**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C.
      20549




**FORM
      10-KSB**




**[Mark
      One]**


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


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the
      fiscal year ended December 31, 2007**




**OR**




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


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the
      transition period from ____________ to ____________**





**Commission
      File Number: 001-10927**





**Simtrol,
                Inc.**(Name
                of
                small business issuer in its
                charter)




**Delaware**
            **58-2028246**(State
                or
                other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer
              Identification
                No.)




**520
                Guthridge Court, Suite 250, Norcross, Georgia
                30092**(Address
                of
                principal executive offices) (Zip Code)**Issuer’s
                telephone number: (770)
                242-7566**





Securities
      registered pursuant to section 12(b) of the Exchange Act:


**None**




Securities
      registered pursuant to section 12(g) of the Exchange Act:


**Common
      Stock, $.001 par value per share**





Check
      whether the
      issuer (1) has filed all reports required to be filed by Section 13 or 15(d)
      of
      the Exchange Act during the past 12 months (or for such shorter period that
      the
      registrant was required to file such reports), and (2) has been subject to
      such
      filing requirements for the past 90 days. Yes [X] No [ ]





Check
      if there is
      no disclosure of delinquent filers in response to Item 405 of Regulation S-B
      contained in this form, and no disclosure will 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-KSB or any amendment
      to
      this Form 10-KSB. [ ]





Indicate
      by check
      mark whether the registrant is a shell company (as defined in Rule 12b-2 of
      the
      Exchange Act). Yes [ ] No [X]





The
      registrant’s
      revenues for the fiscal year ended December 31, 2007 were $191,053.





The
      aggregate
      market value of the shares of common stock held by non-affiliates of the
      registrant was approximately $3,909,410, based on the closing price of the
      registrant's common stock as quoted on the Over The Counter Bulletin Board
      on
      March 27, 2008. For the purposes of this response, officers, directors and
      holders of 5% or more of the registrant's common stock are considered to be
      affiliates of the registrant at that date.





As
      of March 27,
      2008, registrant had 8,210,771 shares of $.001 par value Common Stock
      outstanding.










DOCUMENTS
      INCORPORATED BY REFERENCE





The
      Registrant
      incorporates by reference portions of its Definitive Proxy Statement for the
      2008 Annual Meeting of Stockholders, which is expected to be filed no later
      than
      April 29, 2008, into Part III of this Form 10-KSB to the extent stated herein.





Transitional
      Small
      Business Disclosure Format (check one): Yes [ ] No [X]




2


PART
      I





FORWARD-LOOKING
      STATEMENTS





This
      annual report
      on Form 10-KSB (this “Annual Report”), including “Management’s Discussion and
      Analysis or Plan of Operation,” contains certain “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, that represent our
      expectations, anticipations or beliefs about future events, including our
      operating results financial condition, liquidity, expenditures, and compliance
      with legal and regulatory requirements. For this purpose, any statements that
      are not statements of historical fact may be deemed to be forward-looking
      statements. These statements involve risks and uncertainties that could cause
      actual results to differ materially depending on a variety of important factors.
      Factors that might cause or contribute to such differences include, but are
      not
      limited to, those set forth in the “Factors Affecting Future Performance”
section below and elsewhere in this Annual Report and in our other reports
      on
      Forms 8-K, 10-QSB and 10-KSB that we file with the Securities Exchange
      Commission (“SEC”) from time to time. With respect to such forward-looking
      statements, we claim protection under the Private Securities Litigation Reform
      Act of 1995. Our SEC filings are available from us, and also may be examined
      at
      public reference facilities maintained by the SEC or, to the extent filed via
      EDGAR, accessed through the website of the SEC (http://www.sec.gov). In
      addition, factors that we are not currently aware of could harm our future
      operating results. You are cautioned not to place undue reliance on
      forward-looking statements, which speak only as of the date of this Annual
      Report. We undertake no obligation to make any revisions to the forward-looking
      statements or reflect events or circumstances after the date of this Annual
      Report. References to “Simtrol,” the “Company,” “we,” “us” or “our” made herein
      from time to time shall mean “Simtrol, Inc.”




**ITEM
      1.
      DESCRIPTION OF BUSINESS.**





**History**





We
      were
      incorporated under the laws of the State of Delaware on September 19, 1988.
      From
      1990 to 2001, we primarily designed, manufactured, marketed and supported
      hardware-based command and control systems, including videoconferencing systems.
      In September 2001 we changed our name from VSI Enterprises, Inc. to Simtrol,
      Inc.





**General**





We
      design, develop and market Windows-based software solutions that enable the
      command, control and monitoring of otherwise incompatible electronic devices,
      particularly corporate audiovisual (“AV”) assets. Our end-to-end solutions are
      designed to provide Fortune 1000 corporations, government entities and other
      end
      users a cost-effective solution to simplify the automation and integration
      of AV
      and information technology (“IT”) assets.





Over
      the past six
      years, we have focused our resources to develop proven software technologies
      to
      meet the growing demand for PC-based control systems. The resulting OnGoer®
(“OnGoer”) solution has the benefit of being less expensive, more customizable,
      and more compatible with existing technology infrastructure than the
      hardware-based solutions of our historical competitors, AMX Corporation
      (“AMX”)and Crestron Electronics, Inc. (“Crestron”) Our solutions also provide
      easy scalability, as customers only need to add additional personal computers
      (“PCs”) or servers to provide additional processing power, rather than purchase
      large-scale proprietary hardware controllers and touch panels. In addition,
      much
      of our sales focus has been on AV meeting rooms of large corporations and
      government agencies, healthcare, and law enforcement where there are usually
      existing PCs, because adding our software to these PCs is a compelling cost
      savings versus adding closed-architecture hardware. We believe our Windows-based
      products are very well suited to meet this demand.




Our
      principal
      executive offices are located at 520 Guthridge Court, Suite 250, Norcross,
      Georgia 30092 and our telephone number is (770) 242-7566.





**Recent
      Developments**





*Funding
      of
      Operations*




3





On
      January 23, 2008, we completed the sale of $1,500,000 of securities in a private
      placement. The
      net proceeds of
      this offering will be used for working capital and general corporate purposes.
      Important terms of the convertible notes are as follows:





·
            The
                convertible notes are unsecured, bear interest at the rate of 12%
                per
                annum, are payable six months from the issue date (“Maturity Date”) and
                can be pre-paid at any time without penalty.




·
            If
                Simtrol
                closes a “Qualifying Next Equity Financing” (as defined below) before the
                Maturity Date, the then-outstanding balance of principal and accrued
                interest on the convertible notes will automatically convert into
                shares
                of the “Next Equity Financing Securities” (as defined below) we issue. A
                “Qualifying Next Equity Financing” means the first bona fide equity
                financing (or series of related equity financing transactions) occurring
                subsequent to the date of issue of a Convertible Note in which we
                sell and
                issue any of our securities for total consideration of not less than
                $2.0
                million in the aggregate (including the principal balance and accrued
                but
                unpaid interest to be converted on all our outstanding convertible
                notes)
                at a price per share for equivalent shares of Common Stock that is
                not
                greater than $0.75 per share. “Next Equity Financing Securities” means the
                type and class of equity securities that we sell in a Qualifying
                Next
                Equity Financing or a Non-Qualifying Next Equity Financing. If we
                sell a
                unit comprised of a combination of equity securities, then the Next
                Equity
                Financing Securities shall be deemed to constitute that unit.




·
            If
                we close a
                “Non-Qualifying Next Equity Financing” (as defined below) before the
                Maturity Date, the then-outstanding balance of principal and accrued
                interest on the convertible notes can be converted, at the option
                and
                election of the investor, into shares of the “Next Equity Financing
                Securities” we issue. A “Non-Qualifying Next Equity Financing” means that
                we complete a bona fide equity financing but we fail to raise total
                consideration of at least $2.0 million, or the price per share for
                equivalent shares of Common Stock is greater than $0.75 per share.




·
            Upon
                conversion of a Convertible Note, we will issue that number of shares
                of
                Next Equity Financing Securities equal to the quotient obtained by
                dividing the then outstanding balance of principal and accrued interest
                on
                the convertible notes by the price per share of the Next Equity Financing
                Securities.




·
            Upon
                any
                default, we would be required to pay a 1% default fee on the outstanding
                balance. The default fee will be added to the outstanding balance
                and
                become due under the terms of the Convertible Note.




In
      connection with
      the issuance of the convertible notes, we also issued warrants to the note
      holders representing the right to acquire 500,000 shares of our Common Stock
      at
      an exercise price of $0.75 per share. The warrants have a term ending on the
      earlier to occur of (i) the fifth anniversary of the warrant issue date or
      (ii) the closing of a change of control event.




As
      of December 31, 2007, we had cash, cash equivalents, and certificates of deposit
      totaling $358,220. Since inception, we have not achieved a sufficient level
      of
      revenue to support our business and have incurred recurring losses from
      operations, and have an accumulated deficit of approximately $71.8 million
      as of
      December 31, 2007. We have relied on periodic issuances of common stock,
      preferred stock, and convertible debt since the fourth quarter of 2001 to
      sustain our operations and we currently require substantial amounts of capital
      to fund current operations and the continued development and deployment of
      our
      ONGOER ® and
      Curiax TM (“Curiax”) product
      lines. O n
      March 16, 2007,
      we completed
      the sale
      of $3,525,000 of securities in a private placement of 4,700 units (at $750
      per
      unit) consisting of one share of Series B Convertible Preferred Stock and one
      warrant to purchase 2,000 shares of our common stock at an exercise price of
      $0.375 per share. Each share of Series B Convertible Preferred Stock has a
      conversion price of $0.375 per share (one Series B Convertible Preferred share
      equals 2,000 shares of common stock). The warrants originally had three-year
      terms and were modified in September 2007 to extend the term to five years
      and
      include a cashless exercise provision. See Note 6 to our consolidated financial
      statements. We used the proceeds of the private placement to hire additional
      sales and software development personnel to expand our sales efforts for our
      audiovisual control and monitoring and digital arraignment software, as well
      as
      to develop new integrated software products for our Curiax platform. We also
      issued notes payable of $331,000 to three investors, including one member of
      the
      Board of Directors during 2007. Principal of $13,500 on these notes and all
      applicable accrued interest were repaid to the member of the Board of Directors
      in June 2007. Notes for $696,500 (representing $379,000 of notes originated
      during 2006 and the $317,500 of notes originated 2007) and $13,700 of accrued
      interest on the notes were exchanged in the convertible preferred stock offering
      above.




4





As
      we have not been profitable during any year in our history nor have we created
      positive cash flows from operations, these matters raise substantial doubt
      about
      our ability to continue as a going concern. The accompanying consolidated
      financial statements have been prepared on a going concern basis, which
      contemplate the realization of assets and satisfaction of liabilities in the
      normal course of business. The consolidated financial statements do not include
      any adjustments relating to the recoverability of the recorded assets or the
      classification of the liabilities that might be necessary should we be unable
      to
      continue as a going concern.





**Products**





Simtrol
      develops
      and sells device control middleware that ties devices to applications using
      open
      standard interfaces. This enables companies to control,
      monitor,
      diagnose, schedule and manage devices in a powerful, uniform way. The Company’s
      products are used in a number of vertical markets including healthcare, law
      enforcement, digital signage, education, corporate, hospitality and residential.
      Simtrol sells to a number of Fortune 1000 corporations, government entities,
      educational systems and other end users through professional system integrators,
      value added resellers ( VARs)
      and other
      distributors who are supported by the Company’s sales and technical support
      staff. Historically,
      device control and monitoring solutions have been driven by closed-architecture
      hardware-based solutions. Based on open software architecture and standard
      hardware platforms, the Company’s products provide the market better pricing,
      more choices and are simpler to deploy without sacrificing functionality. With
      six years of software development, a growing track record of clients, and an
      increasing number of industry alliances, Simtrol is positioned to lead the
      paradigm shift away from proprietary hardware solutions towards open
      architecture software.





Current
      market
      solutions use expensive proprietary hardware. In other industries, companies
      have attempted to use proprietary hardware to protect margins (Wang, Digital
      Equipment Corporation, Sun Microsystems) but have historically been beaten
      in
      the marketplace by companies that embrace open architecture (IBM, Dell).
      Simtrol’s device management and control software is based on an open platform
      that allows control of devices with an industry standard platform - the PC
      -
      that is easily understood by IT professionals. The breadth and depth of
      Simtrol’s code gives the Company’s products the scalability and flexibility to
      control thousands of dissimilar devices - each with varying control protocols
      -
      in virtually an unlimited number of locations.





Below
      are examples
      of three vertical markets where digital media applications are flourishing
      - and
      where Simtrol’s software adds tremendous value:





Government
      - Simtrol’s government solutions enable courtrooms, jails and precincts to operate
      more efficiently by managing disparate devices through a single user interface.
      Specialty applications include Curiax Arraigner that records and tracks all
      offender information (video, audio, documents and e-signatures) in a single,
      easy-to-access digital case file for efficient and safe processing of an
      offender from booking through arraignment. Simtrol estimates the potential
      market size for its Arraigner product to be approximately $500 million in the
      United States.





Healthcare
      -
      Simtrol’s healthcare solutions help advanced operating rooms run more
      efficiently by managing hospital equipment such as scopes, arms, drapes, tables
      and lights through a single user interface. With approximately 100,000 operating
      rooms worldwide, Simtrol estimates the potential market size of this target
      to
      be approximately $300 million.





Security
      - Security
      and surveillance applications apply advanced analytics to vast amounts of data
      (including video & audio) in order to classify objects, detect activities
      and raise alerts. Devices such as cameras, sensors, radar, GPS and smart fences
      are deployed on-site while projection/display systems, digital video recorders
      (DVRs) and audio equipment are used in centralized control centers. As more
      of
      these devices are deployed throughout increasingly complex environments, it
      becomes critical for surveillance solutions providers to ensure that all devices
      are always available to collect and distribute data at all times. Robust device
      management and control software is needed to effectively design and deploy
      such
      applications.




5





**Product
      Summary: OnGoer**





OnGoer
      is Simtrol’s
      device management and control software. The software allows any PC or server
      running Windows to network and communicate with thousands of proprietary AV
      and
      IT devices built by hundreds of manufacturers. Specifically, OnGoer can control,
      manage, monitor, diagnose and schedule any device.





Simtrol
      has
      developed OnGoer for more than six years, not including Simtrol’s extensive
      history in videoconferencing installation, integration, and software
      development. From 1993 to 2000, Simtrol used its first generation control
      software to design and install over 2,000 videoconferencing systems around
      the
      world, which gave the Company the experience and the relationships to understand
      user needs and requirements.





IT
      professionals have long managed corporate assets such as PCs, servers and
      routers. During the past few years, most AV products became IP addressable
      - a
      requirement from IT professionals that wish to manage the AV devices with the
      same power and flexibility they use to manage IT assets. IT departments demand
      that these devices tie into their existing IT network and wish to use global
      IT
      tools such as IBM’s NetView, HP’s OpenView, or Computer Associates’ Unicenter to
      monitor and manage them. OnGoer complements OpenView, NetView and Unicenter
      by
      passing valuable health/status information to them. IT professionals need a
      product to control the devices locally and remotely and a product to
      monitor/manage/diagnose the devices remotely. Our products support these needs
      while using industry standard PC technology.





The
      hardware
      supported by our software is based on the open PC market and comes from a
      variety of companies. Our integration and OEM partners choose from many familiar
      brands to receive high quality and competitive pricing and our approach takes
      advantage of this high-quality, low-price, and easily available hardware. PC
      equipment vendors are able to offer tremendous value because of the enormous
      economies of scale inherent in the PC marketplace. Our partners are not locked
      into expensive, proprietary controllers, touch panels and connectivity hardware
      from AMX and Crestron.





OnGoer
      is
      computer-based general-purpose device control middleware running as a system
      service on a Windows 2000 and onward platform. OnGoer can control any device
      using a variety of interfaces, including TCP/IP, IR, IO, Relays, Serial (RS232,
      RS422 and RS485), Lanc, and USB. With OnGoer, users can leverage commodity,
      off-the-shelf PC hardware to create high-quality, affordable solutions.





OnGoer
      control
      software communicates with the devices in the meeting room as well as monitoring
      assets from the server. Devices are controlled locally as part of the room
      application or remotely as a help desk application. Health and status
      information of all devices is tracked real time and proactive alarms (email
      or
      text pages to wireless devices such as pagers or cell phones) are sent to
      service personnel.





