**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C.  20549




**FORM
      10-Q**


(Mark
      One)




**ý** **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




For
      the
      quarterly period ended June 30, 2008




or




** ̈** **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
      1934**




For
      the
      transition period from _____________ to ________________




Commission
      File Number: 000-09751




**STATMON
      TECHNOLOGIES CORP.**




(Exact
      name of registrant as specified in its charter)




**Nevada**
            **83-0242652**(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification No.)




**3000
                Lakeside Drive, Suite 300 South, Bannockburn, IL
                60015**(Address
                of principal executive offices) (Zip Code)**(847)
                604-5366**(Registrant’s
                telephone number, including area code)Former
                name, former address and former fiscal year, if changed since last
                report:




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the preceeding 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
ýNo ̈




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




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




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




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.




**Class**
            
            **Outstanding
                at July 31, 2008**Common
                Stock, $.01 par value
            
            23,765,804






1




**FORM
      10-Q**


**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**June
      30, 2008**




**TABLE
      OF CONTENTS**




Page(s)**PART
                  1 - FINANCIAL INFORMATION****Item
                  1.**
              
              **Financial
                  Statements.**Condensed
                  Consolidated Balance Sheets at June 30, 2008 (unaudited)
                  and
              3March
                  31, 2008Condensed
                  Consolidated Statements of Operations for the Three Months
              4Ended
                  June 30, 2008 and 2007 (unaudited)Condensed
                  Consolidated Statements of Cash Flows for the Three Months
              5Ended
                  June 30, 2008 and 2007 (unaudited)Notes
                  to Condensed Consolidated Financial Statements (unaudited)
              6**Item
                  2.**
              
              **Management’s
                  Discussion and Analysis of Financial Condition
                  and**
              19**Results
                  of Operation.****Item
                  3.**
              
              **Quantitative
                  and Qualitative Disclosures About Market Risk.**
              25**Item
                  4.**
              
              **Controls
                  and Procedures.**
              25**PART
                  II - OTHER INFORMATION****Item
                  1.**
              
              **Legal
                  Proceedings.**
              26**Item
                  2.**
              
              **Unregistered
                  Sales of Equity Securities and Use of Proceeds.**
              26**Item
                  3.**
              
              **Defaults
                  Upon Senior Securities.**
              26**Item
                  4.**
              
              **Submission
                  of Matters to a Vote of Security Holders.**
              27**Item
                  5.**
              
              **Other
                  Information.**
              27**Item
                  6.**
              
              **Exhibits.**
              28
  SIGNATURES
              29Exhibits
              30Certifications
              31




2




**Item
      1. Financial Statements.**




**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




**June
                  30, 2008**
                  **(unaudited)**
              
              **March
                  31,**
                ****2008******ASSETS**Current
                  Assets:Cash
              $
              176,173
              
              $
              73,076Accounts
                  receivable
              
              482,044
              
              
              394,735Inventories
              
              39,109
              
              
              48,616Prepaid
                  expense and other current assets
              
              25,850
              
              
              159,614Total
                  Current Assets
              
              723,176
              
              
              676,041Property
                  and equipment, net
              
              236,210
              
              
              241,429Deferred
                  financing costs, net
              
              493,674
              
              
              222,363Security
                  deposits and other assets
              
              124,490
              
              
              128,640Total
                  Assets
              $
              1,577,550
              
              $
              1,268,473**LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCY**Current
                  Liabilities:Notes
                  payable (including $200,000 due to a related party), net of debt
                  discount
                  of$30,110
                  and $58,179, respectively
              $
              621,890
              
              $
              593,821Accounts
                  payable
              
              987,158
              
              
              989,100Accrued
                  expenses
              
              286,264
              
              
              312,387Accrued
                  compensation
              
              613,437
              
              
              574,801Interest
                  payable (including $8,288 and $7,083 due to related party,
                  respectively)
              
              164,952
              
              
              151,806Deferred
                  revenue
              
              174,201
              
              
              194,883Total
                  Current Liabilities
              
              2,847,902
              
              
              2,816,798Long-term
                  Liabilities:Notes
                  payable (including $250,000 due to related party), net of debt
                  discount
                  of$88,253
                  and $99,677, respectively
              
              411,747
              
              
              400,323Convertible
                  notes payable, net of debt discount of $1,907,589 and
                  $1,446,576,respectively
              
              240,411
              
              
              53,424Total
                  Liabilities
              
              3,500,060
              
              
              3,270,545Commitments
                  and ContingenciesStockholders'
                  Deficiency:Preferred
                  stock, $.01 par value, 10,000,000 shares authorized, none
                  issuedand
                  outstanding
              
              -
              
              
              -Common
                  stock, $.01 par value, 100,000,000 shares authorized,23,757,470
                  and 23,579,533 issued and outstanding, respectively
              
              237,575
              
              
              235,794Additional
                  paid-in capital
              
              18,452,558
              
              
              17,658,841Accumulated
                  deficit
              
              (20,612,643
              )
              
              (19,896,707
              )Total
                  Stockholders' Deficiency
              
              (1,922,510
              )
              
              (2,002,072
              )Total
                  Liabilities and Stockholders' Deficiency
              $
              1,577,550
              
              $
              1,268,473




See
      accompanying notes to condensed consolidated
      financial statements (unaudited).




3




**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**




For
                  the Three Months Ended June 30,2008
              
              2007Revenue
              
              $
              935,475
              
              $
              704,069Cost
                  of Sales
              
              
              120,998
              
              
              123,341Gross
                  Profit
              
              
              814,477
              
              
              580,728Selling,
                  General and Administrative Expenses
              
              
              1,191,634
              
              
              1,126,848Operating
                  Loss
              
              
              (377,157
              )
              
              (546,120
              )Other
                  Expense:Interest
                  (including $6,164 and $50,728 to related parties for2008
                  and 2007 periods, respectively)
              
              
              56,559
              
              
              129,766Common
                  stock and warrants issued in association withdebt
                  (including $0 and $483,007 to related partiesfor
                  2008 and 2007 periods, respectively)
              
              
              14,850
              
              
              938,791Amortization
                  of debt discount
              
              
              226,480
              
              
              149,864Amortization
                  of deferred financing costs
              
              
              40,890
              
              
              77,473Total
                  Other Expense
              
              
              338,779
              
              
              1,295,894NET
                  LOSS
              
              $
              (715,936
              )
              $
              (1,842,014
              )NET
                  LOSS PER COMMON SHARE - Basic and Diluted
              
              $
              (0.03
              )
              $
              (0.12
              )Weighted
                  Average Number of Common Shares Outstanding -Basic
                  and Diluted
              
              
              23,618,775
              
              
              15,270,328




See
      accompanying notes to condensed consolidated financial statements
      (unaudited).




4




**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**




For
                  the three Months Ended June 30,2008
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (715,936
              )
              $
              (1,842,014
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
              
              
              14,508
              
              
              2,577Common
                  stock and warrants issued in association with debt
              
              
              32,498
              
              
              938,791Amortization
                  of debt discount
              
              
              226,480
              
              
              149,864Amortization
                  of deferred financing costs
              
              
              40,889
              
              
              77,473Deferred
                  rent expense
              
              
              (13,755
              )
              
              -Non-cash
                  stock based compensation charge
              
              
              34,000
              
              
              47,500Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (87,309
              )
              
              87,510Inventories
              
              
              9,507
              
              
              (10,633
              )Prepaid
                  expense and other current assets
              
              
              133,764
              
              
              28,280Security
                  deposits and other assets
              
              
              4,150
              
              
              (5,725
              )Accounts
                  payable
              
              
              (1,942
              )
              
              (3,133
              )Accrued
                  expenses
              
              
              (12,368
              )
              
              42,631Accrued
                  compensation
              
              
              38,636
              
              
              (33,794
              )Interest
                  payable
              
              
              13,146
              
              
              126,372Deferred
                  revenue
              
              
              (20,682
              )
              
              9,645NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (304,414
              )
              
              (384,656
              )CASH
                  FLOWS USED IN INVESTING ACTIVITIES:Purchase
                  of property and equipment
              
              
              (9,289
              )
              
