**SECURITIES
      AND EXCHANGE COMMISSION**





**Washington,
      D.C.  20549**





**FORM
      10-QSB**





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


**THE
      SECURITIES EXCHANGE ACT OF 1934**





**For
      Quarterly Period Ended December 31, 2005**





**or**





**o    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





**For
      the transition period from         
to**





Commission
      File No. 000-09751





**STATMON
      TECHNOLOGIES CORP.**


(Exact
      name of small business issuer as specified in its charter)




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




**345
                North Maple Drive, Suite 120, Beverly Hills, CA
                90210**(Address
                of principal executive offices)Registrant’s
                phone number, including area code**(310)
                288-4580**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 preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.


YES x   
      NO o





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 February 17, 2006**Common
                  Stock, $.01 par value
            
            13,446,392





Transitional
      Small Business Disclosure Format (Check one):  YES o   NO x





1





**FORM
      10-QSB**


**STATMON
      TECHNOLOGIES CORP.**


**December
      31, 2005**





**TABLE
      OF CONTENTS**





Page(s)Part
                I -Financial
                InformationItem
                1. Financial Statements (unaudited):Condensed
                Consolidated Balance Sheet at December 31, 2005
            3Condensed
                Consolidated Statements of Operations for the Three Months Ended
                December
                31, 2005 and 2004
            4Condensed
                Consolidated Statements of Operations for the Nine Months Ended December
                31, 2005 and 2004
            5Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended December
                31, 2005 and 2004
            6Notes
                to Condensed Consolidated Financial Statements
            7Item
                2. Management’s Discussion and Analysis of Financial Conditionand
                Results of Operations
            15Item
                3. Controls and Procedures
            20Part
                II -Other
                InformationItem
                1. Legal Proceedings
            21Item
                2. Changes in Securities and Use of Proceeds
            21Item
                3. Defaults Upon Senior Securities
            22Item
                6. Exhibits and Reports on Form 8-K
            22Signatures
            23Exhibits
            24Certifications
            25





2





**ITEM
      I — FINANCIAL STATEMENTS**





**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**DECEMBER
      31, 2005**


**(UNAUDITED)**





**ASSETS**Current
                Assets:Cash
            
            $
            5,493Accounts
                receivable
            
            
            98,566Inventories
            
            
            66,245Prepaid
                expense and other current assets
            
            
            11,742Total
                Current Assets
            
            
            182,046Property
                and Equipment, net
            
            
            18,728Deferred
                Financing Costs
            
            
            79,248Other
                Assets
            
            
            10,465Total
                Assets
            
            $
            290,487**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY**Current
                Liabilities:Notes
                payable (including $280,000 due to related parties), net of debtdiscount
                of $207,556
            
            $
            2,703,144Accounts
                payable
            
            
            321,180Accrued
                expenses
            
            
            287,863Accrued
                compensation
            
            
            309,228Interest
                payable (including $160,644 due to related parties)
            
            
            647,497Deferred
                revenue
            
            
            54,791Total
                Liabilities
            
            
            4,323,703Commitments
                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,13,371,847
                issued and outstanding
            
            
            133,718Additional
                paid-in capital
            
            
            4,757,188Accumulated
                deficit
            
            
            (8,924,122
            )Total
                Stockholders' Deficiency
            
            
            (4,033,216
            )Total
                Liabilities and Stockholders' Deficiency
            
            $
            290,487





See
      notes
      to condensed consolidated financial statements.