Simtrol’s
      software-based approach allows flexibility regarding hardware and development
      environment. Architecturally, application developers have the capability to
      write their graphical user interfaces or applications in various programming
      environments such as .NET, Visual Basic, C++, C#, Flash 8, Java, or Builder
      (Simtrol’s development environment for simple solutions). The application or GUI
      is then displayed on a commodity touch screen and/or mobile device for end-user
      use. Because OnGoer uses TCP/IP for command and control signaling,
      administrative and diagnostic functions are available via network-based
      diagnostics tools.





OnGoer
      connects via
      standard TCP/IP networking and monitors devices at remote locations and displays
      information about device health and status via a standard browser interface.
      Technicians may log in from any place at any time using standard web browsers
      to
      view the entire device control network at a glance.





**Product
      Summary: Curiax**





Current
      video
      arraignment solutions are highly fragmented with a focus mainly on the
      audiovisual AV component of the application, separate from the considerable
      workflow, record tracking, and document retrieval requirements of the courts.
      This lack of focus on a critical component of a complex system presents a unique
      opportunity to leverage a robust solution in a national rollout strategy. Other
      software systems address the court workflow but lack two essential or critical
      items: the video arraignment and court recording functionality. Simtrol believes
      that Curiax TM is the first
      product to provide a unified documentation and AV solution. Following extensive
      end user research, the OakVideo solution (from which Curiax is derived) was
      designed, developed, and implemented by law enforcement and judicial experts
      from Oakland County, Michigan. The result is a robust, fully implemented system
      that has garnered attention from counties around the United States as well
      as
      from legal systems around the world.




6





Curiax
      Arraigner TM is a web-based
      client-server, document management system tailored for law enforcement and
      judicial system users, with a unique videoconferencing and device control and
      monitoring element. Overcrowded
      courts
      create dangerous, costly logistical problems for transporting prisoners and
      inefficient systems prevent police from being on the street protecting citizens.
      Curiax Arraigner allows jurisdictions to a • void
      the need to
      transport prisoners to courthouse for arraignment by integrating multipoint
      videoconferencing, court recording, and data workflow and document management
      into a unified platform. We anticipate releasing additional integrated software
      products during 2008 including Curiax Court Recording TM and Curiax Video
      Visitation TM .





**Protection
      of Intellectual Property Rights**





We
      have implemented both legal (copyright) and practical protective measures to
      protect our intellectual property rights in our OnGoer, Curiax Arraigner, Curiax
      Video Visitation, and Curiax Court Recording software. We claim copyright
      protection in all software and manuals that we create. We also derive
      considerable practical protection by supplying and licensing only a
      non-modifiable run-time version to our customers and keeping confidential all
      versions that can be modified. By licensing the software rather than
      transferring title we, in most cases, have been able to incorporate restrictions
      in the licensing agreements, which impose limitations on the disclosure and
      transferability of the software. No determination has been made as to the legal
      or practical enforceability of these restrictions, or the extent of customer
      liability for violations. We have a registered trademark for OnGoer ® .




**Product
      Development Strategies**





The
      AV world and
      the IT world are converging, with more and more devices becoming network
      enabled. Like PCs and servers, we believe IT departments will demand AV products
      (projectors, audio processors, video codecs, video switchers, cameras,
      electronic whiteboards, etc.) be accessible on a corporate network, where they
      can be controlled, managed and monitored from centralized and/or remote
      locations. OnGoer installs on PCs and servers, and support a product
      architecture that allows them to control, monitor and manage any device
      connected to them via the network.





**Markets**





Based
      on the
      long-term objective of becoming the industry standard software for controlling
      and monitoring AV devices, management has developed a sales and marketing
      strategy to aggressively pursue two vertical markets with the company’s
      products: healthcare (particularly advanced operating rooms) and law enforcement
      (particularly digital
      arraignments and warrants).





Simtrol’s
      core
      value to operating room companies is the replacement of proprietary architecture
      with open PC architecture to control and monitor all operating room (OR)
      devices. This provides more technical flexibility, better scalability and a
      simpler design while lowering costs.





Pre-trial
      proceedings involve the costly and dangerous logistical problems of transporting
      prisoners and moving documents across multiple agencies using antiquated methods
      that can result in lost documentation, risk to public safety, and inefficiency
      at taxpayer expense. Curiax Arraigner helps law enforcement officials avoid
      transporting prisoners to the courthouse for arraignment by integrating
      multipoint videoconferencing, court recording, data workflow, and document
      management into a unified platform.





**Competition**





We
      primarily
      compete with two companies in the AV control and monitory market, both of which
      have significantly greater resources and market share. Both companies offer
      control solutions based on proprietary hardware and software. We offer control
      solutions utilizing open PC technology. Our
      two major competitors in the AV control
      systems market are AMX and Crestron, who combined currently have close
      to 100% of
      the sales in this market.




AMX,
      headquartered
      in Richardson,
      Texas,
      offers control applications such as control and automation systems for corporate
      boardrooms, meeting facilities, professional sporting arenas, museums, hospital
      operating rooms, transportation systems, schools and residences. Headquartered
      in Rockleigh, New Jersey, Crestron designs and manufactures control and
      automation systems for corporate, industrial, educational, and residential
      markets.




7




Both
      Crestron and
      AMX offer hardware-based control systems, the cores of which are proprietary
      controllers fitted with
      proprietary cards and connectors manufactured by or for them, and running
      proprietary software systems. These proprietary controllers communicate with
      controlled devices by means of code written in proprietary software languages
      (each company has developed its own). Integrators who re-sell systems from
      each
      of these companies must send their technical personnel to training courses
      offered by the companies themselves and by several independent
      organizations.




Because
      OnGoer is a
      software-based control system designed to run on commodity PC hardware, we
      believe we have several advantages over AMX and Crestron. The PC industry is
      a
      vast marketplace with enormous economies of scale. Computer hardware including
      touch screens, wireless Smart Displays, and serial ports are extremely powerful
      and inexpensive. Innovative and wireless network-enabled devices are regularly
      introduced into the mass PC market. There are advantages for end customers
      in
      familiarity and cost compared to proprietary, hardware-based control
      systems.





End
      customers are
      also demanding a new breed of proactively monitored control solutions.
      Traditional control systems companies are reacting by introducing PC-like
      services and interfaces to PCs and innovative PC wireless Smart Displays. These
      PC-like services cannot compete in terms of price and performance with the
      much
      larger PC marketplace.





Traditional
      control
      systems position themselves to be the central technology and view the PC as
      an
      "important device." We believe the PC is the central technology and view
      traditional hardware control boxes as a declining technology.





We
      are not currently aware of any competitors providing a unified digital
      arraignment product similar to our Curiax Arraigner product.





**Factors
      Affecting Future Performance**





The
      following
      summarizes certain of the risks inherent in our business:





*We
      have limited
      available cash, are currently burning cash quickly, and may not have sufficient
      cash to continue our business operations.*




As
      of December
      31 *,* 2007,
      we had cash
      or cash equivalents of approximately $256,000. We are currently burning cash
      at
      an estimated rate of approximately $250,000 per month. Moreover, management
      expects this rate to increase in future months as we engage in further
      expenditures to develop our business infrastructure and pursue our business
      plan. We sold $1,500,000 of securities consisting of convertible notes payable
      and warrants in January 2008, and we believe we will have working capital
      sufficient to meet operating expenses and capital requirements through
      approximately the second quarter of 2008. We will need to obtain additional
      capital to conduct operations beyond the third quarter of 2008. Even if we
      obtain additional equity capital, we may not be able to execute our current
      business plan and fund business operations for the period necessary to achieve
      positive cash flow. In such case, we might exhaust our capital and be forced
      to
      reduce expenses and cash burn to a material extent, which would impair our
      ability to achieve our business plan. If we run out of available capital, we
      might be required to pursue highly dilutive equity or debt issuances to finance
      our business in a difficult and hostile market, including possible equity
      financings at a price per share that might be much lower than the per share
      price invested by our shareholders. No assurance can be given that any source
      of
      additional cash would be available to us. If no source of additional cash is
      available to us, then we would be forced to significantly reduce the scope
      of
      our operations or possibly seek court protection from creditors or cease
      business operations altogether.




8




*We
      may not be
      able to achieve or sustain profitability.*





After
      20 years of
      operations, we have not reported any profits for a full year of operations
      and,
      as of December 31, 2007, we had an accumulated deficit of $71.8 million. We
      may
      not be able to achieve or sustain profitability in the future, as sales of
      our
      OnGoer product have not proven to be sufficient to fund our operations. As
      a
      result, we may incur additional losses and negative cash flow from operations
      for the foreseeable future.





*If
      we fail to
      secure sufficient capital or fail to create a strong marketing support team,
      then our efforts to penetrate new markets could fail, resulting in decreased
      cash flow.*





Expanding
      our
      presence in the audiovisual command and control market will require capital
      for
      further software product development and the creation of new sales channels.
      The
      inability to secure sufficient capital or the failure to create a strong sales
      channel/marketing support organization could result in a failed effort to
      penetrate these new markets and adversely affect operating results and cash
      flow.





*If
      we cannot
      attract, retain, train or manage our key management or technical personnel
      effectively, our ability to develop and sell new products could be hindered,
      resulting in a reduction in sales.*





Our
      development,
      management of our growth and other activities depend on the efforts of key
      management and technical employees. Competition for such persons is intense.
      Because we do not have long-term employment agreements with our key management
      personnel or technical employees, we could lose one or more of our key
      management or technical personnel, which could result in significant harm to
      our
      business. Our future success is also dependent upon our ability to effectively
      attract, retain, train, motivate and manage our employees and failure to do
      so
      could hinder the development and marketing of our products and result in a
      reduction in sales and our customers could shift their purchases to our
      competitors.





*We
      may be
      unable to evaluate our business and to forecast our prospects accurately, which
      may prevent us from meeting the product demands of our potential customers
      in a
      timely manner.*




It
      is difficult to
      forecast our future revenues accurately and to plan future operating expenses.
      The revenue and income potential of our products and business are largely
      unproven. Although proprietary, closed-architecture AV control systems have
      been
      sold successfully, the PC-based AV control system is largely unproven. Our
      ability to license our OnGoer software and achieve success will depend on,
      among
      other things, the level of demand for PC-based control systems and our capacity
      to meet demand and performance standards of our prospective
      clients.




*Our
      PC-based
      control system is unproven technology and may not be accepted by the
      industry.*





There
      is no
      industry standard for the control of AV systems. Generally, the market is
      dominated by proprietary, closed-architecture control systems by manufacturers
      such as AMX and Crestron. Our open-architecture, PC-based control system, which
      we believe provides greater flexibility at a lower cost for end-users than
      the
      traditional proprietary systems, is a relatively new technology for the market.
      Given the relatively short operating history of such PC-based systems, it is
      impossible to determine at this time whether or not PC-based systems will gain
      wide acceptance in the marketplace. To increase our sales, we must establish
      a
      greater presence in the AV system control market by convincing AV integrators
      and IT Managers and ultimately end-users, to utilize a PC-based control system
      rather than the traditional proprietary systems. There can be no assurance
      that
      use of PC-based control systems, such as our OnGoer, will be accepted by the
      industry. If the use of PC-based AV control systems is not accepted in the
      marketplace or if another industry standard is adopted, our projected sales
      will
      not materialize, thereby causing potentially poor financial
      performance.





*We
      have very
      few current customers and our sales cycle is very long.*




To
      date, we have
      signed revenue-producing contracts to provide services to only a small number
      of
      customers. During 2007, 100% of our revenues were from five customers. Further,
      we do not have long-term contracts with these or any other customers, so
      customers could stop purchasing products at any time. The loss of any major
      customer, or any reduction in purchases by these customers, could significantly
      harm our business. In selling our services, management generally experiences
      an
      extremely lengthy sales approval process. Accordingly, we anticipate that our
      revenues will increase gradually and we will achieve profitability only if
      we
      successfully secure long-term revenue-producing contracts with many new
      customers. The current economic conditions may further extend our sales cycle
      and make new customer sales very uncertain and expensive. Delays in completing
      a
      sale are costly and cause us to incur losses for a longer period than
      forecasted. These delays also place us at a continual risk of running out of
      capital, and cause us to continue to expend time and energy seeking additional
      capital. Our customers generally are significantly larger than we are and have
      significant bargaining power to demand low prices and on terms and conditions
      that may further make it difficult to achieve profitability.




9




*We
      rely on
      third parties for the sale of our products.*





Sales
      of our OnGoer
      and Curiax products are primarily made through third-party OEMs and AV
      integrators. Generally, we do not have initial access to the end-users of AV
      systems in the marketplace and must, therefore, rely on third parties for the
      distribution and sale of our products. We have entered into dealer agreements
      with third-party OEM and AV integrators for the sale of our products. However,
      such agreements are non-exclusive and such third parties may, therefore, also
      sell products that directly compete with ours. In addition, such agreements
      may
      be terminated at any time. If our relationships with such third-party OEMs
      and
      AV integrators were terminated, we would have to seek a new distribution channel
      for our products, which would potentially have a material adverse effect on
      our
      operations.





*We
      may be
      unable to accurately evaluate our business and to forecast our prospects, which
      may prevent us from meeting the product demands of our potential customers
      in a
      timely manner.*





It
      is difficult to
      forecast our future revenues accurately and to plan future operating expenses.
      The revenue and income potential of our products and business are largely unproven. Although
      proprietary, closed-architecture AV control systems have been sold successfully,
      the PC-based AV control system is largely unproven. Our ability to license
      our OnGoer software
      and
      achieve success will depend on, among other things, the level of demand for
      PC-based control systems and our capacity to meet demand and performance
      standards of our prospective clients.





*We
      may not be
      able to maintain or improve our competitive position because we face intense
      competition in the AV control system market from existing competitors with
      far
      greater technical and financial resources and other companies may enter the
      marketplace in the future.*





Competition
      in the
      command and control and video communications markets is intense. In the command
      and control market, our primary competitors are AMX and Crestron. We compete
      with AMX and Crestron on features such as ease of use, scalability and price.
      Although we feel that our PC-based system is superior to the proprietary systems
      developed by AMX and Crestron in each of these areas, we do not have the name
      recognition in the industry that is currently enjoyed by AMX and Crestron,
      which
      may result in fewer sales of our products. In addition, both AMX and Crestron
      have greater financial and personnel resources than we do. Given their market
      share, resources and reputation, if either or both of these companies choose
      to
      develop a PC-based control system, it could have a serious adverse effect on
      our
      results of operations. In addition, as use of AV systems becomes more widespread
      in both businesses and homes, we expect other competitors, some with
      significantly greater technical and financial resources such as Microsoft,
      to
      enter the marketplace. If any such competitors choose to develop their own
      PC-based control systems, rather than licensing software from us, it could
      have
      a serious adverse effect on our sales. If we cannot continue to offer new
      command and control and videoconferencing products with improved performance
      and
      reduced cost, our competitive position will erode. Moreover, competitive price
      reductions may adversely affect our results of operations.





*Our
      success
      will depend in part upon our ability to safeguard our software and other
      intellectual property.*





We
      rely on a
      combination of patents, copyrights, trade secret laws and licensing agreements
      to protect our software and other intellectual property. There can be no
      assurance that these measures taken by us will provide significant proprietary
      protection of our intellectual property or that competitors will not be able
      to
      legitimately ascertain proprietary information embedded in our products which
      are not covered by such measures. In such case, we may be precluded from
      preventing our competitors from making use of such information.




There
      are no
      pending lawsuits or claims against us regarding infringement of any existing
      patents, copyrights or other intellectual property rights of others. There
      can
      be no assurance, however, that such infringement claims will not be asserted
      in
      the future, nor can there be any assurance, if such claims are made, that we
      will be able to defend such claims successfully or, if necessary, obtain
      licenses on reasonable terms. Adverse determinations in any litigation naming
      us
      could subject us to significant liabilities to third parties, require us to
      seek
      licenses from third parties and prevent us from selling our products. The
      occurrence of any of these events could have a material adverse effect on us.




10





We
      will also rely
      on unpatented or copyrighted trade secrets and propriety know-how. We generally
      require our employees, consultants, advisors and prospective partners to enter
      into confidentiality agreements. There is no assurance, however, that these
      agreements will protect any current or future proprietary information or that
      others will not gain access to or independently develop similar trade secrets
      or
      know-how. Our competitive position and amount of potential future income will
      depend in part upon our ability to obtain and maintain copyright and other
      intellectual property protection in various jurisdictions for proprietary
      technologies, existing products and products we may develop in the
      future.





