes of risk management
nor speculation.  However, the Company has entered into agreements
whose terms require that we classify certain freestanding warrants and embedded
conversion features as liabilities for accounting purposes.  Our
derivatives are classified as derivative liabilities in short-term liabilities
on the balance sheet and the change in their fair value is recorded in other
(income) expense on the statement of operations.


F-22




9.
              INCOME
      TAXES
  The Company accounts for its income taxes in
accordance with ASC 740-10.  Under ASC 740-10, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their tax bases.. 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
increase in valuation allowance at March 31, 2010 and 2009 was approximately
$647,000 and $773,000, respectively.
  As of
March 31, 2010, the Company has approximately $9.4 million and $4.0 million of
federal and state net operating loss carryforwards which expire from 2012 to
2030.  As of March 31, 2009, the Company had approximately $8.8 million and
$3.3 million of federal and state net operating loss carryforwards,
respectively, which expire from 2012 to 2029.  In accordance with Section
382 of the Internal Revenue Code, the usage of the Company’s net operating
losses could be limited in the event of a change in
ownership.
  A
reconciliation between the statutory federal income tax rate (34%) and the
Company’s effective rate is as follows:
  2010
                
                
                2009Federal
      statuatory rate
                
                
                -34
                %
                
                
                -34
                %State
      income tax rate, net of federal benefit
                
                
                -6
                %
                
                
                -6
                %Permanent
      Differences - non deductible interest
                
                
                63
                %
                
                
                4
                %Permanent
      Differences - non deductible amortization
                
                
                14
                %
                
                
                14
                %Permanent
      Differences - non deductible gain on derivatives
                
                
                -50
                %
                
                
                0
                %Permanent
      Differences - Other
                
                
                2
                %
                
                
                0
                %Deferred
      tax true-up
                
                
                -3
                %
                
                
                2
                %Valuation
      allowance
                
                
                14
                %
                
                
                20
                %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:
  Bad
      Debt Expense
                
                
                5,106
                
                
                
                12,177Non-Deductible
      Compensation
                
                
                125,272
                
                
                
                170,352Accrued
      Interest
                
                
                101,698
                
                
                
                46,949Accrued
      Expenses
                
                
                732,261
                
                
                
                319,749NOL
                
                
                3,403,114
                
                
                
                3,172,246Total
      deferred tax assets
                
                
                4,372,931
                
                
                
                3,726,184Less:
      valuation allowance
                
                
                (4,372,931
                )
                
                
                (3,726,184
                )Net
      deferred tax asset
                
                
                -
                
                
                
                -
  Effective
January 1, 2007, the Company adopted ASC 740-10.  The adoption of ASC
740-10 had no cumulative effect on the Company’s financial statements,
Therefore, no adjustment was recorded to retained earnings upon adoption. The
Company had no unrecognized tax benefits as of March 31, 2010 and
2009.
  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 by this report.
  The
Company files income tax returns in U.S. federal and various state and local
jurisdictions. As of March 31, 2010, the tax returns for Statmon Technologies
Corp. remain subject to audit for the years March 31, 2007 through March 31,
2010 by the Internal Revenue Service and various state
authorities.




F-23




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 subleased 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 continued through January 31, 2010.  Per the terms
of the sublease, the first two months of rent were abated.   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, 2010 and
2009 was $247,915 and $229,252 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:




2011
                      
                      $
                      357,7862012
                      
                      
                      290,7852013
                      
                      
                      94,028$
                      742,599




[b]
            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.




F-24


10.
              COMMITMENTS AND
      CONTINGENCIES, continued


[c]
            Payroll Taxes -
      During the years 2001 through 2008, The Company considered its Chief
      Executive Officer and its Chief Technology Officer to be consultants of
      the Company rather than employees, as a result of the Company’s
      non-compliance with the terms of their original employment agreements. If
      the Chief Executive Officer and the Chief Technology Officer were
      classified as employees during the above period, the Company would have
      been required to withhold and remit payroll taxes to the respective taxing
      authorities.




This
position may be subject to audit by the Internal Revenue Service and other state
and local taxing authorities, which, upon review, could result in an unfavorable
outcome if it is determined that such individuals’ compensation should have been
reported on the basis of an employee rather than a consultant.




The
Company has recorded charges of approximately $947,000 for additional
compensation (including penalties and interest) on behalf of the Chief Executive
Officer and the Chief Technology Officer should the Company be challenged by the
taxing authorities and it is determined their position is without
merit.




In
addition, the Company was delinquent in filing certain of its payroll returns
(including the remittance of taxes) totaling approximately $702,000 and related
penalties and interest approximated $275,000 (for other employees), computed
through March 31, 2010.  The Company filed these tax returns on July
7, 2010 and expects to have an agreement in place to pay these amounts as soon
as possible.  Based on the results of a review of these tax filings,
the Company may be subject to additional interest and penalties by the taxing
authorities if such amounts are not forthcoming.




11.
            MAJOR
      CUSTOMERS AND FOREIGN
REVENUE




[a]
            Major
      Customer




The
Company sold a substantial portion of its product and services to one customer
during the year ended March 31, 2010 and 2009.  Sales to this customer
were approximately 52% and 59% of total sales, respectively.  The
accounts receivable balance for this customer was approximately $183,000 and
$119,000 at March 31, 2010 and 2009, respectively.




[b]
            Foreign
      Revenue




The
Company generated approximately $0 and $51,000 of revenue from the sale of its
product and services to foreign customers during the years ended March 31, 2010
and 2009, respectively.


F-25


12.
            SUBSEQUENT
      EVENTS




On April
15, 2010, the Company entered into a Purchase Agreement and Debenture Amendment
Agreement with Harborview Master Fund LP, Gemini Master Fund Ltd., and Monarch
Capital Fund Ltd., holders of Tranche I Debentures to extend the due date of the
Debentures which were due on March 5, 2010 to May 31, 2010.  In
consideration for this extension, the Company agreed to an extension fee to be
settled by the issuance of a total of 1,341,665 shares of common stock, valued
at $0.25 per share, to the holders of the Tranche I Debentures.




Also on
April 15, 2010, the Company entered into Financial Advisor and Consulting
Agreement with Harborview Capital Management, LLC in which Harborview Capital
will provide various financial consulting services to the Company for a period
of twelve months.  In consideration for these services, the Company
has agreed to issue 1,800,000 shares of common stock to Harborview
Capital.




Through
June 30, 2010, the Company issued and sold Tranche III Debentures in a total
principal amount of $195,960, due two years from the date of closing to
accredited investors in a private placement pursuant to a securities purchase
agreement.  The Debentures have an effective interest rate of 10% per
annum.   The Company received proceeds of $163,300 related to
this placement.


F-26