3


**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**





For
                the Three Months Ended December 31,2005
            
            2004Revenues
            
            $
            289,223
            
            $
            344,786Cost
                of Sales
            
            
            43,243
            
            
            126,763Gross
                Profit
            
            
            245,980
            
            
            218,023Selling,
                General and Administrative Expenses
            
            
            485,543
            
            
            500,851Operating
                Loss
            
            
            (239,563
            )
            
            (282,828
            )Other
                Expense:Interest
            
            
            100,256
            
            
            64,594Common
                stock and warrants issued in association with debt
            
            
            162,909
            
            
            252,768Amortization
                of debt discount
            
            
            172,139
            
            
            94,854Amortization
                of deferred financing costs
            
            
            35,959
            
            
            14,001Total
                Other Expense
            
            
            471,263
            
            
            426,217NET
                LOSS
            
            $
            (710,826
            )
            $
            (709,045
            )NET
                LOSS PER COMMON SHARE - Basic and Diluted
            
            $
            (0.05
            )
            $
            (0.06
            )Weighted
                Average Number of Common Shares Outstanding -Basic
                and Diluted
            
            
            13,271,625
            
            
            11,525,840





See
      notes
      to condensed consolidated financial statements.




4


**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**





For
                the Nine Months Ended December 31,2005
            
            2004Revenues
            
            $
            1,015,334
            
            $
            1,153,606Cost
                of Sales
            
            
            295,257
            
            
            310,920Gross
                Profit
            
            
            720,077
            
            
            842,686Selling,
                General and Administrative Expenses
            
            
            1,763,016
            
            
            1,424,668Operating
                Loss
            
            
            (1,042,939
            )
            
            (581,982
            )Other
                Expense:Interest
            
            
            269,661
            
            
            172,172Common
                stock and warrants issued in association with debt
            
            
            483,984
            
            
            608,127Amortization
                of debt discount
            
            
            379,042
            
            
            544,327Amortization
                of deferred financing costs
            
            
            78,586
            
            
            83,184Total
                Other Expense
            
            
            1,211,273
            
            
            1,407,810NET
                LOSS
            
            $
            (2,254,212
            )
            $
            (1,989,792
            )NET
                LOSS PER COMMON SHARE - Basic and Diluted
            
            $
            (0.17
            )
            $
            (0.17
            )Weighted
                Average Number of Common Shares Outstanding -Basic
                and Diluted
            
            
            12,941,441
            
            
            11,738,470





See
      notes
      to condensed consolidated financial statements.




5


**STATMON
      TECHNOLOGIES CORP. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**





For
                the Nine Months Ended December 31,2005
            
            2004CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (2,254,212
            )
            $
            (1,989,792
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            13,363
            
            
            8,409Common
                stock and warrants issued in association with debt
            
            
            483,984
            
            
            608,127Amortization
                of debt discount
            
            
            379,042
            
            
            544,327Amortization
                of deferred financing costs
            
            
            78,586
            
            
            83,184Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            32,617
            
            
            591,860Inventories
            
            
            2,277
            
            
            (52,235
            )Prepaid
                expense and other current assets
            
            
            (42,593
            )
            
            95,819Other
                assets
            
            
            (3,150
            )
            
            (850
            )Accounts
                payable
            
            
            (84,249
            )
            
            (88,942
            )Accrued
                expenses
            
            
            159,936
            
            
            69,119Accrued
                compensation
            
            
            131,742
            
            
            (117,129
            )Interest
                payable
            
            
            267,588
            
            
            159,424Deferred
                revenue
            
            
            10,320
            
            
            (135,319
            )NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (824,749
            )
            
            (223,998
            )CASH
                FLOWS USED IN INVESTING ACTIVITIES:Purchase
                of property and equipment
            
            
            (1,184
            )
            
            (6,375
            )CASH
                FLOWS FROM FINANCING ACTIVITIES*:*Proceeds
                from notes payable
            
            
            768,700
            
            
            470,000Repayment
                of notes payable
            
            
            (50,000
            )
            
            (205,000
            )Deferred
                financing costs
            
            
            (79,248
            )
            
            -NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            639,452
            
            
            265,000NET
                (DECREASE) INCREASE IN CASH
            
            
            (186,481
            )
            
            34,627CASH,
                BEGINNING OF PERIOD
            
            
            191,974
            
            
            92,527CASH,
                END OF PERIOD
            
            $
            5,493
            
            $
            127,154SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid for:Interest
            
            $
            2,072
            
            $
            25,253Income
                taxes
            
            $
            917
            
            $
            -





See
      notes
      to condensed consolidated financial statements.