*If
      necessary
      licenses of third-party technology become unavailable to us or become very
      expensive, it could adversely impact our business.*





We
      currently
      license technology for use in our OnGoer and Curiax Arraigner products and
      may,
      from time to time, be required to license additional technology from third
      parties to develop new applications or application enhancements. We cannot
      assure you that third-party licenses will be available to us on commercially
      reasonable terms, if at all. The inability to obtain any third-party licenses
      required to develop new applications and application enhancements could require
      us to obtain substitute technology of lower quality or performance standards
      or
      at greater cost, either of which could have an adverse effect on our
      business.





*Our
      success
      will depend on our ability to adapt to rapid technological
      change.*





The
      AV industry
      typically experiences rapid technological change, changing market conditions
      and
      customer demands and the emergence of new industry standards and practices
      that
      could render our products obsolete. Our future success will substantially depend
      on our ability to enhance our products and services, develop new services and
      proprietary technology and respond to technological advances in a timely and
      cost-effective manner. The development of additional products and other
      proprietary information entails significant technical and business risk. There
      can be no assurance that we will succeed in developing and using new
      technologies or in adapting our technology and systems to meet emerging industry
      standards and customer requirements. If we are unable, for technical, legal,
      financial, or other reasons, to adapt in a timely manner in response to changing
      market conditions or customer requirements, or if our new products and services
      do not achieve market acceptance, our business, financial condition and results
      of operations would be materially adversely affected.





*The
      lack of a
      developed trading market may make it difficult to sell our
      securities.*





Trading
      of our
      Common Stock is conducted on the Over The Counter Bulletin Board (the “OTC
      Bulletin Board”). Trading activity in our Common Stock has fluctuated and at
      times been limited. We cannot guarantee that a consistently active trading
      market will develop in the future. A holder of our Common Stock may find it
      difficult to dispose of or to obtain quotations as to the market value of our
      Common Stock.




*The
      market
      price for our common stock may be volatile.*





The
      market price
      for our Common Stock could be subject to significant fluctuations in response
      to
      variations in quarterly operating results, announcements of technological
      innovations or new products by us or our competitors, or our failure to achieve
      operating results consistent with any securities analysts’ projections of our
      performance.





*Our
      Common
      Stock is subject to “penny stock” regulations and restrictions on initial and
      secondary broker-dealer sales.*





The
      Securities and
      Exchange Commission (“SEC”) has adopted regulations which generally define
“penny stock” to be any listed, trading equity security that has a market price
      less than $5.00 per share or an exercise price of less than $5.00 per share,
      subject to certain exemptions. Penny stocks are subject to certain additional
      oversight and regulatory requirements. These requirements may restrict your
      ability to sell our Common Stock.




11





**Research
      and Development**





Our
      product
      engineering, including our costs associated with design and configuration of
      fully developed systems for particular customer applications, is accounted
      for
      in our financial statements as research and development expenses. During the
      year ended December 31, 2007 our expenditures for research and development
      of
      new products or new components for our OnGoer and Curiax products totaled
      $828,564, an increase of 99% from the total expenditures of $416,982 in 2006.





**Employees**





As
      of December 31,
      2007, we employed nineteen persons full time, including two executive officers.
      Of the full-time employees who were not executive officers, ten were engaged
      in
      research and development and operations, two in service, four in sales, and
      one
      in information systems. Employee relations are considered good and we have
      no
      collective bargaining contracts covering any of our employees.





**ITEM
      2.** **DESCRIPTION
      OF PROPERTY** **.**





We
      maintain our
      executive and sales offices in 10,000 square feet of leased office space in
      Norcross, Georgia, under a 60-month lease which expires in October 2012. Monthly
      rent is approximately $11,500 including common area maintenance charges, taxes,
      and insurance.





We
      believe that our
      current facilities are adequate for our current requirements.





**ITEM
      3.
      LEGAL PROCEEDINGS.**





We
      are not party to any pending legal proceedings.





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





No
      matters were
      submitted to a vote of security holders during the fourth quarter of
      2007.




**PART
      II**





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





From
      January 1,
      2002 to May 21, 2003, our Common Stock traded on the OTC Bulletin Board under
      the symbol “SMOL.” Our Common Stock traded on the Pink Sheets under the symbol
“SMOL” from May 22, 2003 to May 6, 2004. From May 7, 2004 to June 17, 2004, our
      Common Stock traded on the Pink Sheets under the symbol “SMRL.” On June 18,
      2004, our Common Stock began trading on the OTC Bulletin Board under the symbol
      “SMRL,” where it currently trades.




The
      following table
      sets forth the quarterly high and low bid quotations per share of Common Stock
      on the OTC Bulletin Board and the Pink Sheets as reported for the periods
      indicated. These prices also represent inter-dealer quotations without retail
      mark-ups, markdowns, or commissions and may not necessarily represent actual
      transactions.




HIGH
            
            LOWFISCAL
                YEAR
                ENDED DECEMBER 31, 2006First
                Quarter
            
            $
            1.25
            
            $
            0.51Second
                Quarter
            
            
            0.75
            
            
            0.36Third
                Quarter
            
            
            0.90
            
            
            0.25Fourth
                Quarter
            
            
            0.51
            
            
            0.25FISCAL
                YEAR
                ENDED DECEMBER 31, 2007First
                Quarter
            
            $
            2.80
            
            $
            0.27Second
                Quarter
            
            
            2.25
            
            
            1.01Third
                Quarter
            
            
            1.55
            
            
            0.90Fourth
                Quarter
            
            
            1.30
            
            
            0.60




12





As
      of March 28,
      2008, there were approximately 700 holders of record and approximately 2,900
      beneficial holders of our Common Stock.





We
      have never paid
      cash dividends on our Common Stock and have no plans to pay cash dividends
      in
      the foreseeable future. The policy of our Board of Directors is to retain all
      available earnings for use in the operation and expansion of our business.
      Whether dividends may be paid in the future will depend upon our earnings,
      capital requirements, financial condition, prior rights of any preferred
      stockholders, and other relevant factors.




On
      December 31,
      2007, we issued 7,876 shares of Common Stock to members of our Board of
      Directors in lieu of cash fees for attendance at Board meetings during the
      three
      months ended December 31, 2007. The offer and sale of the shares were exempt
      from the registration requirements of the Securities Act of 1933 (the “Act”)
      pursuant to Rule 506 and Section 4(2) of the Act. In connection with the
      sales, we did not conduct any general solicitation or advertising, and we
      complied with the requirements of Regulation D relating to the restrictions
      on
      the transferability of the shares issued.




The
      following table
      provides information as of December 31, 2007 regarding the Company’s
      compensation plans and arrangements:





**Equity
      Compensation Plan Information**





Plan
                category
            
            Number
                of
                securities to be issued upon exercise of outstanding options, warrants
                and
                rights
              (a)
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
              (b)
            
            Number
                of
                securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a)
              (c)Equity
                compensation plans approvedby
                security
                holders
            
            4,401,375
            
            $0.94
            
            1,598,625Equity
                compensation plans notapproved
                by
                security holders
            
            16,434,774
            
            $0.60
            
            -Total
            
            20,836,149
            
            $0.67
            
            1,598,625





See
      note 3 to
      the consolidated financial statements for a description of the Company's 2002
      Equity Incentive Plan.


__________________________




13


**ITEM
      6.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.**





The
      following
      discussion and analysis should be read in conjunction with the consolidated
      financial statements and notes thereto included elsewhere in this Form 10-KSB.





**Overview**





We
      used $2,639,991
      in cash from operating activities in 2007, primarily due to our loss of
      $4,905,483. Our net loss increased during 2007 primarily due to a significant
      increase in personnel costs during the year to accelerate our product
      development and sales and marketing efforts.





During
      2007, we
      used $125,677 in investing activities primarily to purchase new computer
      equipment and leasehold improvements on our new office space. Leasehold
      improvements will be amortized over the shorter of the estimated useful life
      or
      the life of our new office lease and computer equipment depreciated over
      estimated useful lives, on a straight-line basis. During 2006, we used $5,200
      in
      investing activities for purchases of equipment. We also issued $26,000 and
      $52,000 in 2007 and 2006, respectively, of our common stock in conjunction
      with
      the acquisition of the remaining 50% interest in a joint venture that we did
      not
      previously own (see Note 11 to the consolidated financial statements). Cash
      received from financing activities during 2007 included $331,000 of notes
      payable originated by three investors, including one member of our board of
      directors, as well as net proceeds of approximately $2,809,000 from the Series
      B
      convertible preferred private placement we closed on March 16, 2007. See Notes
      5
      and 6 to our consolidated financial statements.





Cash
      used in
      financing activities in 2006 included $12,000 for the return of a deposit
      received from a potential investor in a cancelled offering at December 31,
      2005.
      We received $250,000 from investing activities during 2006 for the sale of
      our
      patent technology related to our former videoconferencing business. See Note
      7
      to the consolidated financial statements. We issued a $37,000 note payable
      to
      one member of the board of directors on June 9, 2006. The proceeds of this
      debt
      were utilized for working capital purposes. On June 30, 2006, the Company repaid
      the note plus the accrued interest of $213 (see Note 5 to the consolidated
      financial statements). We also received $250,000 from the exercise of stock
      options by two members of our Board of Directors (see Note 6 to the consolidated
      financial statements). During 2006, we issued $379,000 in notes payable to
      one
      member of our board of directors.





During
      2007, our
      total assets increased approximately 133% to $665,117 at December 31, 2007
      from
      $285,908 at December 31, 2006. The increase in assets was primarily due to
      the
      proceeds from issuance of our Series B convertible preferred stock on March
      16,
      2007 in a private placement (see Note 6 to
      our consolidated
      financial statements ),
      partially offset
      by cash used to fund operations during the period.




Current
      liabilities
      decreased $1,638,182, or 84%, due primarily to
      the elimination
      of a dividend payable on the covenant default of the Company’s Series A
      convertible preferred stock of $1,171,863 as of December 31, 2006, as well
      as
      the exchange of notes payable in the offering ($387,351 principal and interest
      outstanding at December 31, 2006). See note 5 to the consolidated financial
      statements.




See
      Note 2 to the
      consolidated financial statements regarding the Company’s going concern
      uncertainty.




The
      Company does
      not have any material off-balance sheet arrangements.




**LIQUIDITY
      AND SOURCES OF CAPITAL**





*General*





Due
      to recurring
      losses from operations, an accumulated deficit, negative working capital and
      our
      inability to date to obtain sufficient financing to support current and
      anticipated levels of operations, our independent registered public accountants’
audit opinion states that these matters have raised substantial doubt about
      the
      Company’s ability to continue as a going concern for the year ended December 31,
      2007. As of December 31, 2007, we had cash, cash equivalents and certificate
      of
      deposit totaling $358,220. We have relied on periodic issuances of common stock,
      convertible debt, and notes payable since the fourth quarter of 2001 to sustain
      our operations. We currently require substantial amounts of capital to fund
      current operations and the continued development and deployment of our OnGoer
      and Curiax TM product lines.
      T here
      can be no assurance that we will be successful in our attempts to develop and
      deploy our OnGoer and Curiax Arraigner product lines, to generate positive
      cash
      flows or raise sufficient capital essential to our survival. To the extent
      that
      we are unable to generate or raise the necessary operating capital, it will
      become necessary to curtail operations. Additionally, even if we do raise
      operating capital, there can be no assurance that the net proceeds will be
      sufficient to enable us to develop our business to a level where we will
      generate profits and positive cash flows.




14





On
      January 22 and 23, 2008, we completed the sale of $1,500,000 of securities
      in a
      private placement. The
      net proceeds of
      this offering will be used for working capital and general corporate purposes. We
      may
      require additional funding to fund our development and operating activities.
      This additional funding could be in the form of the sale of assets, debt,
      equity, or a combination of these financing methods. However, there can be
      no
      assurance that the Company will be able to obtain such financing if and when
      needed, or that if obtained, such financing will be sufficient or on terms
      and
      conditions acceptable to us. If we are unable to obtain this additional funding,
      our business, financial condition and results of operations would be adversely
      affected. The accompanying consolidated financial statements contemplate our
      continuation as a going concern. However, the Company has sustained substantial
      losses from operations in recent years, and such losses have continued through
      December 31, 2007.





In
      view of the matters described in the preceding paragraph, recoverability of
      a
      major portion of the recorded asset amounts shown in the accompanying
      consolidated balance sheet is dependent upon our continued operations, which
      in
      turn is dependent upon our ability to meet our financing requirements on a
      continuing basis and attract additional financing. The consolidated financial
      statements do not include any adjustments relating to the recoverability and
      classification of recorded asset amounts or amounts and classification of
      liabilities that might be necessary should the Company be unable to continue
      in
      existence.





On
      January 28, 2007, the Compensation Committee of the board of directors approved
      a cash compensation plan for employees equal to a maximum of 20% of gross
      revenues, payable on a quarterly basis. On February 1, 2007, we signed an
      advisory services agreement (the "Agreement") with Triton Business Development
      Services, an Atlanta-based provider of critical business planning, resource
      and
      development services.





As
      a part of the Agreement, Triton will provide us with financial and strategic
      planning services that include capital formation, structure and funding
      strategies, investor relations consultation, human resources assessment and
      development, and an organizational review of our processes, practices, and
      procedures. The term of the Agreement is 24 months.





Triton’s
      compensation will consist of cash and restricted shares of our common stock
      over
      the term of the Agreement. A monthly cash retainer of $10,000 will be paid
      by
      us. Additionally, 640,000 restricted shares of our common stock will be earned
      ratably over the 24-month term of the Agreement by Triton.





We
      expect to spend
      less than $125,000 on capital expenditures in 2008.





**Critical
      Accounting Policies**





We
      prepare our
      consolidated financial statements in conformity with accounting principles
      generally accepted in the United States of America. As such, we are required
      to
      make certain estimates, judgments and assumptions that we believe are reasonable
      based upon the information available. These estimates and assumptions affect
      the
      reported amounts of assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the periods
      presented. The significant accounting policies which we believe are the most
      critical to aid in fully understanding and evaluating our reported financial
      results include the following:





·
            *Revenue
                recognition**.*We
                follow the
                guidance of the Securities and Exchange Commission’s Staff Accounting
                Bulletin 104 for revenue recognition. In general, we record revenue
                when
                persuasive evidence of an arrangement exists or product delivery
                has
                occurred or services rendered, the sales price to the customer is
                fixed
                and determinable, and collectability is reasonably assured. Certain
                judgments affect the application of our revenue policy. Revenue consists
                of the sale of device control software and related maintenance contracts
                on these systems. Revenue on the sale of hardware is recognized upon
                shipment. We recognize revenue from OnGoer software sales upon shipment
                as
                we sell the product to audiovisual integrators, net of estimated
                returns
                and discounts. Revenue on maintenance contracts is recognized over
                the
                term of the related contract.




15




·
            *Capitalized
                software research and development costs**.*Our policy
                on capitalized software costs determines the timing of our recognition
                of
                certain development costs. In addition, this policy determines whether
                the
                cost is classified as development expense or is capitalized. Software
                development costs incurred after technological feasibility has been
                established are capitalized and amortized, commencing with product
                release, using the greater of the income forecast method or on a
                straight-line basis over the useful life of the product. Management
                is
                required to use professional judgment in determining whether development
                costs meet the criteria for immediate expense or capitalization.
                The
                Company did not capitalize any software development costs during
                either
                2007 or 2006 and all assets were fully amortized by December 31,
                2006.
                Total capitalized software costs are $2,208,070 and all amounts were
                previously amortized.





·
            *Impairment
                of Assets/Investments*.
                We record
                impairment losses on assets and investments when events and circumstances
                indicate that the assets might be impaired and the undiscounted cash
                flows
                estimated to be generated by those assets are less than the carrying
                amount of those items. Our cash flow estimates are based on historical
                results adjusted to reflect our best estimate of future market and
                operating conditions. The net carrying value of assets not recoverable
                is
                reduced to fair value. Our estimates of fair value represent our
                best
                estimate based on industry trends and reference to market rates and
                transactions. No impairment was recorded in 2007 or
                2006.