              -CASH
                  FLOWS FROM FINANCING ACTIVITIES*:*Proceeds
                  from notes payable
              
              
              -
              
              
              397,000Proceeds
                  from convertible notes payable
              
              
              540,000
              
              
              -Repayment
                  of notes payable
              
              
              -
              
              
              -Deferred
                  financing costs
              
              
              (123,200
              )
              
              (19,131
              )NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              416,800
              
              
              377,869NET
                  INCREASE/(DECREASE) IN CASH
              
              
              103,097
              
              
              (6,787
              )CASH,
                  BEGINNING OF PERIOD
              
              
              73,076
              
              
              87,058CASH,
                  END OF PERIOD
              
              $
              176,173
              
              $
              80,271SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Cash
                  paid for:Interest
              
              $
              20,284
              
              $
              3,535Income
                  Taxes
              
              $
              -
              
              $
              -NON-CASH
                  INVESTING AND FINANCING ACTIVITIES:Issuance
                  of warrants related to debt acquisition
              
              $
              259,966
              
              $
              274,896Issuance
                  of common stock related to debt acquisition
              
              $
              -
              
              $
              333,730Issuance
                  of common stock for note extensions
              
              $
              -
              
              $
              108,000Issuance
                  of warrants for note extensions
              
              $
              -
              
              $
              93,000Issuance
                  of common stock to financial advisors
              
              $
              157,500
              
              $
              -Issuance
                  of warrants to placement agents
              
              $
              31,500
              
              $
              18,200Beneficial
                  conversion related to convertible debentures
              
              $
              280,034
              
              $
              -Placement
                  agent commission accrued and not yet paid
              
              $
              -
              
              $
              20,000Capitalization
                  of rent abatement
              
              $
              -
              
              $
              14,726




See
      accompanying notes to condensed consolidated
      financial statements (unaudited).




5




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




**Company
      Overview**




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




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




Architecturally
      designed as a universal “Manager of Technologies” (“MOT”) application or
      platform, wide scale network operations, regardless of disparate equipment
      brands or incompatible technologies deployed at a NOC or remote site, can
      automatically interact with each other while being managed from a single point
      of control or “dashboard” style display or computer screen. In real time, a
      proactive alarm system reports to a NOC or designated wireless device for
      appropriate attention or action. Adjusting the heating, ventilating and air
      conditioning system (“HVAC”), checking the health of the uninterrupted power
      supply (“UPS”) and diesel generator and the level of the fuel tank, as well as
      disaster recovery, emergency power management, and redundancy are all proactive
      management capabilities of the Statmon Platform. In addition, the Statmon
      Platform will keep remote sites operating independently when part, or all,
      of
      the entire network are down, automatically bringing the remote site back on
      line
      when network operations are restored without loss of data.




The
      marketing and distribution of our products are primarily facilitated by
      value-added resellers (“VAR’s”), sales channel strategic partners and original
      equipment manufacturer (“OEM”) collaborations. Sales channel partners are
      developed and managed by an internal business development team and supported
      by
      a direct sales force.




**Going
      Concern**




The
      accompanying condensed interim consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      Unites States of America ("GAAP") for interim financial statements information
      and assume that the Company will continue as a going concern. In the opinion
      of
      management, such statements include all adjustments (consisting only of normal
      recurring adjustments) necessary for the fair presentation of the Company's
      financial position, results of operations and cash flows at the dates and for
      the periods indicated. Pursuant to the requirements of the Securities and
      Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q,
      the accompanying financial statements do not include all the disclosures
      required by GAAP for annual financial statements. These unaudited interim
      condensed financial statements should be read in conjunction with the
      consolidated financial statements and related notes included in the Company's
      Form 10-KSB for the year ended March 31, 2008, which was filed on July 14,
      2008 and the Company's other filings with the SEC. Operating results for the
      three months ended June 30, 2008 are not necessarily indicative of the results
      that may be expected for the fiscal year ending March 31, 2009. The Company
      has
      incurred net losses of approximately $20,613,000 since inception. Additionally,
      the Company had a net working capital deficiency of approximately $2,125,000
      at
      June 30, 2008. These conditions raise substantial doubt about the Company’s
      ability to continue as a going concern. The accompanying financial statements
      do
      not include any adjustments that might result from the outcome of this
      uncertainty.




6




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




**Management
      Plans**




As
      more
      fully described in the Notes below, the Company funded its business during
      each
      of the three months ended June 30, 2008 and 2007 from operations and through
      the
      sale of Original Issue Discount Senior Secured Convertible Debentures and units
      consisting of promissory notes, common stock and warrants to purchase shares
      of
      common stock, resulting in net proceeds to the Company of $540,000 and $397,000,
      respectively.




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




On
      March
      5, 2008, the Company closed the first tranche of $1,500,000 principal amount
      of
      a $3,000,000 Original Issue Discount Senior Secured Convertible Debenture
      Offering (for an aggregate cash subscription amount of $2,500,000) with a
      conversion price of $0.9824 per share and five-year warrants to purchase an
      additional 3,053,746 shares of common stock at $1.20 per share. As of the date
      of this report, the Company has issued an additional $918,000 principal amount
      of the Debentures which netted $765,000 related to the second tranche of the
      Debenture financing, the net proceeds will be used to reduce certain obligations
      and fund the expansion of the Company into several new vertical markets. There
      can be no guarantee that the Company will be successful in selling the balance
      of the Debentures or in obtaining the aforementioned operating results,
      financing or refinancing, converting and/or extending its notes payable. If
      not
      successful, the Company would seek to negotiate other terms for the issuance
      of
      debt, and/or pursue bridge financing, negotiate with suppliers for a reduction
      of debt through issuance of stock, and seek to raise equity through the sale
      of
      its common stock. At this time, management cannot assess the likelihood of
      achieving these objectives. If the Company is unable to achieve these
      objectives, it may be forced to cease business operations, sell assets and/or
      seek protection under applicable bankruptcy laws.




**2.** **CERTAIN
        SIGNIFICANT ACCOUNTING POLICIES**




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




*b.*
            **Accounting
                Estimates**.
                The preparation of financial statements in conformity with US GAAP
                requires management to make certain estimates and assumptions that
                affect
                the reported amounts of assets and liabilities, and disclosure of
                contingent assets and liabilities at the date of the financial statements
                and the reported amounts of revenues and expenses during the reporting
                period. Actual results could differ from those estimates.




*c.*
            **Property
                and Equipment**-
                Property and equipment are stated at cost. The cost of property and
                equipment is depreciated on a straight-line basis over the estimated
                useful lives of the related assets. Leasehold improvements are amortized
                over the lesser of the term of the related lease or the estimated
                useful
                lives of the assets. Maintenance and repairs are charged to operations
                when incurred. Betterments and renewals are capitalized. When property
                and
                equipment are sold or otherwise disposed of, the asset account and
                related
                accumulated depreciation account are relieved, and any gain or loss
                is
                included in operations.




7




**2.** **CERTAIN
      SIGNIFICANT ACCOUNTING POLICIES (continued)**




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




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




*d.*
            **Research
                and Development.**Research and development expenditures are charged to operations as
                incurred. Research and development expenditures were approximately
                $357,000 and $308,000 for the three months ended June 30, 2008 and
                2007,
                respectively.




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




***f.***
            **Net
                Loss Per Share**.
                Basic net loss per share is computed using the weighted average number
                of
                shares of outstanding common stock***.***For
                all periods presented, diluted net loss per share was the same as
                basic
                net loss per share since the inclusion of the convertible notes and
                warrants would have been anti-dilutive. Securities that could potentially
                dilute basic earnings per share (“EPS”) in the future and that were not
                included in the computation of diluted EPS because to do so would
                have
                been anti-dilutive for the periods presented, consist of convertible
                notes
                and warrants to purchase 7,988,668 and 10,096,873 shares of common
                stock
                as of June 30, 2008 and 2007,
                respectively.




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





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





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





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




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




8




**2.** **CERTAIN
      SIGNIFICANT ACCOUNTING POLICIES (continued)**




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




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




During
      the three months ended June 30, 2008 and 2007, the Company granted 100,000
      and
      125,000 warrants to employees and consultants for services provided. Accordingly
      the Company incurred a charge for stock based compensation of $34,000 and
      $47,500, respectively.