6


Statmon
        Technologies Corp. and Subsidiaries
 Notes
        to
        Condensed Consolidated Financial Statements
 (Unaudited)





1.
            BUSINESS
                DESCRIPTION, GOING CONCERN AND MANAGEMENT
                PLANS





**Company
      Overview**




Statmon
      Technologies Corp. (the “Company”) develops, markets and licenses monitoring and
      remote control software and integration products. The Company’s products are
      designed to manage hybrid networks, remote sites and control any kind of device,
      regardless of equipment brand or technology. The capabilities include a single
      “dash board style screen” used to connect, automate and optimize networked
      operations and remote sites. The Company’s proprietary flagship product is the
      "Axess" software application platform. The Company’s hardware products are
      designed to integrate the Axess platform into varying types of control
      situations. The Company’s products have application across different industries
      where there is a need for monitoring, remote control and automation in real
      time. The distribution of the Company’s products is primarily facilitated by
      third party sales channels, strategic OEM collaborations and partnerships and
      the Company’s direct sales force.




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      Unites States of America ("US GAAP") for interim financial information. In
      the
      opinion of management, the accompanying unaudited financial statements contain
      all adjustments, consisting only of those of a normal recurring nature,
      necessary to make the Company's financial position, results of operations and
      cash flows not misleading at the dates and for the periods indicated. These
      financial statements should be read in conjunction with the financial statements
      and notes related thereto included in the Annual Report on Form 10-KSB for
      the
      year ended March 31, 2005. The results for three and nine months ended December
      31, 2005, are not necessarily indicative of the results to be expected for
      the
      full fiscal year.




**Going
      Concern**




The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with US GAAP and assume that the Company will continue as a going
      concern. The Company has incurred net losses of approximately $8,924,000 since
      inception, a substantial portion of which relates to the amortization of debt
      discount and other debt related charges.





Additionally,
      the Company had a net working capital deficiency of approximately $4,142,000
      at
      December 31, 2005. The Company has limited capital resources and requires
      additional funding in order to sustain its operations, accomplish its growth
      objectives and market its planned products and services. There is no assurance
      that the Company can reverse its operating losses, or that it can raise
      additional capital to allow it to maintain operations or expand its planned
      operations. These conditions raise substantial doubt about the Company’s ability
      to continue as a going concern. The accompanying unaudited condensed
      consolidated financial statements do not include any adjustments that might
      be
      necessary should the Company be unable to continue as a going
      concern.





**Management
      Plans**





The
      Company expects that the growth and expansion of operations will require capital
      infusions to fund the Company’s working capital needs. The Company is seeking to
      raise sufficient capital through a private placement of its equity or long-term
      debt securities in the first quarter of the 2006 calendar year. The Company
      has
      entered into a letter of intent with a NASD registered placement agent to sell
      a
      minimum of $5.0 million and a maximum of $8.0 million of units consisting of
      convertible preferred stock and warrants to purchase common stock. Management
      expects that at least the minimum offering, which is conducted on a best efforts
      basis, will be made to institutions and accredited investors before March 31,
      2006. The Company’s promissory note holders are being approached to convert a
      minimum of $1.5 million, or an amount as otherwise agreed to between the Company
      and the Placement Agent, of the promissory noteholders’ principal into the above
      mentioned units.





7


Statmon
        Technologies Corp. and Subsidiaries
 Notes
        to
        Condensed Consolidated Financial Statements
 (Unaudited)





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





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





2.
            CERTAIN
                SIGNIFICANT ACCOUNTING POLICIES





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




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





*c.*
            Research
                and Development-
                Research and development expenditures are charged to operations as
                incurred. Research and development expenditures were approximately
                $133,000 and $105,000 for the three months ended December 31, 2005
                and
                2004, respectively, and $415,000 and $283,000 for the nine months
                ended
                December 31, 2005 and 2004,
                respectively.