·
            *Stock-Based
                Compensation*.Stock option
                awards are granted with an exercise price equal to or greater than
                the
                market price of our stock on the date of the grant in accordance
                with the
                our 2002 Equity Incentive Plan. The options generally have five-year
                contractual terms for directors and 10 years for employees, and vest
                immediately for directors and over four years for employees. The
                Company
                implemented FAS 123R in the first quarter of 2006. The statement
                requires
                companies to expense the value of employee stock options and similar
                awards. Under FAS 123R, share-based payment awards result in a cost
                that
                will be measured at fair value on the awards’ grant date based on the
                estimated number of awards that are expected to vest. Compensation
                costs
                for awards that vest will not be reversed if the awards expire without
                being exercised. The Company uses historical data to estimate option
                exercise and employee termination within the valuation model and
                historical stock prices to estimate volatility.





**Comparison
      of Year Ended December 31, 2007 to Year Ended December 31,
      2006**





**Results
      of
      Operations**





Revenues





Revenues
      were
      $191,053 and $224,692 in 2007 and 2006, respectively. The 15% decrease in
      revenues from 2006 to 2007 was primarily due to a decrease in software revenues
      of $66,190, as software revenues during 2006 included a $78,000 multi-site
      sale
      to an integrator for implementation at one end user who previously purchased
      our
      software in 2004, offset partially by increased programming services revenue
      of
      approximately $32,551. Due to our small customer base, we face the risk of
      fluctuating revenues should any of our customers discontinue using our products.
      See Note 8 to our consolidated financial statements.





*Gross
      Profit*





Gross
      profit as a
      percentage of revenues was approximately 99% and 97% in 2007 and 2006,
      respectively.





*Selling,
      General & Administrative Expenses*





Selling,
      general
      and administrative expenses were $2,956,697 and $1,502,983 for 2007 and 2006,
      respectively. The increase in 2007 compared to 2006 resulted primarily from
      (i)
      higher payroll costs during the current period as we increased headcount during
      2007 to expand our product development and sales efforts, and (ii) stock
      payments totaling $490,381 made to Triton Business Development Services as
      part
      of a strategic consulting agreement, partially offset by a decrease in stock
      based compensation of $184,253 as the Company recorded stock-based compensation
      of $279,720 during 2007 and $463,973 during 2006, which included $308,721
      recorded in June 2006 to reflect the fair value of the stock options granted
      to
      non-employee directors at that time.




16





*Research
      and
      Development Expenses*





We
      charge research and development costs to expense as incurred until technological
      feasibility of a software product has been established. Software development
      costs incurred after technological feasibility has been established are
      capitalized and amortized, commencing with product release, using the greater
      of
      the income forecast method or on a straight-line basis over the useful life
      of
      the product. These expensed costs were $828,564 and $416,982 for 2007 and 2006,
      respectively. The increase in expense was due mainly to the hiring of additional
      software development personnel as well as the use of third-party development
      personnel and outsourced software development services during the current
      period.





During
      2007 and
      2006, respectively, stock-based compensation of $98,883 and $41,154 was included
      in research and development expense to record the amortization of the estimated
      fair value of the portion of previously granted stock options that vested during
      the current period.





**Other
      income/(expense)** ******





Other
      expense of
      ($1,308,441) for 2007 consisted primarily of the $772,655 expense to record
      to
      value of warrants to purchase 710,200 shares of common stock granted to
      noteholders as an inducement for the conversion of their notes for Series B
      preferred stock, $578,611 of expense recorded due to the increased fair value
      of
      the warrants modified in September 2007, partially offset by interest earned
      on
      cash balances during the year.





Other
      income of
      $238,826 for 2006 consisted primarily of the $250,000 we received from licensing
      our patent portfolio related to our older videoconferencing technology.





**Net
      Loss**




Net
      loss for 2007
      was $4,905,483 compared to a net loss of $1,462,187 for 2006. The greater loss
      during the current period was due primarily to the significant increase in
      operating expenses that resulted from hiring additional sales and research
      and
      development personnel during 2007, $490,381 recorded for share-based payments
      to
      Triton Business Development Services for consulting services, $772,655 recorded
      for the value of warrants issued in conjunction with the exchange of notes
      payable for Series B Preferred stock, and the $578,611 warrant modification
      expense. Also, during 2006, we received $250,000 from the licensing of our
      patent portfolio related to our older videoconferencing technology.





**Off
      Balance
      Sheet Arrangements**





We
      do not have any
      off-balance sheet arrangements.





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





The
      information
      required by this Item 7 is hereby incorporated by reference to our Consolidated
      Financial Statements beginning on page F-1 of this Annual Report on Form 10-KSB.




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





Not
      applicable.





**ITEM
      8A(T).
      CONTROLS AND PROCEDURES**





*Evaluation
      of
      Disclosure Controls and Procedures*




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




17





The
      Company
      maintains a system of internal controls designed to provide reasonable assurance
      that transactions are executed in accordance with management’s general or
      specific authorization; transactions are recorded as necessary to (1) permit
      preparation of financial statements in accordance with accounting principles
      generally accepting in the United States of America, and (2) maintain
      accountability for assets. Access to assets is permitted only in accordance
      with
      management’s general or specific authorization. In 2007, the Company adopted and
      implemented the control requirements of Section 404 of the Sarbanes-Oxley Act
      of
      2002 (the “Act”).





It
      is the responsibility of the Company’s management to establish and maintain
      adequate internal control over financial reporting. However, due to its limited
      financial resources, there is only limited segregation of duties within the
      accounting function, leaving most significant aspects of financial reporting
      in
      the hands of the Chief Financial Officer.





The
      Company
      maintains disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Securities Exchange Act reports
      is
      recorded, processed, summarized, and reported within the time periods specified
      in the SEC's rules and forms, and that such information is accumulated and
      communicated to our management, including the Company’s Chief Executive Officer
      and Chief Financial Officer, as appropriate, to allow timely decisions regarding
      required disclosure. As of December 31, 2007, an evaluation was performed under
      the supervision and with the participation of our management, including the
      Chief Executive Officer and the Chief Financial Officer, of the effectiveness
      of
      the design and operation of our disclosure controls and procedures. Based upon
      that evaluation, the Chief Executive Officer and the Chief Financial Officer
      concluded that our disclosure controls and procedures were not effective.





In
      connection with its audit of our consolidated financial statements as of
      December 31, 2007 and for the year ended December 31, 2007, Marcum &
Kliegman LLP advised our management and Audit Committee of the Board of
      Directors that it had identified a deficiency in internal controls, which was
      designated a "material weakness", as defined below. The material weakness
      indicated that there was difficulty in evaluating, applying, and documenting
      complex accounting principles, and in preparing a complete report without major
      errors, within our accounting function. The Company initially failed to properly
      record the beneficial conversion feature associated with the Series B
      Convertible Preferred Stock offering, and the financing expense for the
      conversion of notes payable for Series B Convertible Preferred Stock.




A
      material weakness is a significant deficiency (or a combination of significant
      deficiencies) that result in a more-than-remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected.




A
      significant deficiency is a control deficiency (or combination of internal
      control deficiencies) that adversely affects the Company's ability to initiate,
      authorize, record, process, or report external financial data reliably in
      accordance with GAAP such that there is a more-than-remote likelihood that
      a
      misstatement of the Company's annual or interim financial statements that is
      more than inconsequential will not be prevented or detected.  The standard
      specifies that a misstatement is inconsequential if a reasonable person would
      conclude, after considering the possibility of further undetected misstatements,
      that the misstatement, either individually or when combined with other
      misstatements, would clearly be immaterial to the financial statements.  If
      a reasonable person could not reach such a conclusion regarding a particular
      misstatement, that misstatement would be more than inconsequential.




*Management’s
      Annual Report on Internal Control over Financial Reporting*




Management
      is
      responsible for establishing and maintaining adequate internal control over
      financial reporting (as defined in Rules 13a-15(f) and 15d(15(f) under the
      Securities Exchange Act of 1934, as amended). Our management including the
      Company’s Chief Executive Officer and Chief Financial Officer, evaluated as of
      December 31, 2007, the effectiveness of our internal control over financial
      reporting using the framework in *Internal
      Control - Integrated Framework* issued by the
      Committee of Sponsoring Organizations of the Treadway Commission. Based on
      that
      evaluation , the Company’s Chief Executive Officer and Chief Financial Officer
      concluded that our internal controls, as of December 31, 2007, were not
      effective in providing reasonable assurances regarding reliability of financial
      reporting, for the reasons set forth above in “- Evaluation of Disclosure
      Controls and Procedures.”




18




*Changes
      in
      Internal Control over Financial Reporting*




There
      have been no
      significant changes in internal controls over financial reporting that occurred
      during the quarter ended December 31, 2007 that has materially affected, or
      is
      reasonably likely to materially affect, our internal control over financial
      reporting.




**ITEM
      8B.
      OTHER INFORMATION**





On
      March 24, 2008, five shareholders converted 139 shares of the Company’s Series B
      Convertible Preferred Stock to 278,000 shares of the Company’s common
      stock.





On
      March 26, 2008, two shareholders converted 145 shares of the Company’s Series B
      Convertible Preferred Stock to 290,000 shares of the Company’s common
      stock.





**PART
      III**





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




The
      information
      required by this Item is contained in our definitive proxy statement for the
      2008 Annual Meeting of Stockholders, which is expected to be filed with the
      SEC
      on or about April 29, 2008, and is incorporated herein by reference.




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




The
      information
      required by this Item will be presented in our definitive proxy statement for
      the 2008 Annual Meeting of Stockholders, which is expected to be filed with
      the
      SEC on or about April 29, 2008, and is incorporated herein by reference.




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




The
      information
      required by this Item will be presented in our definitive proxy statement for
      the 2008 Annual Meeting of Stockholders, which is expected to be filed with
      the
      SEC on or about April 29, 2008, and is incorporated herein by reference.




**ITEM
      12.** **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE** **.**




The
      information
      required by this Item will be presented in our definitive proxy statement for
      the 2008 Annual Meeting of Stockholders, which is expected to be filed with
      the
      SEC on or about April 29, 2008, and is incorporated herein by reference.




**ITEM
      13.
      EXHIBITS.**


The
        following
        exhibits are filed with or incorporated by reference into this report. The
        exhibits which are denominated by an asterisk (*) were previously filed as
        a
        part of, and are hereby incorporated by reference from either (i) the Company’s
        Registration Statement on Form SB-2 (File No. 333-128420) filed with the
        Securities and Exchange Commission on September 19, 2005, (referred to as
“2005
        SB-2”), (ii) the Post-Effective Amendment No. 1 to the Company's Registration
        Statement on Form S-18 (File No. 33-27040-D) (referred to as “S-18 No. 2”),
        (iii) Post-Effective Amendment No. 2 to the Company's Registration Statement
        on
        Form S-18 (File No. 33-27040-D) (referred to as “S-18 No. 3”), (iv) the
        Company's Registration Statement Form S-1 (File No. 33-85754) (referred to
        as
“S-1”); (v) the Company's Annual Report on Form 10-K for the year ended December
        31, 1993 (referred to as “1993 10-K”); (vi) the Company's Annual Report on Form
        10-K for the year ended December 31, 1994 (referred to as “1994 10-K”); (vii)
        the Company’s Annual Report on Form 10-K for the year ended December 31, 1998,
        as amended (referred to as “1998 10-K/A”) filed on April 30, 1999 , (viii) the
        Company's Form S-8 Registration Statement (File No. 333-148890), (referred
        to as
“Option Plan S-8”) filed on January 28, 2008, (ix) the Company's Registration
        Statement on Form S-3 amended January 31, 1999 (“1999 S-3”), (x) the Company's
        Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (referred
        to as “2001 10-Q”) filed November 14, 2001, (xi) the Company’s Annual Report on
        Form 10-KSB for the year ended December 31, 2006 (“2006 10-KSB”) filed April 17,
        2007, or (xii) the Company’s 2002 proxy statement on Schedule 14A (referred to
        as “2002 Proxy Statement”) filed on April 24, 2002.




19
 
 Exhibit
                    No.
                
                Description
                    of Exhibit*3.1
                
                Certificate
                    of Incorporation of the Company, as amended through March 8,
                    2007 (2006
                    10-KSB)*3.2
                
                Amended
                    Bylaws of the Company as presently in use (S-18 No. 2, Exhibit
                    3.2)4.1
                
                Certificate
                    of Incorporation of the Company, as amended (filed herewith as
                    Exhibit
                    3.1)*10.3
                
                1991
                    Stock
                    Option Plan (S-18 No. 3, Exhibit 10.1(a))*10.3.1
                
                Amendment
                    No.
                    1 to 1991 Stock Option Plan (1993 10-K)*10.3.2
                
                Amendment
                    No.
                    2 to 1991 Stock Option Plan (S-1)*10.3.3
                
                Amendment
                    No.
                    3 to 1991 Stock Option Plan (S-1)*10.3.4
                
                Amendment
                    No.
                    4 to 1991 Stock Option Plan (Option Plan S-8, Exhibit
                    4.5)*10.3.5
                
                Amendment
                    No.
                    5 to 1991 Stock Option Plan (1998 10-K/A, Exhibit
                    10.3.5)*10.4
                
                2002
                    Equity
                    Incentive Plan (2002 Proxy Statement)*10.5
                
                2002
                    Equity
                    Incentive Plan Form S-8 (Option Plan S-8)*10.6
                
                License
                    Agreement between ACIS, Inc. and the Company dated September
                    9, 1999 (1999
                    S-3)*10.7
                
                First
                    Amendment and Modification of ACIS, Inc. warrant agreement dated
                    September
                    7, 2001 (2001 10-Q, Exhibit 10.2)*10.8
                
                ACIS
                    Technology License Agreement between ACIS, Inc. and the Company
                    dated
                    September 27, 2001 (2001 10-Q, Exhibit 10.1)*10.9
                
                Triton
                    Business Development Services Engagement Agreement dated January
                    31, 2007
                    (2006 10-KSB)21.1
                
                Subsidiaries
                    of the Company23.1
                
                Consent
                    of
                    Marcum & Kliegman LLP31.1
                
                Rule
                    13a-14(a)/15d-14(a) Certification of Principal Executive
                    Officer31.2
                
                Rule
                    13a-14(a)/15d-14(a) Certification of Principal Financial
                    Officer32.1(1)
                
                Section
                    1350
                    Certifications*
                    Previously
                    filed(1)
                    In
                    accordance with Item 601(b)(32) of Regulation S-B, this Exhibit
                    is not
                    deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise
                    subject to the liabilities of that section. Such certifications
                    will not
                    be deemed incorporated by reference into any filing under the
                    Securities
                    Act or the Exchange Act, except to the extent that the registrant
                    specifically incorporates it by reference.




20




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





The
      information
      required by this Item will be presented in our definitive proxy statement for
      the 2008 Annual Meeting of Stockholders, which is expected to be filed with
      the
      SEC on or about April 29, 2008, and is incorporated herein by reference.





SIGNATURES





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




SIMTROL,
              INC.By:
            /s/
              Richard W. EganDate:
              March 28, 2008
            Richard
              W. Egan, Chief Executive
              Officer




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





Signature
            
            Title
            
            Date/s/
                Dallas S.
                Clement
            
            Chairman
                of
                the Board
            
            March
                28,
                2008Dallas S. Clement/s/
                Richard
                W. Egan
            
            Chief
                Executive Officer
            
            March
                28,
                2008Richard W. Egan
            
            (Principal
                Executive Officer)/s/
                Stephen
                N. Samp
            
            Chief
                Financial Officer
            
            March
                28,
                2008Stephen N. Samp
            
            (Principal
                Financial andAccounting
                Officer)/s/
                Adam D.
                Senter
            
            Director
            
            March
                28,
                2008Adam D. Senter/s/
                Lee D.
                Wilder
            
            Director
            
            March
                28,
                2008Lee D. Wilder




21
 
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Report
                    of Independent Registered Public Accounting Firm
                F-1Consolidated
                    Balance Sheet as of December 31, 2007
                F-2Consolidated
                    Statements of Operations for the Years Ended December 31, 2007
                    and
                    2006
                F-4Consolidated
                    Statements of Stockholders' Equity/(Deficiency) for the Years
                    Ended
                    December 31, 2007 and 2006
                F-5Consolidated
                    Statements of Cash Flows for the Years Ended December 31, 2007
                    and
                    2006
                F-6Notes
                    to Consolidated Financial Statements
                F-7
  
  REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
          the
          Audit Committee of the
 Board
          of
          Directors and Shareholders
 of
          Simtrol, Inc. and Subsidiaries
 
 We
          have
          audited the accompanying consolidated balance sheet of Simtrol, Inc. and
          Subsidiaries (the
“Company”) as of December 31, 2007, and the related consolidated statements of
          operations, stockholders’ equity/(deficiency) and cash flows for the years ended
          December 31, 2007 and 2006. These consolidated financial statements are
          the
          responsibility of the Company’s management. Our responsibility is to express an
          opinion on these consolidated financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States).  Those standards require that
          we plan and perform the audit to obtain reasonable assurance about whether
          the
          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 audit 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 Simtrol,
          Inc.
          and Subsidiaries, as of December 31, 2007, and the consolidated results
          of their
          operations and their cash flows for the years ended December 31, 2007 and
          2006
          in conformity with United States generally accepted accounting principles.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern. As discussed in Note 2 to
          the
          consolidated financial statements, at December 31, 2007, the Company has
          not
          achieved a sufficient level of revenues to support its business and has
          suffered
          recurring losses from operations. These factors raise substantial doubt
          about
          the Company’s ability to continue as a going concern. Management’s plans
          regarding those matters are also described in Note 2. The consolidated
          financial
          statements do not include any adjustments that might result from the outcome
          of
          this uncertainty.
 