A
      summary
      of the status of the Company’s nonvested warrants as of June 30, 2008, and
      changes during the three month period then ended is presented
      below:




Nonvested
                  Warrants
              
              
              Warrants
              
              
              Weighted
                Average
                Grant
                  Date
                Fair
                  ValueNonvested
                  at April 1, 2008
              
              
              25,000
              
              $
              0.80Granted
              
              
              100,000
              
              $
              0.68Vested
              
              
              (50,000
              )
              $
              0.68Expired
              
              
              —
              
              $
              —Nonvested
                  at June 30, 2008
              
              
              75,000
              
              $
              0.72




*i.*
            **
            **New
                Accounting Pronouncements***.*In
                December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
                Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS No. 141,
                “Business Combinations”, and is effective for the Company for 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 141(R) requires the new acquiring entity to recognize
                all
                assets acquired and liabilities assumed in the transactions; establishes
                an acquisition-date fair value for acquired assets and liabilities;
                and
                fully discloses to investors the financial effect the acquisition
                will
                have. The Company is evaluating the impact of this pronouncement
                on the
                Company’s consolidated financial position, results of operations and cash
                flows.




In
      February 2007, the FASB issued SFAS No. 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. The objective of SFAS 159 is to reduce both complexity in accounting
      for financial instruments and the volatility in earnings caused by measuring
      related assets and liabilities differently. Generally accepted accounting
      principles have required different measurement attributes for different assets
      and liabilities that can create artificial volatility in earnings. SFAS 159
      also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities.




9




**2.** **CERTAIN
      SIGNIFICANT ACCOUNTING POLICIES (continued)**




SFAS
      159
      does not eliminate disclosure requirements included in other accounting
      standards, including requirements for disclosures about fair value measurements
      included in SFAS 157 and SFAS No. 107, “Disclosures about Fair Value of
      Financial Instruments.” SFAS 159 became effective for the Company during the
      quarter ended June 30, 2008. The adoption of this pronouncement did not have
      an
      impact on its consolidated financial position, results of operations, or cash
      flows.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements” (“SFAS 160”).  SFAS 160 requires
      all entities to report minority interests in subsidiaries as equity in the
      consolidated financial statements, and requires that transactions between
      entities and noncontrolling interests be treated as equity. SFAS 160 is
      effective for the Company as of the beginning of fiscal 2010.  The
      Company is evaluating the impact of this pronouncement on the Company’s
      consolidated financial position, results of operations and cash
      flows.




In
      March
      2008, the FASB issued Statement of Financial Accounting Standards No. 161
“Disclosure about Derivative Instruments and Hedging Activities - an amendment
      of FASB Statement No. 133” (“SFAS 161”).  SFAS 161 changes the
      disclosure requirements for derivative instruments and hedging
      activities.  Entities are required to provide enhanced disclosures
      about (a) how and why an entity uses derivative instruments, (b) how derivative
      instruments and related hedged items are accounted for under SFAS No. 133 and
      its related interpretations, and (c) how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance and
      cash flows.  The guidance in SFAS 161 is effective for financial
      statements issued for fiscal years and interim periods beginning after November
      15, 2008, with early application encouraged.  This Statement
      encourages, but does not require, comparative disclosures for earlier periods
      at
      initial adoption.  The Company is evaluating the impact of this
      pronouncement on the Company’s consolidated financial position, results of
      operations and cash flows.




In
      April
      2008, the FASB issued FASB Staff Position 142-3, “Determination of the Useful
      Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that
      should be considered in developing renewal or extension assumptions used to
      determine the useful life of a recognized intangible asset under FASB Statement
      No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). The intent of FSP
      142-3 is to improve the consistency between the useful life of a recognized
      intangible assets under FAS 142 and the period of expected cash flows used
      to
      measure the fair value of the asset under FAS 141R and other U.S. generally
      accepted accounting principles. FSP 142-3 is effective for the Company’s interim
      and annual financial statements beginning in fiscal 2009 and early adoption
      is
      prohibited. It does not expect the adoption of FSP 142-3 will have a material
      impact on its financial statements.




In
      May
      2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles” (“FAS 162”). FAS 162 identifies the sources of
      accounting principles and the framework for selecting the principles used in
      the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with accounting principles generally accepted in the
      United States of America. FAS 162 will be effective 60 days following the SEC’s
      approval of the Public Company Accounting Oversight Board amendments to AU
      Section 411, “The Meaning of Present Fairly in Conformity with Generally
      Accepted Accounting Principles.” It does not expect the adoption of FAS 162 to
      have a material impact on its financial statements.




*j.*
              **
              **Reclassifications***.*Certain
                  accounts in the Company's prior year's financial statements have
                  been
                  reclassified for comparative purposes to conform to the presentation
                  of
                  the current year's financial statements. These reclassifications
                  have no
                  effect on previously reported operating results and financial condition
                  of
                  the Company.




10




**3.** **PROPERTY
        AND EQUIPMENT**




Property
      and equipment consist of the following:




June
                  30, 2008
                  (unaudited)
              
              March
                  31, 2008Computer
                  Equipment
              
              $
              79,405
              
              $
              75,865Software
              
              
              13,008
              
              
              13,008Office
                  Equipment
              
              
              39,211
              
              
              33,462Leasehold
                  Improvements
              
              
              209,910
              
              
              209,910341,534
              
              
              332,245Less:
                  accumulated depreciation
              
              
              105,324
              
              
              90,816$
              236,210
              
              $
              241,429




Depreciation
      of property and equipment was $14,508 and $2,577 for the three months ended
      June
      30, 2008 and 2007, respectively.




**4.** **DEFERRED
      FINANCING COSTS**




The
      deferred financing costs consist of costs incurred in connection with the
      issuance of the Company’s outstanding debt as follows:




June
                  30, 2008
                  (unaudited)
              
              March
                  31, 2008Deferred
                  financing costs
              
              $
              547,818
              
              $
              235,618Less:
                  accumlated amortization
              
              
              (54,144
              )
              
              (13,255
              )Deferred
                  financing costs, net
              
              $
              493,674
              
              $
              222,363




Deferred
      financing costs include commissions paid and the value of equity issued to
      placement agents, the value of common stock and warrants issued to extend notes
      payable, legal fees associated with new debt and the value of equity issued
      and
      fees paid to consultants for financing related services. These costs are
      capitalized as deferred financing costs and amortized over the term of the
      related debt. If any or all of the related debt is converted or repaid prior
      to
      its maturity date, a pro-rata share of the related deferred financing costs
      are
      written off and recorded as amortization expense in the period of the conversion
      or repayment in the consolidated statement of operations. During the three
      months ended June 30, 2008, the Company capitalized $312,200 of deferred
      financing costs related to the Original Issue Discount Senior Secured
      Convertible Debenture (see Note 6). For the three months ended June 30, 2008
      and
      2007, amortization of deferred financing costs was $40,889 and $77,473,
      respectively.




11




**5.** **SENIOR
      SECURED ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE**




On
      March
      5, 2008 (the “Closing Date”), Statmon Technologies Corp. (the “Company”) issued
      and sold debentures in a total principal amount of $1,500,000, due March 5,
      2010
      (the “Debentures”) to accredited investors in a private placement pursuant to a
      securities purchase agreement (the “Purchase Agreement”). The Debentures are the
      first tranche of up to an aggregate of $3,000,000 of Original Issue Discount
      Senior Secured Convertible Debentures (representing an aggregate cash
      subscription amount of up to $2,500,000). The Debentures have an effective
      interest rate of approximately 10% per annum. Any additional tranches must
      close
      within forty-five (45) days of the Closing Date unless extended in writing
      by
      the parties which deadline has been extended to August 31, 2008. After deducting
      the expenses of the private placement, including prepaid interest, the Company
      received net proceeds of approximately $1,190,000 related to the first
      tranche.




As
      of
      June 30, 2008, the Company had issued an additional $608,000 principal amount
      of
      the Debentures and received net proceeds of $540,000 related to the second
      tranche of the private placement. As of the date of this filing, the Company
      has
      issued an additional $270,000 principal amount of the Debentures and received
      net proceeds of $225,000 related to the second tranche of the private placement.