*d.*
            Inventories-
                Inventories are priced at the lower of cost (first-in, first-out)
                or
                market and consists primarily of finished goods. Raw materials and
                WIP are
                deemed immaterial.




*e.*
            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 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 warrants to purchase 6,585,180 and
                3,928,474
                shares of common stock as of December 31, 2005 and 2004,
                respectively.





*f.*
            Revenue
                Recognition-
                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 its 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.





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





8
 
  Statmon
          Technologies Corp. and Subsidiaries
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)





2.
            CERTAIN
                SIGNIFICANT ACCOUNTING POLICIES,
                continued





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





For
      three
      and nine months ended December 31, 2005 and 2004, the Company did not issue
      any
      options to its employees.





*h.*
            New
                Accounting Pronouncements-
                On September 28, 2005, the FASB ratified the following consensus
                reached
                in the Emerging Issues Task Force ("EITF") Issue 05-8 ("Income Tax
                Consequences of Issuing Convertible Debt with a Beneficial Conversion
                Feature"): a) The issuance of convertible debt with a beneficial
                conversion feature results in a basis difference in applying SFAS
                No. 109,
                Accounting for Income Taxes. Recognition of such a feature effectively
                creates a debt instrument and a separate equity instrument for book
                purposes, whereas the convertible debt is treated entirely as a debt
                instrument for income tax purposes. b) The resulting basis difference
                should be deemed a temporary difference because it will result in
                a
                taxable amount when the recorded amount of the liability is recovered
                or
                settled. c) Recognition of deferred taxes for the temporary difference
                should be reported as an adjustment to additional paid-in capital.
                This
                consensus is effective in the first interim or annual reporting period
                commencing after December 15, 2005, with early application permitted.
                The
                effect of applying the consensus should be accounted for retroactively
                to
                all debt instruments containing a beneficial conversion feature that
                are
                subject to EITF Issue 00-27, "Application of Issue No. 98-5 to Certain
                Convertible Debt Instruments" (and thus is applicable to debt instruments
                converted or extinguished in prior periods but which are still presented
                in the financial statements). The adoption of this pronouncement
                is not
                expected to have a material impact on the Company's financial statements.





The
      EITF
      reached a tentative conclusion on EITF Issue No. 05-1, "Accounting for the
      Conversion of an Instrument That Becomes Convertible upon the Issuer's Exercise
      of a Call Option," that no gain or loss should be recognized upon the conversion
      of an instrument that becomes convertible as a result of an issuer's exercise
      of
      a call option pursuant to the original terms of the instrument. The application
      of this pronouncement is not expected to have an impact on the Company's
      consolidated financial statements.





In
      September 2005, the FASB ratified EITF Issue No. 05-7, "Accounting for
      Modifications to Conversion Options Embedded in Debt Instruments and Related
      Issues" ("EITF No. 05-7"), which addresses whether a modification to a
      conversion option that changes its fair value affects the recognition of
      interest expense for the associated debt instrument after the modification
      and
      whether a borrower should recognize a beneficial conversion feature, not a
      debt
      extinguishment, if a debt modification increases the intrinsic value of the
      debt. EITF No. 05-7 is effective for the first interim or annual reporting
      period beginning after December 15, 2005. The Company is currently in the
      process of evaluating the effect that the adoption of this pronouncement will
      have on its financial statements.





9
 
  Statmon
          Technologies Corp. and Subsidiaries
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)





2.
            CERTAIN
                SIGNIFICANT ACCOUNTING POLICIES,
                continued





In
      June
      2005, the FASB ratified EITF Issue No. 05-2, "The Meaning of 'Conventional
      Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
      Stock'" ("EITF No. 05-2"), which addresses when a convertible debt instrument
      should be considered 'conventional' for the purpose of applying the guidance
      in
      EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF No. 00-19.
      EITF No. 05-2 is effective for new instruments entered into and instruments
      modified in periods beginning after June 29, 2005. The adoption of this
      pronouncement did not have an impact on the Company's consolidated financial
      statements.