 /s/
          Marcum & Kliegman LLP
 
 New
          York,
          New York
 March
          28,
          2008
  F-1
 
 SIMTROL,
          INC. AND SUBSIDIARIES
 CONSOLIDATED
          BALANCE SHEET
 December
          31, 2007
 
 ASSETS
  CURRENT
                      ASSETSCash
                      and cash equivalents
                  
                  $
                  256,358Certificate
                      of deposit
                  
                  
                  101,862Accounts
                      receivable, net
                  
                  
                  27,232Prepaid
                      expenses and other current assets
                  
                  
                  35,779Total
                      Current Assets
                  
                  
                  421,231LONG-TERM
                      ASSETSProperty
                      and equipment, net
                  
                  
                  117,285Right
                      to license intellectual property
                  
                  
                  115,143Other
                      long-term assets
                  
                  
                  11,458TOTAL
                      ASSETS
                  
                  $
                  665,117
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-2
  SIMTROL,
          INC. AND SUBSIDIARIES
 CONSOLIDATED
          BALANCE SHEET
 December
          31, 2007
 
 LIABILITIES
                    AND STOCKHOLDERS’ EQUITYLIABILITIESCURRENT
                    LIABILITIESAccounts
                    payable
                
                $
                169,243Accrued
                    expenses
                
                
                126,903Deferred
                    revenue
                
                
                462Common
                    stock to be issued
                
                
                26,000Total
                    Current Liabilities
                
                
                322,608Common
                    stock to be issued, less current portion
                
                
                26,000Deferred
                    rent payable, less current portion
                
                
                11,967TOTAL
                    LIABILITIES
                
                
                360,575COMMITMENTS
                    AND CONTINGENCIESSTOCKHOLDERS'
                    EQUITYPreferred
                    stock, $.00025 par value; 800,000 shares authorized;770,000 shares
                    of
                    Series A Convertible Preferred Stock designated; 728,664 outstanding;
                    liquidation value of $2,185,992; 4,700 shares of Series B Convertible
                    Preferred Stock designated and issued; liquidation value of
                    $3,525,000
                
                
                183Common
                    stock, authorized 40,000,000 shares of$.001
                    par value; 7,314,371 shares issued and outstanding
                
                
                7,314Additional
                    paid-in capital
                
                
                72,119,986Accumulated
                    deficit
                
                
                (71,822,941
                )Total
                    Stockholders’ Equity
                
                
                304,542TOTAL
                    LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                665,117
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-3
  SIMTROL,
          INC. AND SUBSIDIARIES
 CONSOLIDATED
          STATEMENTS OF OPERATIONS
 For
          the
          Years Ended December 31, 2007 and 2006
  2007
                  
                  2006Revenues:Software
                      licenses
                  
                  $
                  97,584
                  
                  $
                  159,659Service
                  
                  
                  93,469
                  
                  
                  65,033Total
                      revenues
                  
                  
                  191,053
                  
                  
                  224,692Cost
                      of revenuesSoftware
                      licenses
                  
                  
                  2,834
                  
                  
                  3,873Service
                  
                  
                  -
                  
                  
                  1,867Total
                      cost of revenues
                  
                  
                  2,834
                  
                  
                  5,740Gross
                      profit
                  
                  
                  188,219
                  
                  
                  218,952Operating
                      expensesSelling,
                      general and administrative
                  
                  
                  2,956,697
                  
                  
                  1,502,983Research
                      and development
                  
                  
                  828,564
                  
                  
                  416,982Total
                      operating expenses
                  
                  
                  3,785,261
                  
                  
                  1,919,965Loss
                      from operations
                  
                  
                  (3,597,042
                  )
                  
                  (1,701,013
                  )Other
                      income/(expenses):Other
                      income/(expense)
                  
                  
                  42,825
                  
                  
                  (11,174
                  )Gain
                      on sale of intellectual property
                  
                  
                  -
                  
                  
                  250,000Increased
                      fair value of warrants’ modification
                  
                  
                  (578,611
                  )
                  
                  -Finance
                      expense on conversion of notes payable
                  
                  
                  (772,655
                  )
                  
                  -Total
                      other income/(expense)
                  
                  
                  (1,308,441
                  )
                  
                  238,826Net
                      loss
                  
                  $
                  (4,905,483
                  )
                  $
                  (1,462,187
                  )Dividend
                      on covenant default of convertible preferred stock
                  
                  
                  -
                  
                  
                  800,613Preferred
                      stock dividend
                  
                  
                  599,917
                  
                  
                  -Deemed
                      preferred dividend
                  
                  
                  939,118
                  
                  
                  -Net
                      loss attributable to common stockholders
                  
                  $
                  (6,444,518
                  )
                  $
                  (2,262,800
                  )Net
                      loss per common share attributable to common stockholders-basic
                      and
                      diluted
                  
                  $
                  (1.04
                  )
                  $
                  (0.52
                  )Weighted
                      average number of common shares outstanding
                  
                  
                  6,204,921
                  
                  
                  4,349,737
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-4
  SIMTROL,
          INC. AND SUBSIDIARIES
 CONSOLIDATED
          STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY)
 For
          the
          Years Ended December 31, 2007 and 2006
 Common stock
                  
                  Preferred Stock
                  
                  Additional
                    Paid-in
                    capital
                  
                  Accumulated
                    deficit
                  
                  TotalNumber of
                      Shares
                  
                  Par value
                  
                  Number of
                    Shares
                  
                  Par valueBalance,
                      January 1, 2006
                  
                  
                  3,755,684
                  
                  
                  3,756
                  
                  
                  450,000
                  
                  
                  113
                  
                  
                  63,641,158
                  
                  
                  (63,916,236
                  )
                  
                  (271,209
                  )Net
                      Loss for the period
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,462,187
                  )
                  
                  (1,462,187
                  )Conversion
                      of Series A Preferred Stock
                  
                  
                  261,336
                  
                  
                  261
                  
                  
                  (65,334
                  )
                  
                  (17
                  )
                  
                  (244
                  )
                  
                  
                  
                  
                  -Dividend
                      payable on covenant default of convertible preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (800,613
                  )
                  
                  
                  
                  
                  (800,613
                  )Issuance
                      of common stock to directors
                  
                  
                  87,984
                  
                  
                  88
                  
                  
                  
                  
                  
                  
                  
                  
                  36,012
                  
                  
                  
                  
                  
                  36,100Stock-based
                      compensation amortization
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  469,027
                  
                  
                  
                  
                  
                  469,027Exercises
                      of stock options
                  
                  
                  625,000
                  
                  
                  625
                  
                  
                  
                  
                  
                  
                  
                  
                  249,375
                  
                  
                  
                  
                  
                  250,000Issuance
                      of common stock for purchase
                  
                  
                  200,000
                  
                  
                  200
                  
                  
                  
                  
                  
                  
                  
                  
                  51,800
                  
                  
                  
                  
                  
                  52,000Balance,
                      December 31, 2006
                  
                  
                  4,930,004
                  
                  $
                  4,930
                  
                  
                  384,666
                  
                  $
                  96
                  
                  $
                  63,646,515
                  
                  $
                  (65,378,423
                  )
                  $
                  (1,726,882
                  )Net
                      Loss for the period
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,905,483
                  )
                  
                  (4,905,483
                  )Issuance
                      of Series B Preferred Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  4,700
                  
                  
                  1
                  
                  
                  3,518,793
                  
                  
                  
                  
                  
                  3,518,794Conversion
                      of Series A Preferred Stock
                  
                  
                  162,672
                  
                  
                  163
                  
                  
                  (40,668)
                  
                  
                  (10
                  )
                  
                  (153
                  )
                  
                  
                  
                  
                  -Issuance
                      of Series A Preferred stock in modification
                  
                  
                  
                  
                  
                  
                  
                  
                  384,666
                  
                  
                  96
                  
                  
                  523,050
                  
                  
                  
                  
                  
                  523,146Issuance
                      of common stock to directors
                  
                  
                  18,431
                  
                  
                  18
                  
                  
                  
                  
                  
                  
                  
                  
                  21,432
                  
                  
                  
                  
                  
                  21,450Stock-based
                      compensation amortization
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  357,153
                  
                  
                  
                  
                  
                  357,153Warrant
                      issued in Series A modification
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  245,620
                  
                  
                  
                  
                  
                  245,620Issuance
                      of common stock for purchase of license agreement
                  
                  
                  100,000
                  
                  
                  100
                  
                  
                  
                  
                  
                  
                  
                  
                  25.900
                  
                  
                  
                  
                  
                  26,000Write
                      off remainder of previously accrued dividend payable
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  403,097
                  
                  
                  
                  
                  
                  403,097Cashless
                      warrant exercises
                  
                  
                  713,387
                  
                  
                  713
                  
                  
                  
                  
                  
                  
                  
                  
                  (713
                  )
                  
                  
                  
                  
                  -Warrants
                      issued for notes payable exchange
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  772,655
                  
                  
                  
                  
                  
                  772,655Common
                      stock dividend on Series A and B Convertible Preferred
                      shares
                  
                  
                  604,977
                  
                  
                  605
                  
                  
                  
                  
                  
                  
                  
                  
                  599,312
                  
                  
                  (599,917
                  )
                  
                  -Increase
                      in fair value of warrants due to modification
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  578,611
                  
                  
                  
                  
                  
                  578,611Issuance
                      of common stock for services
                  
                  
                  784,900
                  
                  
                  785
                  
                  
                  
                  
                  
                  
                  
                  
                  489,596
                  
                  
                  
                  
                  
                  490.381Deemed
                      preferred dividend
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  939,118
                  
                  
                  (939,118
                  )
                  
                  -Balance,
                      December 31, 2007
                  
                  
                  7,314,371
                  
                  
                  7,314
                  
                  
                  733,364
                  
                  
                  183
                  
                  
                  72,119,986
                  
                  
                  (71,822,941
                  )
                  
                  304,542
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-5
  SIMTROL,
          INC. AND SUBSIDIARIES
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 For
          the
          Years Ended December 31, 2007 and 2006
 
 2007
                
                2006Cash
                    flows from operating activities:Net
                    loss
                
                $
                (4,905,483
                )
                $
                (1,462,187
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Gain
                    on sale of intellectual property
                
                
                -
                
                
                (250,000
                )Depreciation
                    and amortization
                
                
                80,080
                
                
                9,733Stock-based
                    compensation
                
                
                378,603
                
                
                505,127Issuance
                    of stock for services
                
                
                490,381
                
                
                -Issuance
                    of warrants in conversion of notes payable to preferred
                    stock
                
                
                772,655
                
                
                -Increase
                    in fair value of warrants’ modification
                
                
                578,611
                
                
                -Note
                    interest exchanged into offering
                
                
                5,736Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                57,137
                
                
                (81,476
                )Prepaid
                    expenses and other current assets
                
                
                (4,471
                )
                
                1,922Other
                    long-term assets
                
                
                (11,458
                )
                
                -Interest
                    payable
                
                
                -
                
                
                8,351Accounts
                    payable
                
                
                (98,836
                )
                
                117,010Accrued
                    expenses
                
                
                4,625
                
                
                9,693Deferred
                    revenue
                
                
                462
                
                
                (19,144
                )Deferred
                    rent payable, less current portion
                
                
                11,967
                
                
                -Net
                    cash used in operating activities
                
                
                (2,639,991
                )
                
                (1,160,971
                )Cash
                    flows from/(used in) investing activities:Purchases
                    of property and equipment and leasehold improvements
                
                
                (125,677
                )
                
                (5,200
                )Proceeds
                    from sale of intellectual property
                
                
                -
                
                
                250,000Net
                    cash provided by/(used in) investing activities
                
                
                (125,677
                )
                
                244,800Cash
                    flows from /(used in) financing activities:Increase
                    in certificate of deposit
                
                
                (100,000
                )
                
                -Net
                    proceeds from exercise of stock options
                
                
                -
                
                
                250,000Proceeds
                    from notes payable issuance
                
                
                331,000
                
                
                416,000Repayment
                    of note payable
                
                
                (14,286
                )
                
                (37,000
                )Deposit
                    returned from cancelled offering
                
                
                -
                
                
                (12,000
                )Cash
                    overdraft
                
                
                (1,420
                )
                
                1,420Net
                    proceeds from stock issuances
                
                
                2,808,594
                
                
                -Net
                    cash provided by financing activities
                
                
                3,023,888
                
                
                618,420Increase/(decrease)
                    in cash and cash equivalents
                
                
                258,220
                
                
                (297,751
                )Cash
                    and cash equivalents, beginning of the year
                
                
                0
                
                
                297,751Cash
                    and cash equivalents, end of the year
                
                $
                258,220
                
                $
                0Supplementary
                    disclosure:Interest
                    paid
                
                $
                3,085
                
                $
                213Income
                    taxes paid
                
                $
                -
                
                $
                -Supplemental
                    schedule of non cash investing and financing activities:Non
                    cash investing and financing activities:Supplemental
                    schedule of non-cash investing and financing activities:Dividend
                    payable on covenant default of convertible preferred stock
                
                $
                -
                
                $
                800,613Issuance
                    of common stock in acquisition of JDS interest
                
                $
                26,000
                
                $
                $
                    52,000Exchange
                    of notes payable for Series B Preferred stock
                
                $
                710,200
                
                $
                -Common
                    stock dividend paid
                
                $
                599,917
                
                $
                -Issuance
                    of Series A Preferred stock as dividend payment on covenant
                    default
                
                $
                768,766
                
                $
                -Issuance
                    of warrants as dividend payment on covenant default
                
                $
                403,097
                
                $
                -Deferred
                    offering costs
                
                $
                16,600
                
                $
                -Deemed
                    preferred dividend
                
                $
                939,118
                
                $
                -
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-6
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 **NOTE
          1 – Nature of Operations and Basis of Presentation**
 
 Simtrol,
          Inc., formerly known as VSI Enterprises, Inc., was incorporated in Delaware
          in
          September 1988 and, together with its wholly-owned subsidiaries (the "Company"),
          develops, markets, and supports software based audiovisual control systems
          and
          videoconferencing products that operate on PC platforms. The Company operates
          at
          a single facility in Norcross, Georgia and its sales are primarily in the
          United
          States.
  **NOTE
          2 – Going Concern**
 
 As
          of
          December 31, 2007, the Company had cash, cash equivalents, and certificate
          of
          deposit totaling $358,220. Since inception, the Company has not achieved
          a
          sufficient level of revenue to support its business and has incurred recurring
          losses from operations, and has an accumulated deficit of approximately
          $71.8
          million as of December 31, 2007. The Company has relied on periodic issuances
          of
          common stock, preferred stock, and convertible debt since the fourth quarter
          of
          2001 to sustain its operations. The Company currently requires substantial
          amounts of capital to fund current operations and the continued development
          and
          deployment of its OnGoer ® and
          Curiax TM product
          lines.
 
 On
          January 22 and 23, 2008, the Company completed the sale of $1,500,000 of
          securities in a private placement. The
          net
          proceeds of this offering will be used for working capital and general
          corporate
          purposes. See
          Note
          13. Management continues to actively seek additional funding to continue
          to
          develop its products to generate income from operations.
 