In
      connection with the private placement, the first tranche investors also received
      warrants (the “Warrants”) to purchase up to 1,526,874 shares of the Company’s
      common stock, which will expire on March 5, 2013 (the “Termination Date”) and
      the second tranche investors, as of June 30, 20008, also received warrants
      to
      purchase up to 659,610 shares of the Company’s common stock, which will
      expire on June 30, 2013, and have an exercise price of $1.20 per share. If
      at any time after the earlier of (i) the one year anniversary of the date of
      the
      Purchase Agreement and (ii) the completion of the then-applicable holding period
      required by Rule 144, there is no effective registration statement registering,
      or no current prospectus available for, the resale of the Warrant shares by
      the
      holder at the point at which the holder desires to exercise the Warrant, then
      the Warrants may also be exercised at such time by means of a cashless exercise.
      On the Termination Date, the Warrant shall be automatically exercised via
      cashless exercise. If the Company issues warrants at a price that is less than
      the exercise price of the Warrants, then the exercise price of the Warrants
      will
      be reduced to such price.




In
      connection with the private placement, the Company issued to the investors
      an
      additional investment right (the “AIRs”). Pursuant to the AIRs, each investor
      will have the right to purchase up to an additional principal amount of
      Debentures equal to such investor's principal amount of the Debentures and
      Warrants pursuant to the Purchase Agreement, along with additional Warrants
      to
      purchase up to a number of shares of the Company’s common stock equal to 100% of
      the shares issuable upon conversion of the additional Debentures so purchased
      by
      the investor.




The
      initial conversion price (“Conversion Price”) of the Debentures is $0.9824 per
      share. If the Company issues common stock at a price that is less than the
      effective conversion price, or common stock equivalents with an exercise or
      conversion price less than the then effective conversion price, then the
      conversion price will be reduced to such price. The Debentures are secured
      by a
      first lien on all of the assets of the Company.




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




12




**5.** **SENIOR
      SECURED ORIGINAL ISSUE DISCOUNT CONVERTIBLE DEBENTURE
      (continued)**




The
      gross
      proceeds related to the first tranche of the private placement of $1,500,000
      were recorded net of a discount of $1,500,000.  The debt discount consisted
      of $250,000 related to the original issue discount and $576,000 related to
      the
      allocated fair value of the warrants and the remaining $674,000 relates to
      the
      beneficial conversion feature of the note.  The debt discount is charged to
      interest expense ratably over the life of the loan. During the three months
      ended June 30, 2008, the Company amortized $186,986 of debt discount related
      to
      the first tranche of the private placement. The gross proceeds related to the
      second tranche of the private placement, as of June 30, 2008, of $648,000 were
      recorded net of a discount of $648,000.  The debt discount consisted of
      $108,000 related to the original issue discount and $260,000 related to the
      allocated fair value of the warrants and the remaining $280,000 relates to
      the
      beneficial conversion feature of the note.  The debt discount will be
      charged to interest expense ratably over the life of the loan.




In
      the
      event that the Company fails to satisfy the Corporate Milestone, as defined
      in
      the Purchase Agreement, on or before the date the Company is required to file
      its Form 10-K for the period ending March 31, 2009 (the “March 2009 10-K”), then
      the Company shall issue each investor, on a pro-rata basis, additional warrants
      (the “Additional Warrants”) to purchase up to, in the aggregate, 500,000 shares
      of the Company’s common stock. The Additional Warrants shall be in the same form
      as the Warrants described above, shall have a term of exercise equal to five
      (5)
      years following their issuance, and shall have an exercise price of $0.01 per
      share. For purposes of determining whether or not the Company has satisfied
      the
      Corporate Milestone, the Company and the Purchasers shall rely on information
      in
      the Company’s filings with the Commission. In the event the Company fails to
      file the March 2009 10-K on or before the last date such form is required to
      be
      filed with financial and other information for the applicable periods evidencing
      satisfaction of the Corporate Milestone, the Company shall irrevocably be deemed
      to have failed to achieve the Corporate Milestone.




During
      the three months ended June 30, 2008, the Company granted warrants to purchase
      45,000 shares of common stock exercisable at $1.20 per share for a term of
      five
      years, valued at $31,500, to a placement agent related to the first tranche
      of
      the above financing.




**6.** **NOTES
      PAYABLE**




Notes
      payable consist of the following:




June
                  30, 2008
                (unaudited)
              
              
              March
                  31, 2008Current:Notes
                  Payable - Delis - related party
              [a
              ]
              $
              200,000
              
              $
              200,000Notes
                  Payable - various
              [b
              ]
              
              452,000
              
              
              452,000$
              652,000
              
              $
              652,000Less:  
                  Debt Discount
              
              
              
              (30,110
              )
              
              (58,179
              )Total
                  Current Notes Payable
              
              
              $
              621,890
              
              $
              593,821Long-term:Senior
                  Subordinated Notes Payable - Thieme Consulting,Inc.
                  - related party
              [c
              ]
              
              250,000
              
              
              250,000Senior
                  Subordinated Notes Payable
              [d
              ]
              
              250,000
              
              
              250,000$
              500,000
              
              $
              500,000Less:
                  Debt Discount
              
              
              
              (88,253
              )
              
              (99,677
              )Total
                  Long-term Notes Payable
              
              
              $
              411,747
              
              $
              400,323




13




**6.** **NOTES
      PAYABLE (continued)**




[a]  On
      April
      27, 2007, the Company sold a unit consisting of (i) a $200,000 principal amount
      secured promissory note bearing interest at 10% per annum and due 180 days
      from
      the date of issuance, (ii) 150,000 shares of common stock and (iii) warrants
      to
      purchase 150,000 shares of common stock exercisable at a price of $1.00 per
      share for a term of five years. This note matured on October 24, 2007. Per
      the
      default terms of the note, if the Company does not repay the note by the
      maturity date, it will issue an additional 100,000 shares of common stock and
      warrants to purchase 100,000 shares of its common stock at an exercise price
      of
      $1.00 per share with a term of five years as consideration for an extension
      of
      the due date of the note to October 24, 2008. The Company is negotiating a
      short-term extension which would supersede such extension agreement and intends
      to rep the note from the net proceeds from the Debenture offering. There can
      be
      no assurance that it will be able to obtain such an extension. This note is
      secured by a second lien on all of the assets of the Company. The Company
      accrued and paid $7,397 of interest related to this note for the three months
      ended June 30, 2008.




**** [b]
      These
      Units generally consisted of (i) a promissory note bearing interest generally
      at
      10% per annum, (ii) a share of the Company’s common stock and (iii) three or
      five-year warrant to purchase shares of common stock at an exercise price
      between $1.00 and $2.00 per share. The total principal amount of these notes
      is
      $452,000 and represents eight notes with initial maturity dates between November
      19, 2002 and October 21, 2008.




At
      June
      30, 2008, $277,000 principal amount of these notes is in default, plus interest
      of $141,969, with the remaining $175,000 principal amount of these notes not
      yet
      due. Upon default, most notes accrue interest at 15% per annum and provide
      for
      the issuance of monthly warrants, exercisable at the same price as the original
      warrants granted with the Unit, as a penalty until the repayment of the notes
      in
      full. The Company accrued $27,062 of interest and granted 22,500 penalty
      warrants, valued at $14,850 related to such notes during the three months ended
      June 30, 2008. The Company continues to grant 7,500 penalty warrants per month
      related to such notes in default until the notes are repaid.




[c]
      An
      existing note in the amount of $250,000 has matured and on March 5, 2008, the
      Company entered into a new promissory note with Thieme Consulting, Inc. for
      $250,000. This new note is subordinated to the Debentures described in Note
      5
      above. The new note has a maturity date of June 4, 2010 and bears interest
      at
      10% per annum. In consideration for entering into the new note and subordinating
      its first security position, the Company repaid all of the accrued interest
      due
      on the October 2001 notes of $243,896. For the three months ended June 30,
      2008,
      the Company accrued $6,164 of interest due on this note.




[d]
      An
      existing note in the amount of $250,000 has matured and on March 5, 2008, the
      Company entered into a new promissory note with a secured promissory note holder
      for $250,000. This new note is subordinated to the notes in Note 5 and [c]
      above. The new note has a maturity date of June 4, 2010 and bears interest
      at
      10% per annum. In consideration for entering into the new note, the Company
      converted all of the accrued interest due on the August 2004 note of $125,445
      into shares of restricted common stock at $1.00 per share, issued 703,871 shares
      of restricted common stock in exchange for 1,759,676 warrants (as more fully
      described below), and issued a new warrant to purchase 250,000 shares of common
      stock exercisable for a five-year term at $1.20 per share, which warrant expires
      on March 5, 2013. At April 30, 2008, the Company issued 22,917 shares of
      restricted common stock in lieu of cash interest payments for 11 months of
      interest due on the note through February 28, 2009.




**7.** **EQUITY
        TRANSACTIONS**




**[a]
      Common Stock**




During
      the three months ended June 30, 2008, the Company issued 22,917 shares of
      restricted common stock valued at $12,146 in lieu of cash interest payments
      related to a Senior Subordinate Notes Payable. In addition, the Company issued
      5,000 shares of restricted common stock valued at $5,500 associated with a
      short-term bridge loan that was repaid in the period from proceeds of the second
      tranche of the private placement.




14


**7.** **EQUITY
        TRANSACTIONS (cltinued)**
  Additionally,
        the Company issued 150,000 shares of restricted common stock valued at $157,500
        to two entities for investor relations and financial advisor
        services.
  During
        the three months ended June 30, 2007, the Company issued 75,000 shares of
        restricted common stock valued at $102,750 associated with secured senior
        notes
        that were in default. In addition, the Company issued 13,635 shares of
        restricted common stock valued at $18,680 associated with secured senior
        subordinated notes that were in default and 75,000 shares of restricted common
        stock valued at $108,750 per the automatic extension terms of two notes payable.
        Additionally, the Company issued 276,200 shares of restricted common stock
        valued at $333,730 associated with new debt during the same period.




**[b]
      Stock Options and Warrants**




During
      the three months ended June 30, 2008, the Company granted 659,610 warrants
      to
      note holders valued at $259,966 related to new debt in the period and 45,000
      warrants valued at $31,500 as commission to placement agents related to the
      first tranche of the private placement of the Debentures. In addition, the
      Company issued 50,000 warrants to a new employee valued at $34,000 and 22,500
      warrants valued at $14,850 as penalty warrants for notes in default.  The
      weighted average exercise price of the warrants granted during the period was
      $1.19 per share. These warrants are immediately exercisable for three to five
      year terms from their respective dates of issuance.




During
      the three months ended June 30, 2007, the Company granted 1,081,145 warrants
      to
      note holders, of which 276,200 warrants were valued at $274,896 related to
      new
      debt in the period, 729,945 warrants were valued at $817,361 related to notes
      in
      default and 75,000 warrants were valued at $92,250 related to note extensions.
      In addition, the Company granted 20,000 warrants valued at $18,200 as commission
      to placement agents for placing $200,000 of new debt during the period and
      125,000 warrants to an employee per the vesting schedule established in April
      of
      2006 valued at $47,500.  The weighted average exercise price of the
      warrants granted during the period was $1.15 per share. These warrants are
      immediately exercisable for three to five year terms from their respective
      dates
      of issuance.




**Net
      Loss Per Share**





Securities
      that could potentially dilute basic earnings per share (EPS) in the future
      that
      were not included in the computation of diluted EPS because to do so would
      have
      been anti-dilutive for the periods presented, consist of the
      following:




June
                  30, 2008
                  (unaudited)
              
              March
                  31, 2008Warrants
                  to purchase common stock
              
              
              5,802,184
              
              
              5,044,574Convertible
                  notes payable
              
              
              2,186,484
              
              
              1,526,874Total
              
              
              7,988,668
              
              
              6,571,448




15




**8.** **COMMITMENTS
        AND CONTINGENCIES**
  [a]
              **Legal Proceedings**.
                On May 17, 2007, an action was filed in Los Angeles Superior Court
                for
                breach of contract and similar causes of action by the Epstein Family
                Trust against the Company in relation to two outstanding promissory
                notes
                issued by the Company totaling $75,000 ($25,000 and $50,000) plus
                accrued
                interest. The Epstein Family Trust is seeking attorney’s fees and costs in
                addition to the principal and interest. These notes were guaranteed
                by Mr.
                Geoffrey Talbot, the Company's CEO, for up to $25,000, and therefore
                Mr.
                Talbot was joined in the legal action as a third-party defendant.
                The case
                number is BC 371 276. The parties have reached a conditional settlement
                agreement where the plaintiff has agreed to convert all principal
                and
                interest into shares of common stock at a price of $1.00 per share
                provided the Company completes the proposed Convertible Debenture
                and
                warrant financing in a timely manner. The Company is in receipt of
                the
                executed conversion subscription documents and has issued the shares
                of
                common stock related to this conversion. Until such closing, the
                litigation has been put on hold. In the event the litigation is continued
                it will be defended vigorously.




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




[b]
            **Product
                Liability Insurance**-
                The manufacture and sale of the Company’s products involve the risk of
                product liability claims. It does not carry product liability insurance.
                Pursuant to its software licensing agreements and contracts, the
                Company
                makes every effort to limit any product liability to the dollar value
                of
                the transaction, however, a successful claim brought against it could
                require it to pay substantial damages and result in harm to its business
                reputation, remove its products from the market or otherwise adversely
                affect its business and operations.




[c]
            **Financial
                Services**-
                On June 15, 2008, the Company entered into a consulting agreement
                with a
                New York based firm for investor relations services. The Company
                will pay
                $5,000 per month and has agreed to issue 100,000 shares of common
                stock of
                which 50,000 shares vested on June 15, 2008 and 4,167 shares will
                vest and
                be issued per month for 12 months. In addition, the Company has agreed
                to
                issue cashless warrants to purchase 200,000 shares of common stock
                at an
                exercise price of $1.20 per share for a term of five years which
                vest
                evenly over 12 months at 16,667 per month and warrants to purchase
                200,000
                shares of common stock at $1.50 per share for a term of five years
                which
                vest at the one year anniversary of this agreement. There is an
                accelerated vesting provision if the stock price is at $2.50 per
                share or
                higher for 30 consecutive trading days. The $1.50 Warrants shall
                vest 9
                months after the contract signing. If the share price is $2.50 per
                share
                and trades an average of 20,000 shares per day for 30 trading days,
                50% of
                the $1.50 Warrants shall vest in 6 months and the balance at 9 months.
                This contract is cancellable by either party by giving thirty (30)
                days
                written notice to the other party.




On
      June
      15, 2008, the Company entered into a twelve month non-exclusive financial
      advisor agreement with an NASD member firm (“NASD firm”). Some of the services
      to be provided in connection with this agreement include but are not limited
      to
      the performance of financial advisory services to assist the Company in
      developing, studying and evaluating a financial plan, strategic and financial
      alternatives, and merger and acquisition proposals, in addition to assisting
      the
      Company in preparing offering documents and presentation materials. Montauk
      agrees to use its best efforts to coordinate the introduction of the Company
      to
      one of more individuals, firms or other entities that may have an interest
      in
      pursuing some form of Business Combination with the Company and in analyzing,
      negotiating and affecting such a Business Combination.




16




**8.** **COMMITMENTS
      AND CONTINGENCIES (continued)**




In
      consideration for NASD firm’s services, the Company has agreed to issue 150,000
      shares of common stock and warrants to purchase 400,000 shares of common stock.
      Of the 150,000 restricted shares 100,000 restricted shares to be issued upon
      execution of this Agreement and 4,167 restricted shares to be issued per month
      for 12 months. 200,000 Warrants at an exercise price of $1.20 (“the $1.20
      warrants”) to vest at 16,666 per month over 12 months and a second tranche of
      200,000 Warrants at an exercise price of $1.50 per share (“the $1.50 warrants”)
      to fully vest at the one year anniversary of this agreement. If the share price
      is $2.50 per share and trades an average of 20,000 shares per day for 30 trading
      days, 50% of the $1.50 warrants shall vest in 6 months and the balance at 9
      months. The Warrants shall have a 5 year life. After 12 months from the
      effective date of this agreement, unless there is a current registration
      statement covering the underlying shares, the Warrants shall have a cashless
      exercise provision in the form and substance acceptable to NASD
      firm.