 These
          matters raise substantial doubt about the Company’s ability to continue as a
          going concern.  The accompanying consolidated financial statements have
          been prepared on a going concern basis, which contemplate the realization
          of
          assets and satisfaction of liabilities in the normal course of business.
          The
          consolidated financial statements do not include any adjustments relating
          to the
          recoverability of the recorded assets or the classification of the liabilities
          that might be necessary should the Company be unable to continue as a going
          concern.
 
 **NOTE
          3 – Significant Accounting Policies**
 
 Principles
          of Consolidation
 The
          consolidated financial statements include the accounts of the Company and
          its
          wholly-owned subsidiaries. All intercompany transactions and balances have
          been
          eliminated in consolidation.
 
 Loss
          Per Share
 Statement
          of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share",
          requires the presentation of basic and diluted earnings per share ("EPS").
          Basic
          EPS is computed by dividing loss attributable to common shareholders by
          the
          weighted-average number of common shares outstanding for the period. Diluted
          EPS
          includes the potential dilution that could occur if options or other contracts
          to issue common stock were exercised or converted. The following equity
          securities are not reflected in diluted loss per share because their effects
          would be anti-dilutive:
 
 December 31, 2007
                
                December 31, 2006Options
                
                
                4,401,375
                
                
                1,775,025Warrants
                
                
                16,434,774
                
                
                4,897,737Convertible
                    Preferred Stock
                
                
                12,314,656
                
                
                1,538,664Total
                
                
                33,150,805
                
                
                8,211,426
 
 Accordingly,
          basic and diluted loss per share are identical.
 
 Stock-Based
          Compensation
 
 On
          August
          31, 2007, the stockholders of the Company approved an amendment to the
          Company's
          2002 Equity Incentive Plan (the "Plan") to increase the number of shares
          of
          common stock authorized for issuance under the Plan to 6,000,000 shares
          from the
          previously authorized amount of 4,000,000 shares. Option awards are granted
          with
          an exercise price equal to or greater than the market price of the Company’s
          stock on the date of the grant in accordance with the Plan. The options
          generally have five-year contractual terms for directors and 10 years for
          employees, and vest immediately for directors and over four years for
          employees.
  F-7
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
  The
          Company implemented FAS 123R in the first quarter of 2006. The statement
          requires companies to expense the value of employee stock options and similar
          awards. Under FAS 123R, share-based payment awards result in a cost that
          will be
          measured at fair value on the awards’ grant date based on the estimated number
          of awards that are expected to vest. Compensation costs for awards that
          vest
          will not be reversed if the awards expire without being exercised. Stock
          compensation expense under FAS 123R was $378,603 and $505,127 during 2007
          and
          2006, respectively. Of these totals, $98,883 and $41,154 were classified
          as
          research and development expense and $279,720 and $463,973 were classified
          as
          selling, general, and administrative expense in 2007 and 2006,
          respectively.
 
 The
          Company uses historical data to estimate option exercise and employee
          termination within the valuation model and historical stock prices to estimate
          volatility. The fair values for options issued during 2007 and 2006 were
          estimated at the date of grant using a Black-Scholes option-pricing model
          to be
          $1,648,047 and $373,349, respectively, with the following weighted-average
          assumptions:
 
 2007
                
                2006AssumptionsRisk-free
                    rate
                
                
                3.32%-4.97
                %
                
                4.88-4.92
                %Annual
                    rate of dividends
                
                
                0
                
                
                0Volatility
                
                
                89-133
                %
                
                90-148
                %Average
                    life
                
                
                5
                    years
                
                
                2.9
                    years
 
 The
          Company estimated forfeitures at 0% for 2007 and 2006, respectively.
 
 The
          Black-Scholes option valuation model was developed for use in estimating
          the
          fair value of traded options, which have no vesting restrictions and are
          fully
          transferable. In addition, option valuation models require the input of
          highly
          subjective assumptions, including the expected stock price volatility.
          The
          Company’s employee stock options have characteristics significantly different
          from those of traded options, and changes in the subjective input assumptions
          can materially affect the fair value estimate.
 
 A
          summary
          of option activity under the Plan as of December 31, 2007 and changes during
          the
          year then ended are presented below:
  Weighted-Average
                
                Weighted-Average        Remaining
                
                AggregateOptions
                
                Shares
                
                Exercise Price
                
                Term
                
                Intrinsic ValueOutstanding
                    January 1, 2007
                
                
                1,775,025
                
                $
                1.40Granted
                
                
                2,904,600
                
                $
                0.72Exercised
                
                
                -
                
                $
                -Terminated
                
                
                (278,250
                )
                $
                1.56Outstanding
                    at December 31, 2007
                
                
                4,401,375
                
                $
                0.94
                
                
                7.7
                
                $
                1,404,056Exercisable
                    at December 31, 2007
                
                
                1,367,025
                
                $
                1.42
                
                
                4.6
                
                $
                1,143,529
 
 The
          weighted-average grant-date fair values of options granted during the years
          ended December 31, 2007 and 2006 were $0.57 and $0.24, respectively. There
          were
          no options exercised during 2007. The total intrinsic value of options
          exercised
          during 2006 was $106,007.
 
 F-8
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 As
          of
          December 31, 2007, there was $1,493,817 of total unrecognized compensation
          cost
          related to nonvested share-based compensation arrangements granted under
          the
          Plan. That cost is expected to be recognized over a weighted average period
          of
          2.6 years. The total fair values of shares vested during the years ended
          December 31, 2007 and 2006 was $357,153 and $172,578, respectively.
 
 At
          December 31, 2007, 1,598,625 options remain available for grant under the
          Company’s 2002 Stock Option Plan.
 
 The
          following table summarizes information about stock options outstanding
          at
          December 31, 2007:
  Options Outstanding
                
                Options ExercisableWeightedAverage
                
                Weighted
                
                
                
                WeightedRange of
                
                Number
                
                Remaining
                
                Average
                
                Number
                
                AverageExercise
                
                Outstanding at
                
                Contractual
                
                Exercise
                
                Exercisable at
                
                ExercisePrice
                
                December 31, 2007
                
                Life (Years)
                
                Price
                
                December 31, 2007
                
                Price$0.26-$0.48
                
                
                2,066,000
                
                
                6.89
                
                $
                0.39
                
                
                738,750
                
                $
                0.40$0.55-$0.90
                
                
                1,254,600
                
                
                8.56
                
                $
                0.76
                
                
                325,000
                
                $
                0.69$1.04-$2.00
                
                
                955,000
                
                
                8.90
                
                $
                1.39
                
                
                177,500
                
                $
                1.96$2.25-$2.50
                
                
                65,300
                
                
                3.89
                
                $
                2.30
                
                
                65,300
                
                $
                2.30$3.50-$4.80
                
                
                32,150
                
                
                2.48
                
                $
                4.31
                
                
                32,150
                
                $
                4.31$9.10-$55.00
                
                
                28,325
                
                
                2.53
                
                $
                27.73
                
                
                28,325
                
                $
                27.734,401,375
                
                
                7.69
                
                $
                0.94
                
                
                1,367,025
                
                $
                1.42
 
 Revenue
          Recognition
 
 Revenues
          consist of the sale of device control and monitoring software and digital
          arraignment software, videoconferencing systems and related maintenance
          contracts on these systems. The Company marketed and sold three
          different products during 2007 and 2006: its control and monitoring software,
          OnGoer®, digital arraignment software called Curiax Arraigner TM, and
          service of its older proprietary hardware and software product, Omega.
          Revenue
          consists of the sale of device control software and related maintenance
          contracts on these systems. Revenue on the sale of hardware is recognized
          upon
          shipment. We recognize revenue from OnGoer software sales upon shipment
          as we
          sell the product to audiovisual integrators, net of estimated returns and
          discounts. Revenue on maintenance contracts is recognized over the term
          of the
          related contract.
 
 As
          of
          December 31, 2007, there was $462 of deferred revenues. The Company did
          not have
          any sales of its Curiax digital arraignment software during either 2007
          or
          2006.
  Cash
          and Cash Equivalents
 
 For
          financial reporting purposes, the Company considers all highly liquid
          investments with a maturity of three months or less when purchased to be
          cash
          equivalents. The Company does have cash balances in banks in excess of
          the
          maximum amount insured by the FDIC as of December 31, 2007.
 
 Allowance
          for Doubtful Accounts
 
 The
          allowance for doubtful accounts reflects management’s best estimate of the
          probable losses inherent in the account receivable balance. Management
          determines the allowance based on known troubled accounts, historical
          experience, and other currently available evidence.
 
 F-9
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 Property
          and Equipment
 
 Property
          and equipment are stated at cost. Depreciation and amortization are provided
          for
          in amounts sufficient to relate the cost of depreciable assets to operations
          over the shorter of their estimated useful lives or lease terms, ranging from
          3-10
          years on a straight-line basis. Leasehold improvements made in 2007 will
          be
          amortized over the shorter of the useful life or over 60 months, the term
          of the
          initial lease on the company’s facility.
 
 Software
          Development Costs
 
 All
          software development costs are charged to expense as incurred until
          technological feasibility has been established for the product. **** Software
          development costs incurred after technological feasibility has been established
          are capitalized and amortized, commencing with product release, using the
          greater of the income forecast method or on a straight-line
          basis over the useful life of the product. The Company did not capitalize
          any
          software development costs during either 2007 or 2006 and all assets were
          fully
          amortized by December 31, 2006.
 
 Income
          Taxes
 The
          Company filed its federal and state tax returns for the years ended December
          31,
          2004, 2005, and 2006, respectively, during 2007.
 
 Effective
          January 1, 2007, the Company adopted the provisions of FASB Interpretation
          No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of
          FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition
          threshold and a measurement attribute for the financial statement recognition
          and measurement of tax positions taken or expected to be taken in a tax
          return.
          For those benefits to be recognized, a tax position must be more-likely-than-not
          to be sustained upon examination by taxing authorities.
 
 In
          many
          cases the Company’s tax positions are related to tax years that remain subject
          to examination by relevant tax authorities. The Company files income tax
          returns
          in the United States (federal) and in various state and local jurisdictions.
          In
          most instances, the Company is no longer subject to federal, state and
          local
          income tax examinations by tax authorities for years prior to 2003.
 
 The
          adoption of the provisions of FIN 48 did not have a material impact on
          the
          company’s consolidated financial position and results of operations. As of
          December 31, 2007 no liability for unrecognized tax benefits was required
          to be
          recorded.
 
 The
          Company recognized a deferred tax asset of approximately $18.0 million
          as of
          December 31, 2007, primarily relating to net operating loss carry forwards
          of
          approximately $46.9 million, which expire through 2027. The ultimate 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 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; therefore, a valuation allowance of
          $18.0
          million was established for the full value of the deferred tax asset. For
          the year ended December 31, 2007, the valuation allowance decreased by
          approximately $285,000. A valuation allowance will be maintained until
          sufficient positive evidence exists to support the reversal of any portion
          or
          all of the valuation allowance net of appropriate reserves. Should the
          Company
          be profitable in future periods with supportable trends, the valuation
          allowance
          will be reversed accordingly.
 
 F-10
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 A
          reconciliation of the expected federal statutory rate of 34% to the Company’s
          actual rate as reported for each of the periods presented is as
          follows:
  Year Ended
                
                Year EndedDecember 31, 2007
                
                December 31, 2006Expected
                    Statutory Rate
                
                
                (34.00
                )%
                
                (34.00
                )%State
                    income tax rate, net of federal benefit
                
                
                (3.96
                )%
                
                (3.96
                )%(37.96
                )%
                
                (37.96
                )%Permanent
                    Difference
                
                
                (10.45
                )%
                
                -Valuation
                    Allowance
                
                
                (27.51
                )%
                
                (37.96
                )%Net
                    Actual Rate
                
                
                0.00
                %
                
                0.00
                %
 
 Fair
          Value of Financial Instruments
 
 Management
          believes that the carrying amounts of certain financial instruments, including
          cash and cash equivalents, certificates of deposit, accounts receivable,
          accounts payable and accrued expenses approximate their fair values as
          of each
          balance sheet date given the relatively short maturity of each of these
          instruments. The fair value of the Company's debt approximates
          fair value based on borrowing rates currently available to the Company
          for
          borrowings with comparable terms and conditions.
 
 Use
          of
          Estimates
 
 The
          preparation of financial statements in conformity with accounting principles
          generally accepted in the United States of America requires management
          to make
          estimates and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of
          the financial statements and the reported amounts
          of revenue and expenses during the reporting period. Critical estimates
          include
          management's judgments associated with: determination of an allowance for
          doubtful accounts receivable, deferred income tax valuation allowance
          and the capitalization, depreciation and amortization of certain long-term
          assets (primarily software development costs), stock-based compensation,
          and
          impairment of assets. Actual results could differ from those estimates.
 
 New
          Accounting Pronouncements
 
 In
          February 2006, the FASB issued Statement of Financial Accounting Standard
          155 - Accounting for Certain Hybrid Financial Instruments (“SFAS 155”), which
          eliminates the exemption from applying SFAS 133 to interests in securitized
          financial assets so that similar instruments are accounted for similarly
          regardless of the form of the instruments. SFAS 155 also allows the election
          of
          fair value measurement at acquisition, at issuance, or when a previously
          recognized financial instrument is subject to a remeasurement event. Adoption
          is
          effective for all financial instruments acquired or issued after the beginning
          of the first fiscal year that begins after September 15, 2006. **** The
          adoption of SFAS did not have a material effect on **** the
          Company's **** consolidated
          financial position, results of operations, or cash flows.
  In
          March 2006, the FASB issued Statement of Financial Accounting Standard 156
          - Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
          separately recognized servicing assets and servicing liabilities be initially
          measured at fair value. SFAS 156 permits, but does not require, the subsequent
          measurement of servicing assets and servicing liabilities at fair value.
          Adoption is required as of the beginning of the first fiscal year that
          begins
          after September 15, 2006. The
          adoption of SFAS 156 did not have a material effect on the Company's **** consolidated
          financial position, results of operations, or cash flows.
 
 In
          June
          2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), Accounting
          for
          Uncertainty in Income Taxes.  FIN 48 prescribes a recognition threshold and
          measurement attribute for the financial statement recognition and measurement
          of
          a tax position taken or expected to be taken in a tax return.  FIN 48 also
          provides guidance on derecognition, classification, interest and penalties,
          accounting in interim periods, disclosure, and transition.  FIN 48 is
          effective for fiscal years beginning after December 15, 2006.  The
          adoption of FIN 48 did not have a material effect on the Company's****consolidated
          financial position, results of operations, or cash flows.
  F-11
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
  In
          December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for
          Registration Payment Arrangements,” which specifies that the contingent
          obligation to make future payments or otherwise transfer consideration
          under a
          registration payment arrangement should be separately recognized and measured
          in
          accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF
          00-19-02 is required for fiscal years beginning after December 15, 2006. The
          adoption of EITF 00-19-2 did not have a material effect on the
          Company's **** consolidated
          financial position, results of operations, or cash flows.
  In
          February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
          Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies
          with an option to report selected financial assets and liabilities at fair
          value
          and establishes presentation and disclosure requirements designed to facilitate
          comparisons between companies that choose different measurement attributes
          for
          similar types of assets and liabilities. SFAS 159 is effective for fiscal
          years
          beginning after November 15, 2007. The adoption of SFAS 159 is not expected
          to have a material effect on the Company’s consolidated financial position,
          results of operations, or cash flows.
 
 In
          December 2007, the Financial Accounting Standards Board (“FASB”) issued
          Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business
          Combinations” (“SFAS 141R”), which replaces SFAS No. 141, “Business
          Combinations.” SFAS 141R establishes principles and requirements for determining
          how an enterprise recognizes and measures the fair value of certain assets
          and
          liabilities acquired in a business combination, including noncontrolling
          interests, contingent consideration, and certain acquired contingencies.
          SFAS
          141R also requires acquisition-related transaction expenses and restructuring
          costs be expensed as incurred rather than capitalized as a component of
          the
          business combination. SFAS 141R will be applicable prospectively to business
          combinations for which the acquisition date is on or after the beginning
          of the
          first annual reporting period beginning on or after December 15, 2008.
          SFAS 141R
          would have an impact on accounting for any businesses acquired after the
          effective date of this pronouncement.
 