[d]
            **Other****.**The
                Company has reported to the IRS the taxable income of the Chief Executive
                Officer and Chief Technology Officer to date using forms 1099 and
                1096.
                Since 2001, the Company has accrued approximately $575,000 as accrued
                compensation which was calculated as the difference between their
                gross
                and net compensation for the period. The Company plans to pay this
                accrued
                compensation of approximately $613,000 to the Chief Executive Officer
                and
                Chief Technology Officer to satisfy the tax obligations related to
                the
                income reported. Such payroll tax reporting classification is subject
                to
                audit by the Internal Revenue Service and other state and local taxing
                authorities, which, upon review, could determine that such individuals’
                compensation should have been reported on the basis that such individuals
                are employees. Accordingly, depending on such potential audit, the
                Company
                may be subject to additional payroll related liabilities the amount
                of
                which, if any, is not determinable at this
                time.




**9.** **MAJOR
        CUSTOMERS, FOREIGN REVENUE AND CONCENTRATION OF CREDIT
        RISK**




[a]  **Major
      Customers**




During
      the three months ended June 30, 2008, four customers comprised approximately
      61%, 9%, 9% and 5% of the Company’s sales. The accounts receivable balance for
      these customers at June 30, 2008 was $153,830, $0, $32,432 and $22,448,
      respectively. During the three months ended June 30, 2007, one customer
      comprised 52% of the Company’s sales.




[b]  **Foreign
      Revenue**




The
      Company generated approximately $28,000 and $83,000 of revenue from the sale
      of
      its products and services to foreign customers during the three months ended
      June 30, 2008 and 2007, respectively.




[c]  **Concentration
      of Credit Risk**




The
      Company maintains cash balances in one financial institution. The balances
      are
      insured by the Federal Deposit Insurance Corporation up to $100,000 per
      institution. From time to time, the Company's balances may exceed these limits.
      The Company believes it is not exposed to any significant credit risk for its
      cash balances.




17




**10.** **SUBSEQUENT
        EVENTS**




As
      of
      August 6, 2008, the Company had received an additional $225,000 of cash proceeds
      related to the sale of $270,000 principal amount of the Debentures in the second
      tranche of the placement and issued five-year warrants to purchase an additional
      229,031 shares of common stock at $1.20 per share. The Company anticipates
      completing this second tranche of financing prior to August 31, 2008. The first
      tranche closed on March 5, 2008.





During
      July 2008, the Company granted 8,334 shares of restricted common stock and
      issued five-year warrants to purchase 33,333 shares of common stock at $1.20
      per
      share to two financial consultants for investor relations and advisory services
      per the terms of their respective contracts.





In
      2007,
      the Company commenced a relocation program under which it advanced funds to
      executive officers and certain other employees in connection with the relocation
      of the Company’s corporate office to Chicago. Under the program, such advances
      were to be repaid to the Company or charged to the recipient as compensation.
      A
      total of $18,175 has been advanced to five executives and one non-executive
      under the program. At August 14, 2008, there was a balance of $11,025
      outstanding. The Company has discontinued the program effective August 14,
      2008
      and the remaining amounts were charged as compensation to the respective
      individuals.




18




**Item
      2.  Management’s Discussion and Analysis of Financial Condition and Result
      of Operations.**




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




Factors
      that could cause or contribute to our actual results differing materially from
      those discussed herein or for our stock price to be adversely affected include,
      but are not limited to: (i) our limited operating history ;
      (ii)
      our history of net losses and inability to achieve or maintain profitability;
      (iii) our auditors’ expression of a substantial doubt about our ability to
      continue as a going concern; (iv) Concentration of Our Business in One Customer;
      (v) our need for additional capital and the uncertainty of obtaining it; (vi)
      substantially all of our assets are pledged to secure our indebtedness; (vii)
      the possibility of undetected errors or failures in our software; (viii) the
      risk of products liability claims; (ix) industry resistance to change; (x)
      fluctuations in our quarterly operating results; (xi) failure to manage growth;
      (xii) dependence on Microsoft Windows platform; (xiii) our ability to keep
      pace
      with rapidly changing technologies; (xiv) our ability to compete effectively;
      (xv) difficulties in integrating businesses, products and technologies that
      we
      may acquire; (xvi) loss of key personnel; (xvii) enactment of new laws or
      changes in government regulations could adversely affect our business; (xviii)
      our products could infringe on the intellectual property rights of others;
      (xviv) our inability to obtain patent and copyright protection for our
      technology or misappropriation of our software and intellectual property; (xx)
      our failure to successfully introduce new products; (xxi) obsolescence of our
      technologies; (xxii) our ability to attract customers who will embrace our
      new
      products and technologies; (xxiii) our stock price is likely to be highly
      volatile; (xxiv) our common stock is considered a penny stock and is considered
      to be a high-risk investment and subject to restrictions on marketability;
      (xxv)
      control by certain stockholders; and (xxvi) our increasing dependence on a
      single customer. For a more detailed description of these and other cautionary
      factors that may affect our future results, please refer to our Report on Form
      10-KSB for the fiscal year ended March 31, 2008 filed with the
      SEC.




**Recent
      Developments for the Company**




**Overview**




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




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




19




The
      optimization of network performance and the preemption of failure eliminates
      or
      minimizes network or individual site downtime or substandard service.
      Transmission downtime typically has a mission critical or direct financial
      impact on the customers’ top line revenue generation, operating profit and
      customer satisfaction. Investment payback periods relative to the purchase
      cost
      of the Statmon Platform compared to the operator’s loss of revenue or costs of
      being “off the air” typically make the return of investment (“ROI”) highly
      attractive. Advertisers do not pay for commercials that do not go to air and
      cell phone users cannot make calls or download video when a base station or
      cell
      site is off the air. Geographically, the Statmon Platform streamlines the
      network engineering and remote site field trips and maintenance process,
      reducing operating and outsourcing costs and facilitating the reallocation
      of
      resources. The Statmon Platform can thus help facilitate the “Go Green” policies
      being implemented by all levels of corporate and government entities.
      Architecturally designed as a universal “Manager of Technologies” (“MOT”)
      application or platform, wide scale network operations, regardless of disparate
      equipment brands or incompatible technologies deployed at a NOC or remote site,
      can automatically interact with each other while being managed from a single
      point of control or “dashboard” style display or computer screen. In real time,
      a proactive alarm system reports to a NOC or designated wireless device for
      appropriate attention or action. Adjusting the HVAC, the health of the
      uninterrupted power supply (“UPS”) and diesel generator and the level of the
      fuel tank, as well as disaster recovery, emergency power management, and
      redundancy are all proactive management capabilities of the Statmon Platform.
      The Statmon Platform will keep remote sites operating even when part or all
      of
      the entire network are down, automatically bringing the remote back on line
      when
      network operations are restored without loss of data.




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




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




20




In
      2006,
      we entered the telecom wireless infrastructure vertical market via a contract
      with the Qualcomm wholly owned subsidiary, MediaFLO USA (“MediaFLO”), to deploy
      our Axess software and related integration products for the control and
      monitoring of their national mobile TV network rollout. This is the largest
      transmission network of its type in the world based on the Qualcomm developed
      “FLO” encoding and compression technology for multiple channels of live TV and
      multimedia content directly to cell phone and mobile wireless
      devices.




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




Under
      our
      agreement with MediaFLO, we are licensing our Axess software and supplying
      interface components for the MediaFLO San Diego Network Operation Center and
      the
      national rollout of wireless transmission sites. Under such agreement, Qualcomm
      and/or MediaFLO periodically issues purchase orders to us. From September 7,
      2006 to August 8, 2008, Qualcomm and/or MediaFLO had jointly issued us purchase
      orders totaling $5,408,587. As of June 30, 2008 we have delivered $4,711,790
      of
      the products pursuant to these purchase orders and anticipate delivering the
      balance of outstanding purchase orders during the three months ended September
      30, 2008. The MediaFLO agreement is dated September 7, 2006 and specifies no
      minimum or maximum number of purchase orders and is for a term of three years.
      The number of MediaFLO sites is expected to increase as the network expands.
      We
      also provide support and maintenance to MediaFLO renewable on an annual basis.




Given
      sufficient capital and other resources, we plan to pursue expansion into
      additional vertical markets including the wireless telecommunications (cell
      phone), mobile TV, IPTV over fiber networks, microwave telecommunications,
      multimedia, internet gaming, electricity grid and emergency power management,
      government infrastructure management, homeland security, military
      communications, and surveillance. We believe that there are business development
      opportunities in any markets where centrally controlled network management,
      embedded industrial systems and wide scale remote monitoring and control
      solutions are being implemented.




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




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




21




Our
      significant clients include Qualcomm - MediaFLO USA; General Electric - NBC
      Universal & Telemundo Television Networks; CBS Corporation Television and
      Radio Networks; The Walt Disney Company - ABC Television and Radio Networks;
      Cox
      Communications; Belo Corp. Television; Australian Government owned Air Services
      of Australia (the Australian equivalent to the FAA); Tribune Company Television;
      and Univision Communications Television and Radio Network. Some of our current
      sales channel and integration partners include Technology Associates
      International (“TAIC”), InfraCell, Harris Broadcast, Pixelmetrix, Nautel
      Navigation, BTS Ireland and Sound Broadcast Services, Ltd.




**Off-Balance
      Sheet Arrangements**




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




**For
      the Three Months Ended June 30, 2008 and 2007**




**Results
      From Operations**




***Revenues*** -
      Revenues were $935,475 and $704,069 for the three months ended June 30, 2008
      and
      2007, respectively. The increase in revenues of approximately $230,000 is
      primarily due to increased revenues associated with the fulfillment of the
      purchase orders received from MediaFLO related to the national rollout of
      MediaFLO's 300+ high-powered wireless transmission sites and San Diego Network
      Operation Center, offset by a decrease in revenue generated from foreign
      customers.




***Cost
      of Sales*** - Cost
      of sales were $120,998 and $123,341 for the three months ended June 30, 2008
      and
      2007, respectively. Overall gross profit percentage increased to 87% in the
      three months ended June 30, 2008 compared to 82% in the comparable prior year
      period. The increase of approximately 5% in overall gross profit percentage
      is
      primarily attributable to a temporary decrease in third party sales commission.




***Selling,
      General and Administrative Expenses*** -
      Selling, general and administrative expenses were $1,191,634 and $1,126,848
      for
      the three months ended June 30, 2008 and 2007, respectively, an increase of
      approximately $65,000.  The increase in selling, general and administrative
      expenses is primarily attributed to an increase in marketing costs related
      to
      exhibiting at the annual National Association of Broadcasters (“NAB”) trade show
      in April 2008.




***Other
      Expense*** - Other
      Expense was $338,779 and $1,295,894 for the three months ended June 30, 2008
      and
      2007, respectively. The decrease of approximately $957,000 can be attributed
      to
      a decrease in common stock and warrants issued in association with debt of
      approximately $924,000 related to the issuance of a decreased number of penalty
      warrants and penalty shares associated with delinquent notes due to the exchange
      of debt for equity in February 2008, described in the Company’s Form 10-KSB for
      the fiscal year ended March 31, 2008, a decrease in amortization of deferred
      financing costs of approximately $37,000 related to new debt, a decrease in
      interest expense of approximately $73,000 related to a decreased amount of
      debt
      in default, offset by an increase in the amortization of debt discount of
      approximately $77,000 due to an increase in the amount of new long-term debt
      during the most recent periods.




***Net
      Income/(Loss)*** - As a
      result of the above, for the three months ended June 30, 2008, the Company
      recorded a net loss of $715,936, compared to a net loss of $1,842,014 for the
      same period the previous year.




22




**Liquidity
      and Capital Resources**




Cash
      balances totaled $176,173 as of June 30, 2008 compared to $80,271 at June 30,
      2007. In July through August 6, 2008, we have received net proceeds of $225,000
      from the second tranche of the Company’s private placement of Debentures,
      discussed below.





The
      Company has financed its cash requirements primarily through operations,
      short-term and long-term borrowings. From September 2000 to March 31, 2008,
      the
      Company issued units primarily consisting of a promissory note, a share of
      common stock and a warrant to purchase a share of common stock to various
      lenders totaling approximately $6,500,000. At June 30, 2008, the Company had
      $652,000 of short-term notes principal amount, of which $477,000 remains in
      default, $500,000 principal amount of long-term debt and $2,148,000 of long-term
      Original Issue Discount Senior Secured Convertible Debentures (the “Debentures”)
      outstanding.





Net
      cash
      used in operating activities was $304,414 and $384,656 for the three months
      ended June 30, 2008 and 2007, respectively. The use of cash in 2008 is the
      result of a net loss of approximately $716,000, partially offset by non-cash
      charges related to (i) depreciation of $14,509; (ii) common stock and warrants
      issued in association with debt of $32,496; (iii) amortization of debt discount
      of $226,480; (iv) amortization of deferred financing costs of $40,890; (v)
      an
      increase of $13,755 related to deferred rent expense; and a net increase in
      operating assets and liabilities of approximately $77,000. The cash used in
      2007
      is the result of a net loss of approximately $1,842,000, partially offset by
      non-cash charges of approximately $1,216,000 and a net change in operating
      assets and liabilities of approximately $241,000.





Net
      cash
      used in investing activities was $9,289 and $0 for the three months ended June
      30, 2008 and 2007, respectively. The primary use of cash in 2008 related to
      computer and equipment purchases.





Net
      cash
      provided by financing activities was $416,800 and $377,869 for the three months
      ended June 30, 2008 and 2007, respectively.  Net cash provided by financing
      activities in fiscal 2008 was the result of net proceeds of $540,000 related
      to
      the issuance of $648,000 principal amount of Debentures related to the second
      tranche of the Company’s private placement of such Debentures. Financing costs
      of $123,200 were incurred related to the raise of the capital for the Company.
      Net cash provided by financing activities in the three months ended June 30,
      2007 was the result of proceeds from issuance of $397,000 of units consisting
      of
      promissory notes of various terms bearing interest generally at 10% per annum,
      a
      share of the Company’s common stock and generally a three or five-year warrant
      to purchase shares at an exercise price from $1.00 to $1.50 per share.
      Additional financing costs of $19,131 were incurred related to the ongoing
      efforts to raise capital for the Company.




Between
      April 1 and August 6, 2008, the Company received $765,000 of net proceeds
      related to the issuance of $918,000 principal amount of Debentures as part
      of
      the second tranche of its private placement of Debentures and issuance of
      five-year warrants to purchase an additional 934,447 shares of common stock
      at
      $1.20 per share. The Debentures are convertible into common stock at $0.9824
      per
      share. The first tranche of $1,500,000 principal amount of the Debentures closed
      on March 5, 2008. The Company anticipates closing the remaining portion of
      the
      second tranche prior to August 31, 2008, although no assurance can be offered
      in
      this regard.





As
      of
      June 30, 2008, the Company had a working capital deficiency of approximately
      $2,125,000 including short-term notes payable and accrued interest of
      approximately $787,000, net of applicable debt discount of approximately $30,000
      and long-term notes payable and accrued interest totaling approximately
      $652,000, net of applicable debt discount of approximately $1,996,000.




23




In
      order
      to continue its operations beyond June 2009, the Company will need to increase
      revenue and profit margins, repay or obtain extensions on its existing
      short-term debt and possibly raise additional working capital through the sale
      of debt or equity securities in addition to the completion of its placement
      of
      Debentures.





There
      can
      be no assurance that the Company will be able to raise the capital it requires
      in this time frame or at all or that it will be able to raise the capital on
      terms acceptable to it. In addition, there can be no assurances that the Company
      will be successful in obtaining extensions of its notes, if required. If it
      is
      not successful, the Company would seek to negotiate other terms for the issuance
      of debt, pursue bridge financing, negotiate with suppliers for a reduction
      of
      debt through issuance of stock, and/or seek to raise equity through the sale
      of
      its common stock. At this time management cannot assess the likelihood of
      achieving these objectives. If the Company is unable to achieve these
      objectives, the Company may be forced to cease its business operations, sell
      its
      assets and/or seek further protection under applicable bankruptcy
      laws.