 In
          December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
          Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS
          160”). SFAS 160 establishes accounting and reporting standards for the
          noncontrolling interest in a subsidiary (previously referred to as minority
          interests). SFAS 160 also requires that a retained noncontrolling interest
          upon
          the deconsolidation of a subsidiary be initially measured at its fair value.
          Upon adoption of SFAS 160, the Company would be required to report any
          noncontrolling interests as a separate component of stockholders’ equity. The
          Company would also be required to present any net income allocable to
          noncontrolling interests and net income attributable to the stockholders
          of the
          Company separately in its consolidated statements of income. SFAS 160 is
          effective for fiscal years, and interim periods within those fiscal years,
          beginning on or after December 15, 2008. SFAS 160 requires retroactive
          adoption
          of the presentation and disclosure requirements for existing minority interests.
          All other requirements of SFAS 160 shall be applied prospectively. SFAS
          160
          would have an impact on the presentation and disclosure of the noncontrolling
          interests of any non wholly-owned businesses acquired in the
          future.
 
 **NOTE
          4 – Property and Equipment**
 
 Property
          and equipment consist of the following as of December 31, 2007:
 
 Machinery
                    and equipment
                
                $
                130,078Furniture
                    and fixtures
                
                
                6,619Leasehold
                    improvements
                
                
                15,840152,537Less
                    accumulated depreciation and amortization
                
                
                (35,252
                )$
                117,285
  F-12
 
 SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 Depreciation
          and amortization expense relating to property and equipment was $25,223
          and
          $9,733 for the years ended December 31, 2007 and 2006, respectively, and
          is
          included in selling, general and administrative expense in the accompanying
          consolidated statements of operations.
 
 **NOTE
          5 – Related Party Transaction**
 
 In
          order
          to fund its operations, the Company issued a $37,000 note payable to one
          member
          of the Board of Directors on June 9, 2006. The debt accrued interest at
          10% and
          was uncollateralized. The proceeds of this debt were utilized for working
          capital purposes. On June 30, 2006, the Company repaid the note plus the
          accrued
          interest of $213.
 
 As
          of
          March 16, 2007, the member of the Board of Directors had a total of $510,000
          notes payable outstanding and he exchanged $496,500 of the notes and accrued
          interest of $11,289 as part of the Series B Preferred Stock private placement.
          See Note 6. The remaining balance of $13,500 and accrued interest totaling
          $786
          was paid in full at June 29, 2007. See Note 6.
 
 **NOTE
          6 – Stockholders’ Equity/(Deficiency)**
 
 On
          February 22, 2006, two holders of Series A Preferred Stock of the Company
          elected to convert an aggregate of 65,334 shares of Series A Preferred
          Stock to
          common stock of the Company, pursuant to the conversion terms of the Series
          A
          Preferred Stock. On February 22, 2006, the Company issued an aggregate
          of
          261,336 shares of its common stock to the two stockholders upon the surrender
          of
          their Series A Preferred Stock for conversion.
 
 In
          June
          2006, two directors of the Company exercised 625,000 stock options for
          total
          proceeds to the Company of $250,000.
 
 During
          2007, the Company granted options to employees with three-year vesting
          periods
          at exercise prices equal to or greater than the fair value of the Company’s
          stock on these dates:
 
 January
                    31, 2007-
                
                
                1,400,000March
                    14, 2007 -
                
                
                200,000April
                    10, 2007 –
                
                
                75,000May
                    30, 2007 –
                
                
                75,000June
                    25, 2007 -
                
                
                75,000August
                    6, 2007 -
                
                
                25,000August
                    11, 2007 -
                
                
                150,000August
                    14, 2007 -
                
                
                5,000August
                    22, 2007 -
                
                
                35,000September
                    1, 2007 -
                
                
                25,000October
                    4, 2007 -
                
                
                35,000October
                    10, 2007 -
                
                
                25,000October
                    22, 2007 –
                
                
                50,000December
                    11, 2007 –
                
                
                729,600
  On
          January 31, 2007, the Company issued 480,000 shares of its common stock
          to
          Triton Business Development Services (“Triton”), an Atlanta-based provider of
          critical business planning, resource, and development services, in conjunction
          with an agreement dated October 18, 2006.
 
 On
          February 1, 2007, the Company signed an advisory services agreement (the
          "Agreement") with Triton. As a part of the Agreement, Triton will provide
          the
          Company with financial and strategic planning services that include capital
          formation, structure and funding strategies, investor relations consultation,
          human resources assessment and development, and an organizational review
          of the
          Company’s processes, practices, and procedures. The term of the Agreement is 24
          months.
 
 F-13
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 Triton’s
          compensation will consist of cash and restricted shares of the Company's
          common
          stock over the term of the Agreement. A monthly cash retainer of $10,000
          will be
          paid by the Company. Additionally, 640,000 shares of the Company's common
          stock will be earned ratably over the 24-month term of the Agreement by
          Triton.
          The Company issued restricted shares of common stock pursuant to the Agreement
          as follows:
 
 Date
                
                Number of sharesJanuary
                    31, 2007
                
                
                11,200February
                    28, 2007
                
                
                26,700March
                    31, 2007
                
                
                26,700April
                    30, 2007
                
                
                26,700May
                    31, 2007
                
                
                26,700June
                    30, 2007
                
                
                26,700July
                    31, 2007
                
                
                26,700August
                    31, 2007
                
                
                26,700September
                    30, 2007
                
                
                26,700October
                    31, 2007
                
                
                26,700November
                    30, 2007
                
                
                26,700December
                    31, 2007
                
                
                26,700
 
 The
          offer
          and sale of the shares issued in connection with the Agreement were exempt
          from
          the registration requirements of the Securities Act of 1933, as amended
          (the
          "Act"), pursuant to Rule 506 and Section 4(2) of the Act. In connection
          with the
          sales, the Company did not conduct any general solicitation or advertising, and
          the Company complied with the requirements of Regulation D relating to
          the
          restrictions on the transferability of the shares issued.
 
 On
          January 30, 2007, the Company received a notice of effectiveness from the
          State
          of Delaware regarding the Certificate of Amendment of Certificate of
          Incorporation of the Company (the "Amendment"), which modified the rights
          of the
          holders of the Company's Series A Convertible Preferred Stock. The Amendment
          provides for, among other things: (i) each holder of the Company's Series
          A
          Convertible Preferred Stock to receive one additional share of Series A
          Convertible Preferred Stock for each share owned; (ii) the addition of
          an 8%
          (based on stated value) noncumulative coupon, payable semi-annually in
          cash or
          common stock of the Company; (iii) pre-emptive rights for holders of the
          Company's Series A Convertible Preferred Stock; (iv) the addition of a
          redemption feature whereby the Series A Convertible Preferred Stock is
          callable
          at $3.75 per share at the option of the Company; (v) the addition of a
          mandatory
          conversion feature whereby the Series A Convertible Preferred Stock is
          automatically converted to common stock of the Company in the event that
          the bid price of the Company's common stock closes at or above $1.00 for
          20
          consecutive trading days and the average daily trading volume of the Company's
          common stock is equal to or greater than $150,000; and (vi) the amendment
          of the
          provision requiring unanimous approval for an increase in the
          number of shares designated as Series A Convertible Preferred Stock to
          require a
          majority approval for an increase in the number of shares designated as
          Series A
          Convertible Preferred Stock. The Amendment also eliminated the working
          capital
          test that previously occurred at quarter end per the previous Series A
          Convertible Preferred Stock terms and increased the authorized number of
          Series
          A Convertible Preferred shares from the previous 450,000 to 770,000. On
          June 30,
          2007, in accordance with the terms of the Certificate, the Company paid
          a
          dividend to the Series A shareholders of 58,035 shares of its common stock.
          The
          price of the stock on that date was $1.54. On December 31, 2007, in accordance
          with the terms of the Certificate, the Company paid a dividend to the Series
          A
          shareholders of 119,797 shares of its common stock. The price of the stock
          on
          that date was $0.73.
 
 In
          accordance with the receipt of a notice of effectiveness from the State
          of
          Delaware regarding the Amendment, which modified the rights of the holders
          of
          the Company's Series A Convertible Preferred Stock, the Company issued
          384,666
          shares of Series A Convertible Preferred stock on January 31, 2007 to the
          existing Series A Convertible Preferred stockholders. Each stockholder
          also
          received warrants to purchase two shares of common stock for each share
          of
          Series A Convertible Preferred Stock issued on January 31, 2007 at an exercise
          price of $0.375 per share. This issue of Series A Preferred stock and warrants
          to purchase common stock settled the liability for dividend payable on
          default of convertible preferred stock of $1,171,863. On January 31, 2007,
          in
          accordance with the anti-dilution provisions of certain warrants to purchase
          388,000 shares of common stock that were issued during 2004, thirteen warrant
          holders had the exercise prices of the warrants adjusted from $2.00 per
          share to
          $0.375 per share and warrants to purchase an additional 1,681,333
          shares of common stock were issued. On January 31, 2007, in accordance
          with the
          anti-dilution provisions of certain warrants to purchase 2,145,444 shares
          of
          common stock that were issued during 2005, warrant holders having the right
          to
          purchase 345,444 shares of stock had their exercise prices of the warrants
          adjusted from $0.75 per share to $0.375 per share, warrant holders having
          the
          right to purchase 900,000 shares of stock had their exercise prices of
          the
          warrants adjusted from $1.25 per share to $0.375 per share, and warrant
          holders
          having the right to purchase 900,000 shares of stock had their exercise
          prices
          of the warrants adjusted from $1.00 per share to $0.375 per share. The
          expiration dates of the 2004 and 2005 warrants were not changed.
  F-14
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
  On
          February 20, 2007, the Certificate of Designation establishing the terms
          of a
          Series B Preferred Stock was filed. Certain terms of the Series B Preferred
          Stock are as follows:
 
 ·
                The
                    Series B Preferred Stock stated value is $750.00 and each share
                    converts
                    into common stock at the conversion price of $0.375 at any time
                    and
                    without limitation.
 
 ·
                Without
                    approval of a majority of the Series B Preferred Stock Holders,
                    the
                    Company shall not incur debt (other than debt collateralized
                    by accounts
                    receivable of the Company) in excess of an aggregate of $1.5
                    million
                    outside of trade debt in the normal course of business. The terms
                    of such
                    debt shall not encumber any copyrights, marketing materials,
                    software code
                    or any other proprietary technology, software or product processes,
                    patents or patent licenses.
 
 ·
                The
                    Series B Preferred Stock will pay a 12% (based on stated value)
                    noncumulative coupon, payable semi-annually (June 30, December
                    31) in cash
                    or common stock (common stock value deemed $0.375 for purpose
                    of dividend
                    payment if closing price of common stock on payment date is less
                    than
                    $0.375).
 
 ·
                If
                    the Company has a current registration statement on file covering
                    those
                    common shares represented by Series B Preferred Stock and the
                    Company’s
                    common stock bid price closes at or above $1.00 for 20 consecutive
                    trading
                    days and the average daily trading volume of the common stock
                    is equal to
                    or greater than $150,000, then Series B Preferred Stock will
                    automatically
                    convert to common at $0.375 per common
                    share.
 
 ·
                Series
                    B Preferred Stock Holders receive pre-emptive right to participate
                    in
                    subsequent equity rounds at the same pro rata percentage of ownership
                    they
                    currently own in Company on an as-converted basis
                    today.
 
 ·
                Series
                    B Preferred Stock callable at $1,875 per share at option of
                    Company.
 
 ·
                A
                    total of 4,700 shares of Series B Preferred Stock were
                    designated.
 
 ·
                The
                    Company was required to file a registration statement within
                    sixty (60)
                    days of the closing of this Offering and use its best efforts
                    for it to be
                    effective within sixty (60) days from its filing. In the event
                    that these
                    filing requirements were not met, the Company will pay the Investor
                    (pro
                    rated on a daily basis), as partial compensation for such failure,
                    and not
                    as a penalty, in the form of common stock, equal to one and one
                    half
                    percent (1.5%) of the purchase price of the registrable securities
                    purchased from the Company and held by the Investor for each
                    month (or
                    portion thereof) until such Registration Statement has been filed.
                    The
                    Company filed a resale registration statement on Form SB-2 on
                    May 14, 2007
                    to register the common stock underlying the Series B Convertible
                    Preferred
                    Stock, the common stock underlying the warrants issued in conjunction
                    with
                    the exchange of the notes payable, and the common stock underlying
                    the
                    warrants in the private placement. As of March 28, 2008, the
                    registration
                    statement has not been declared effective by the
                    SEC
 
 F-15
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 On
          March
          16, 2007, three note holders, including one member of the Board of Directors,
          exchanged $696,500 principal and $13,700 interest due from the Company
          (totaling
          $710,200) under their notes payable for units in the private placement.
          In
          conjunction with the exchange, the Company issued the holders additional
          warrants to purchase an aggregate of 710,200 shares of the Company’s common
          stock at an exercise price of $0.375 per share. The warrants have five-year
          terms. The Company recorded a finance expense of $772,655 to recognize
          the fair
          value of the warrants granted to the noteholders. See Note 9.
 
 Additionally,
          on March 16, 2007, the Company completed the sale of $3,525,000 of securities
          in
          a private placement of 4,700 units (at $750 per unit) consisting of one
          share of
          Series B Convertible Preferred Stock and one warrant to purchase 2,000
          shares of
          our common stock at an exercise price of $0.375 per share. Each share of
          Series
          B Convertible Preferred Stock has a conversion price of $0.375 per share
          (one
          Series B Convertible Preferred share equals 2,000 shares of common stock).
          The
          warrants had three-year terms. In connection with the issuance of the securities
          above, a deemed dividend of $939,118 was recorded to reflect the beneficial
          conversion feature on the common shares that would result from the
          conversion of the Series B Preferred Stock. On September 12, 2007, Company
          amended the terms of its stock purchase warrants. The Warrants were revised
          to
          include a cashless exercise provision and to extend the term of the Warrants
          from three years to five years. In conjunction with the amendment, the
          Company
          recorded an expense of $578,611 to record the increased fair value of the
          warrants due to the modification.
 
 On
          June
          30, 2007, in accordance with the terms of the terms of the Series B Preferred
          stock, the Company paid a dividend to the Series B shareholders of 137,378
          shares of its common stock. The price of the stock on that date was
          $1.54.
 
 On
          December 31, 2007, in accordance with the terms of the terms of the Series
          B
          Preferred stock, the Company paid a dividend to the Series B shareholders
          of
          289,767 shares of its common stock. The price of the stock on that date
          was
          $0.73.
 
 On
          March
          16, 2007, one stockholder converted 8,000 shares of the Company’s Series A
          Convertible Preferred Stock to 32,000 shares of the Company’s common stock.
 
 On
          March
          21, 2007, one warrant holder exercised warrants allowing the purchase of
          130,668
          shares of common stock via a cashless exercise provision. Per the terms
          of the
          warrant agreement, the Company issued the holder 87,685 shares of its common
          stock on that date.
 
 On
          March
          30, 2007, two warrant holders exercised warrants allowing the purchase
          of
          128,000 shares of common stock via a cashless exercise provision. Per the
          terms
          of the warrant agreements, the Company issued the holders 104,960 shares
          of its
          common stock on that date.
 
 On
          April
          2, 2007, one warrant holder exercised warrants allowing the purchase of
          32,000
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 25,782 shares of its
          common
          stock on that date.
 
 On
          April
          9, 2007, two shareholders converted 8,334 shares of the Company’s Series A
          Convertible Preferred Stock to 33,336 shares of the Company’s common stock.
 
 On
          April
          17, 2007, three warrant holders exercised warrants allowing the purchase
          of
          198,668 shares of common stock via a cashless exercise provision. Per the
          terms
          of the warrant agreements, the Company issued the holders 158,613 shares
          of its
          common stock on that date.
 
 On
          April
          17, 2007, one shareholder converted 8,334 shares of the Company’s Series A
          Convertible Preferred Stock to 33,336 shares of the Company’s common stock.
 
 F-16
 
 SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 On
          April
          24, 2007, one warrant holder exercised warrants allowing the purchase of
          32,000
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 25,617 shares of its
          common
          stock on that date.
 
 On
          April
          26, 2007, one warrant holder exercised warrants allowing the purchase of
          75,668
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 59,904 shares of its
          common
          stock on that date.
 
 On
          May 2,
          2007, two warrant holders exercised warrants allowing the purchase of 186,736
          shares of common stock via a cashless exercise provision. Per the terms
          of the
          warrant agreements, the Company issued the holders 147,832 shares of its
          common
          stock on that date.
 
 On
          May
          15, 2007, one warrant holder exercised warrants allowing the purchase of
          32,000
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 22,551 shares of its
          common
          stock on that date.
 
 On
          May
          21, 2007, one warrant holder exercised warrants allowing the purchase of
          16,092
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 11,376 shares of its
          common
          stock on that date.
 
 On
          July
          27, 2007, one warrant holder exercised warrants allowing the purchase of
          32,000
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 22,977 shares of its
          common
          stock on that date.
 
 On
          July
          30, 2007, one warrant holder exercised warrants allowing the purchase of
          64,000
          shares of our common stock via a cashless exercise provision. Per the terms
          of
          the warrant agreement, the Company issued the holder 46,090 shares of its
          common
          stock on that date.
 
 On
          September 5, 2007, one shareholder converted 16,000 shares of the Company’s
          Series A Convertible Preferred Stock to 64,000 shares of the Company’s common
          stock.
 
 The
          Company issued 18,431 shares of restricted common stock valued at $21,450
          to
          Board Members for attendance during 2007. The Company also issued 87,984
          shares
          of restricted common stock valued at $36,100 to Board Members for attendance
          during 2006. All amounts were recorded at the fair value of the stock on
          the
          date of the issuances.
 
 On
          November 28, 2006, the Company signed an agreement to acquire the remaining
          fifty percent (50%) membership interest in JDS from Integrated Digital
          Systems,
          LLX (“IDS”). Following the acquisition the Company owned 100% of JDS.
 
 On
          November 28, 2006, the Company issued 200,000 shares of restricted common
          stock
          to IDS as partial consideration for purchasing the membership interest.
          See Note
          11.
 
 On
          November 22, 2007, the Company issued 100,000 shares of restricted common
          stock
          to IDS as partial consideration for purchasing the membership interest.
          See Note
          11.
 
 **NOTE
          7 – Stock Warrants**
 
 The
          Company has stock purchase warrants for 16,434,774 shares of common stock
          outstanding at December 31, 2007. A roll forward of the warrant totals
          for 2007
          and 2006 is as follows:
 
 F-17
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
  2007
                
                2006Warrants
                    outstanding at beginning of year
                
                
                4,897,737
                
                
                4,937,880Granted
                
                
                12,560,865
                
                
                -Exercised
                
                
                (927,828
                )
                
                -Terminated
                
                
                (96,000
                )
                
                (40,143
                )Warrants
                    outstanding at December 31
                
                
                16,434,774
                
                
                4,897,737
 
 The
          range
          of exercise prices of the warrants was $0.375 to $2.00 and the weighted
          average
          exercise price was approximately $0.60 at December 31, 2007. The range
          of
          exercise prices of the warrants was $0.75 to $2.40 and the weighted average
          exercise price was approximately $1.49 at December 31, 2006.
 
 **NOTE
          8- Major Customers**
 
 Revenue
          from two customers comprised 72% of our revenues for 2007. Revenue from
          one
          customer of $78,000 comprised approximately 35% of our consolidated revenues
          for
          2006. At December 31, 2007, accounts receivable from two different customers
          comprised 49% and 32%, respectively, of consolidated receivables.
 
 Management
          believes that concentration of credit risk with respect to trade receivables
          is
          minimal due to the composition of the customer base. The end users for
          the
          company’s products are primarily large national and multinational companies and
          agencies of the U.S. government. Allowances are maintained for potential
          credit
          losses, and such losses have been within management's expectations.
  **NOTE
          9 - Operating Leases**
 
 The
          Company leases office space and equipment under noncancellable operating
          leases
          expiring at various dates through 2012. The Company moved to a new office
          location in October 2007 and has 60-month leases on its current office
          space and
          certain leased equipment. On July 20, 2007, the Company entered into a
          60-month
          lease agreement with Narmada Partners, LLC to occupy new office space consisting
          of approximately 10,000 square feet in an office building in Norcross,
          Georgia.
          The Company occupied the space on October 11, 2007. The total amount of
          rent
          payable under the lease will be recognized on a straight-line basis over
          the
          term of the lease. Due to scheduled annual rental increases of approximately
          three percent during the term of the lease, the Company recognized additional
          rent expense and deferred rent payable totaling $16,488 at December 31,
          2007. In
          addition to the base rental, the Company will be obligated for a percentage
          of
          the increase in operating expenses after 2007. The Company delivered to
          the
          landlord a standby, irrevocable letter of credit for $100,000 as a security
          deposit with the letter of credit amount reducing $20,000 for each year
          of the
          lease as long as the lease is not in default. The Company collateralized
          the
          letter of credit with a $100,000 one-year certificate of deposit. An event
          of
          default occurs on the lease if the Company fails to pay any rental amounts
          within five days when due and such failure to pay continues for seven additional
          days following written notice from Narmada Partners, LLC of failure to
          pay. Upon
          an event of default, Narmada Partners, LLC may terminate the lease and
          demand
          payment of all remaining rent due and coming due under the remaining term
          of the
          lease.
 
 The
          Company also maintains several operating leases related to copiers, telephone,
          equipment, and office furniture under various non-cancellable agreements
          expiring through November 2012.
 
 F-18
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 As
          of
          December 31, 2007, the future minimum lease payments are as
          follows:
 
 2008
                
                $
                169,3392009
                
                
                173,4852010
                
                
                174,6522011
                
                
                174,7412012
                
                
                138,958Total
                
                $
                831,175
 
 Rent
          expense for all operating leases for the years ended December 31, 2007
          and 2006
          was $93,045 and $53,012, respectively.
 
 **NOTE
          10- Litigation**
 
 The
          Company is not currently involved in any legal proceedings nor was it involved
          in any legal proceedings during 2007.
 
 **NOTE
          11 – Acquisition of Justice Digital Solutions LLC**
 
 On
          February 15, 2006 Simtrol formed a joint venture with Integrated Digital
          Systems, LLC (“IDS”), an integrator based in Livonia, Michigan to develop and
          sell a judicial arraignment software solution based on the success of a
          deployment in Oakland County, Michigan. The new joint venture, Justice
          Digital
          Solutions L.L.C., a Michigan limited liability company ("JDS"), is headquartered
          in Michigan, with its development staff and testing center located in Norcross,
          Georgia.
 
 IDS
          contributed to JDS all of IDS’ interest in a software license agreement between
          IDS and the County of Oakland, Michigan Constitutional Corporation, including
          the exclusive worldwide rights to copy, modify, market, distribute, and
          sublicense the software developed pursuant to the software license agreement
          (the “OakVideo Software”). The license agreement requires the licensee to pay a
          royalty equal to five percent of all software revenues for products based
          on
          the OakVideo Software for the period of the license agreement (initially
          10
          years from date of licensing agreement on October 28, 2005). Simtrol contributed
          to JDS a non-exclusive, worldwide, royalty-free license to integrate,
          copy, modify, market, distribute and sublicense Simtrol’s ONGOER and OnGuard
          software for use with and into the OakVideo Software, and Simtrol transferred
          to
          JDS any and all exclusive worldwide rights to copy, modify, market, distribute,
          and sublicense certain digital court recording software under development
          by
          Simtrol. JDS initially launched a judicial arraignment solution based on
          the
          integration of Simtrol’s products with the OakVideo Software in
          2006.
 
 On
          November 28, 2006, the Company signed an agreement to acquire an additional
          fifty percent (50%) membership interest in JDS from IDS. Following the
          acquisition the Company owned 100% of JDS.
 
 As
          consideration for the transfer of the membership interest in JDS from IDS
          to the
          Company, the Company will issue Five Hundred Thousand (500,000) restricted
          shares of its common stock to IDS according to the following installment
          schedule:
 
 ·
                Two
                    Hundred Thousand (200,000) restricted common shares of the Company's
                    capital stock to IDS on November 28,
                    2006;
 
 ·
                One
                    Hundred Thousand (100,000) restricted common shares of the Company's
                    capital stock to IDS on November 22,
                    2007;
 
 F-19
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 ·
                One
                    Hundred Thousand (100,000) restricted common shares of the Company's
                    capital stock to IDS on November 22, 2008;
                    and
 
 ·
                One
                    Hundred Thousand (100,000) restricted common shares of the Company's
                    capital stock to IDS on November 22,
                    2009.
 
 In
          addition, JDS will pay IDS five percent (5%) of the gross revenues of JDS,
          from
          whatever source derived, during calendar year 2008 and two and one-half
          percent
          (2.5%) of the gross revenues of JDS during calendar year 2009.
 
 **NOTE
          12 – Intangibles**
 
 In
          conjunction with the purchase of the IDS interest in JDS in November 2006,
          the
          Company recorded an intangible asset of $130,000 on November 28, 2006,
          representing the fair value of 500,000 shares of common stock paid and
          payable
          to IDS, to reflect the value of the license to use the OakVideo Software.
          This
          amount will be amortized over the estimated remaining life of the license
          agreement for JDS’ use of the OakVideo software (through October 2015).
          Amortization during 2007 totaled $14,857.
 
 The
          Company also recorded a customer list of $40,000 in conjunction with the
          purchase of the IDS interest in JDS in 2006. The $40,000 was amortized
          in 2007
          as all applicable revenue with the customer was earned during 2007.
 
 **NOTE
          13 – Subsequent Events**
 
 On
          January 2, 2008 one shareholder converted 24,000 shares of the Company’s Series
          A Convertible Preferred Stock to 96,000 shares of the Company’s common
          stock.
 
 On
          January 3, 2008 the Company issued 10,000 shares of common stock in exchange
          for
          investor relations services performed for the Company by an investor relations
          consulting company. On February 5, 2008 the Company issued 105,000 shares
          of
          common stock in exchange for investor relations and consulting services
          performed for the Company by an investor relations consultant.
 
 On
          January 22 and 23, 2008, Simtrol, Inc. (the "Company") completed the sale
          of
          $1,500,000 of securities in a private placement.
 
 The
          net
          proceeds of this offering will be used for working capital and general
          corporate
          purposes. Important terms of the Convertible Notes include:
  ·
                The
                    Convertible Notes are unsecured, bear interest at the rate of
                    12% per
                    annum, are payable six months from the issue date (“Maturity Date”) and
                    can be pre-paid at any time without penalty.
  ·
                If
                    Simtrol closes a “Qualifying Next Equity Financing” before the Maturity
                    Date, the then outstanding balance of principal and accrued interest
                    on
                    the Convertible Notes will automatically convert into shares
                    of the “Next
                    Equity Financing Securities” we issue. If we close a “Non-Qualifying Next
                    Equity Financing” before the Maturity Date, the then-outstanding balance
                    of principal and accrued interest on the Convertible Notes can
                    be
                    converted, at the option and election of the investor, into shares
                    of the
                    “Next Equity Financing Securities” we issue.
  ·
                A
                    “Qualifying Next Equity Financing” means the first bona fide equity
                    financing (or series of related equity financing transactions)
                    occurring
                    subsequent to the date of issue of a Convertible Note in which
                    we sell and
                    issue any of our securities for total consideration totaling
                    not less than
                    $2.0 million in the aggregate (including the principal balance
                    and accrued
                    but unpaid interest to be converted on all our outstanding Convertible
                    Notes) at a
  F-20
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 ·
                price
                    per share for equivalent shares of common stock that is not greater
                    than
                    $0.75 per share. A “Non-Qualifying Next Equity Financing” means that we
                    complete a bona fide equity financing but we fail to raise total
                    consideration of at least $2.0 million, or the price per share
                    for
                    equivalent shares of common stock is greater than $0.75 per share.
“Next
                    Equity Financing Securities” means the type and class of equity securities
                    that we sell in a Qualifying Next Equity Financing or a Non-Qualifying
                    Next Equity Financing. If we sell a unit comprising a combination
                    of
                    equity securities, then the Next Equity Financing Securities
                    shall be
                    deemed to constitute that unit.
  ·
                Upon
                    conversion of a Convertible Note, we will issue that number of
                    shares of
                    Next Equity Financing Securities equal the quotient obtained
                    by dividing
                    the then outstanding balance of principal and accrued interest
                    on the
                    Convertible Notes by the price per share of the Next Equity Financing
                    Securities.
  ·
                Upon
                    any default, Simtrol would be required to pay a 1% default fee
                    on the
                    outstanding balance. The default fee will be added to the outstanding
                    balance and become due under the terms of the Convertible Note.
  In
          conjunction with the January 22 and January 23, 2008, private placement,
          the
          Company also issued investors warrants to acquire 500,000 shares of our
          common
          stock at an exercise price of $0.75
          per
          Share. The Warrants have a term ending on the earlier to occur of (i) the
          fifth anniversary of the Warrant issue date or (ii) the closing of a change
          of control event.
  The
          offers and sales of the securities in the private placement are exempt
          from the
          registration requirements of the Securities Act of 1933 (the “Act”) pursuant to
          Rule 506 and Section 4(2) of the Act. In connection with the offers and
          sales, we did not conduct any general solicitation or advertising, and
          we
          complied with the requirements of Regulation D relating to the restrictions
          on
          the transferability of the shares issued.
 
 On
          January 18, 2008, the Company granted options to purchase 50,000 shares
          of stock
          to a consultant. The options immediately vest, have a six-year life, and
          were
          granted at an exercise price equal to the fair value of the Company’s common
          stock on that date.
 
 On
          January 28, 2008, the Company granted options to purchase 25,000 shares
          of stock
          to an employee. The options have a three-year vesting period and were granted
          at
          an exercise price equal to the fair value of the Company’s common stock on that
          date.
 
 On
          February 19, 2008 one shareholder converted 16,000 shares of the Company’s
          Series A Convertible Preferred Stock to 64,000 shares of the Company’s common
          stock.
 
 On
          February 26 and 27, 2008 the Company granted options to purchase 170,000
          shares
          of stock to non-employee Board Members. The options vest immediately and
          were
          granted at an exercise price equal to the fair value of the Company’s common
          stock on those dates.
 
 The
          Company issued restricted shares of common stock pursuant to the Triton
          Agreement as follows:
 January
                      31, 2008 –
                  
                  
                  26,700February
                      29, 2008 –
                  
                  
                  26,700
  On
            March
            24, 2008, five shareholders converted 139 shares of the Company’s Series B
            Convertible Preferred Stock to 278,000 shares of the Company’s common
            stock.
 
 On
          March
          26, 2008, two shareholders converted 145 shares of the Company’s Series B
          Convertible Preferred Stock to 290,000 shares of the Company’s common
          stock.
  F-21
  SIMTROL,
          INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2007 and 2006
 
 **Note
          14. Restatement of Prior Unaudited Quarterly Data**
  On
          June
          30, 2007, in accordance with the terms of the Series A Convertible Preferred
          stock and the Series B Convertible Preferred stock, the Company paid a
          dividend
          to the Series A shareholders of 58,035 shares of its common stock and to
          the
          Series B shareholders 137,378 shares of its common stock which was not
          included
          in the June 30, 2007 or September 30, 2007 statements of operations with
          respect
          to net loss attributable to common shareholders. The price on that date
          was
          $1.54 which produced a total preferred dividend of $300,936. The effect
          of this
          preferred dividend is as follows for the three and six months ended June
          30,
          2007 and nine months ended September 30, 2007.
 
 Three MonthsEnded
                  June 30, 2007
                
                Six
                    MonthsEnded
                  June 30, 2007
                
                Nine
                    MonthsEnded
                  September 30, 2007Net
                    loss- previously reported
                
                $
                (881,575
                )
                $
                (2,427,856
                )
                $
                (3,982,557
                )Deemed
                    preferred dividend – previously reported
                
                
                -
                
                
                939,118
                
                
                939,118Net
                    loss attributable to common stockholders – previously
                    reported
                
                $
                (881,575
                )
                $
                (3,366,974
                )
                $
                (4,921,675
                )Preferred
                    dividend
                
                
                (300,936
                )
                
                (300,936
                )
                
                (300,936
                )Net
                    loss attributable to common stockholders, as restated
                
                $
                (1,182,511
                )
                $
                (3,667,910
                )
                $
                (5,222,611
                )Net
                    loss per common share, basic and diluted -previously
                    reported
                
                $
                (0.14
                )
                $
                (0.59
                )
                $
                (0.82
                )Net
                    loss per common share, basic and diluted, as restated
                
                $
                (0.19
                )
                $
                (0.64
                )
                $
                (0.87
                )Weighted
                    average shares outstanding, basic and diluted – previously
                    reported
                
                
                6,121,893
                
                
                5,709,351
                
                
                6,006,936
 
 F-22