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





The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America and
      assume that the Company will continue as a going concern.




**Going
      Concern**




The
      Company has incurred net losses of approximately $20,613,000 since inception,
      a
      substantial portion of which relates to the amortization of debt discount,
      the
      value of common stock and warrants issued in association with debt and other
      debt related charges. As indicated above, the Company has a working capital
      deficiency of approximately $2,125,000, and these conditions raise substantial
      doubt about the Company’s ability to continue as a going concern. Primarily as a
      result of its recurring losses and its lack of liquidity, the Company has
      received a report from its independent registered public accountants, included
      with its annual report on Form 10-KSB for the year ended March 31, 2008, that
      included an explanatory paragraph describing the conditions that raise
      substantial doubt about the Company’s ability to continue as a going concern.
      The accompanying financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




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




**Inflation
      and Seasonality**




Inflation
      has not materially affected the Company during the past fiscal year. The
      Company’s business is not seasonal in nature.




24




**Item
      3 - Quantitative and Qualitative Disclosures About Market
      Risk.**




**(Not
      Applicable)**




**Item
      4.  Controls and Procedures.**




**Evaluation
      and Disclosure Controls and Procedures**




The
      Company, under the supervision and with the participation of the Company's
      management, including the Company's Chief Executive Officer and Chief Financial
      Officer, has evaluated the effectiveness of the design and operation of the
      Company's "disclosure controls and procedures," as such term is defined in
      Rules
      13a-15e promulgated under the Exchange Act as of this report. Based upon that
      evaluation, the Chief Executive Officer and Chief Financial Officer has
      concluded that the Company's disclosure controls and procedures were effective
      as of the end of the period covered by this report to provide reasonable
      assurance that material information required to be disclosed by the Company
      in
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in SEC rules and
      forms.




Management
      is aware that there is a lack of segregation of duties at the Company due to
      the
      small number of employees dealing with general administrative and financial
      matters. This constitutes a significant deficiency in financial reporting.
      However, at this time, management has decided that considering the employees
      involved and the control procedures in place, the risks associated with such
      lack of segregation of duties are insignificant and the potential benefits
      of
      adding additional employees to clearly segregate duties do not justify the
      expenses associated with such increases. Management will periodically reevaluate
      this situation. If the volume of the business increases and sufficient capital
      is secured, it is the Company's intention to further increase staffing to
      mitigate the current lack of segregation of duties within the general,
      administrative and financial functions.




**Changes
      in Internal Controls**




Management
      has evaluated the effectiveness of the disclosure controls and procedures as
      of
      June 30, 2008. Based on such evaluation, management has concluded that the
      disclosure controls and procedures were effective for their intended purpose
      described above. There were no changes to the internal controls during the
      quarter ended June 30, 2008 that have materially affected or that are reasonably
      likely to affect the internal controls.




**Limitations
      on the Effectiveness of Controls**




A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Because of the inherent limitations in all control systems, no evaluation of
      controls can provide absolute assurance that all control issues, if any, within
      a company have been detected. Such limitations include the fact that human
      judgment in decision-making can be faulty and that breakdowns in internal
      control can occur because of human failures, such as simple errors or mistakes
      or intentional circumvention of the established process.




25




**PART
      II - OTHER INFORMATION**




**Item 1.**
            **Legal
              Proceedings**


[a] On
      May 17, 2007, an action was
      filed in Los Angeles Superior Court for breach of contract and similar causes
      of
      action by the Epstein Family Trust against the Company in relation to two
      outstanding promissory notes issued by the Company totaling $75,000 ($25,000
      and
      $50,000) plus accrued interest. The Epstein Family Trust is seeking attorney’s
      fees and costs in addition to the principal and interest. These notes were
      guaranteed by Mr. Geoffrey Talbot, the Company's CEO, for up to $25,000, and
      therefore Mr. Talbot was joined in the legal action as a third-party defendant.
      The case number is BC 371 276. The parties have reached a conditional settlement
      agreement where the plaintiff has agreed to convert all principal and interest
      into shares of common stock at a price of $1.00 per share provided the Company
      completes the proposed Convertible Debenture and warrant financing in a timely
      manner. The Company is in receipt of the executed conversion subscription
      documents and has issued the shares of common stock related to this conversion.
      Until such closing, the litigation has been put on hold. In the event the
      litigation is continued it will be defended vigorously.




[b]      
On
      December 20, 2007, a complaint
      was filed in the United States District Court for the District of Colorado
      alleging additional commissions are due to a third party introducer. The
      plaintiff demanded payment for additional commission of $143,000 for the period
      ended September 30, 2007 and additional commissions through December 31, 2007.
      A
      settlement was reached between the parties in April 2008 the Company agreed
      to
      pay the Plaintiff $89,683 on or before July 7, 2008 and mutual releases between
      the parties. As at June 30, 2008 $89,683 was accrued as a liability.As of the
      date of this filing, all amounts related to this settlement have been paid
      and
      the matter has been dismissed.




**Item 2.**
            **Unregistered
              Sales of Equity Securities and Use of Proceeds**Between April 1 and June
              30, 2008,
              the Company sold Units to investors as follows:•
            The
                Company issued a $100,000 principal amount promissory note bearing
                no
                interest and due 7 days from the date of issuance as a short-term
                bridge
                loan to be repaid from the net proceeds of the $540,000 second tranche
                of
                the private placement of Debentures. The Company issued 5,000 shares
                of
                restricted common stock related to this note. This note was repaid
                in full
                on June 25, 2008.•
            The
                Company issued an additional $608,000 principal amount of the Debentures
                and received net proceeds of $540,000 related to the second tranche
                of the
                private placement of such Debentures. In connection with the Debentures,
                the Company issued five-year warrants to purchase 618,893 shares
                of common
                stock at $1.20 per share. The Debentures are convertible into common
                stock
                at $0.9824 per share.**Item 3.**
            **Defaults
              Upon Senior Securities.**At
              June 30, 2008, $477,000 principal amount of the $652,000 principal
              amount
              of short-term promissory notes are in default and $156,664 of interest
              had
              accrued on all outstanding short-term promissory notes as of such
              date.The
              Company continues to be in default on:·
            A
              $132,000 promissory note issued in August 2005, accruing 25% penalty
              interest per annum with a total of $58.152 of interest accrued at June
              30,
              2008;·
            A
              $200,000 promissory note issued in April 2007, accruing 15% penalty
              interest per annum since October 25, 2007. All interest has been paid
              in
              full at June 30, 2008






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**Item 4.     
      Submisssion of Matters to a Vote of Security Holders.**




**(Not
      Applicable)**




**Item 5.**  **Other
      Information.**




**(Not
      Applicable)**




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**Item
                6.****Exhibits**(a)
            
            Exhibits31.1
            Certificate
                of pursuant to Rule 13a-14(a) under the Securities and Exchange Act
                of
                1934, as amended.31.2
            Certificate
                of pursuant to Rule 13a-14(a) under the Securities and Exchange Act
                of
                1934, as amended.32.1
            Certificate
                of pursuant to Rule 13a-14(b) under the Securities and Exchange Act
                of
                1934, as amended.32.2
            Certificate
                of pursuant to Rule 13a-14(b) under the Securities and Exchange Act
                of
                1934, as amended.




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**SIGNATURES**




Pursuant
      to the requirements 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.




Date: August
                14, 2008
              
              /s/ Geoffrey
                P. TalbotName: 
Geoffrey
                P. Talbot
                Title: 
                  Chief Financial Officer






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**EXHIBIT
      INDEX**





**Exhibit**
            
            **Description**31.1
            
            Certificate
                of Geoffrey P. Talbot, Chief Executive Officer, pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            
            Certificate
                of Geoffrey P. Talbot, Chief Financial Officer, pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            
            Certificate
                of Geoffrey P. Talbot, Chief Executive Officer, pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002.32.2
            
            Certificate
                of Geoffrey P. Talbot, Chief Financial Officer, pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





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