EITF
      Issue No. 05-4 "The Effect of a Liquidated Damages Clause on a Freestanding
      Financial Instrument Subject to EITF Issue No. 00-19, 'Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
      Stock'" ("EITF No. 05-4") addresses financial instruments, such as stock
      purchase warrants, which are accounted for under EITF 00-19 that may be issued
      at the same time and in contemplation of a registration rights agreement that
      includes a liquidated damages clause. The consensus of EITF No. 05-4 has not
      been finalized. The Company does not believe the adoption of this pronouncement
      will have an impact on the Company's consolidated financial
      statements.





In
      June
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections -
      a replacement of APB Opinion No. 20 and FASB No. 3”, which establishes new
      standards on accounting for changes in accounting principles. Pursuant to the
      new rules, all such changes must be accounted for by retrospective application
      to the financial statements of prior periods unless it is impracticable to
      do
      so. SFAS No. 154 completely replaces Accounting Principles Bulletin No. 20
      and
      SFAS No. 3, though it carries forward the guidance in those pronouncements
      with
      respect to accounting for changes in estimates, changes in the reporting entity,
      and the correction of errors. The requirements in SFAS No. 154 are effective
      for
      accounting changes made in fiscal years beginning after December 15, 2005.
      Management does not expect that SFAS No. 154 will have a material effect on
      the
      Company’s consolidated financial statements.





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), "Shared-Based
      Payment." SFAS 123(R) addresses the accounting for share-based payment
      transactions in which an enterprise receives employee services in exchange
      for
      (a) equity instruments of the enterprise or (b) liabilities that are based
      on
      the fair value of the enterprise's equity instruments or that may be settled
      by
      the issuance of such equity instruments. SFAS 123(R) requires an entity to
      recognize the grant-date fair-value of stock options and other equity-based
      compensation issued to employees in the income statement. The revised statement
      generally requires that an entity account for those transactions using the
      fair-value-based method, and eliminates the intrinsic value method of accounting
      in APB 25, which was permitted under SFAS No. 123, as originally issued.





The
      revised statement requires entities to disclose information about the nature
      of
      the share-based payment transactions and the effects of those transactions
      on
      the financial statements. SFAS No. 123(R) is effective for small business
      issuers for the first annual reporting period that begins after December 15,
      2005, with early adoption encouraged. The Company is currently evaluating the
      impact that this statement will have on its financial condition or results
      of
      operations.





In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of
      ARB No. 43, Chapter 4.” SFAS No. 151 requires certain abnormal expenditures to
      be recognized as expenses in the current period. It also requires that the
      amount of fixed production overhead allocated to inventory be based on the
      normal capacity of the production facilities. The standard is effective for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
      Management does not expect that SFAS No. 151 will have a material effect on
      the
      Company’s consolidated financial statements.





10
 
  Statmon
          Technologies Corp. and Subsidiaries
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)





2.
            CERTAIN
                SIGNIFICANT ACCOUNTING POLICIES,
                continued





In
      October 2004, the FASB ratified the consensus reached in EITF
      Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings
      Per Share .”
The
      EITF states that contingently convertible instruments, such as contingently
      convertible debt, contingently convertible preferred stock, and other such
      securities should be included in diluted earnings per share (if dilutive)
      regardless of whether the market price trigger has been met. The consensus
      became effective for reporting periods ending after December 15, 2004.  The
      adoption of this pronouncement did not have a material effect on the
      Company's financial statements.





3.
            NOTES
                PAYABLE





During
      the three months ended June 30, 2005, the Company issued Units to investors
      consisting of (i) $250,000 principal amount promissory notes bearing interest
      at
      10% per annum and due 365 days from the date of issuance, (ii) 250,000 shares
      of
      the Company’s common stock, and (iii) three-year warrants to purchase 250,000
      shares of common stock at $1.50 per share. These notes have maturity dates
      between April 29, 2006 and June 16, 2006.





During
      the three months ended September 30, 2005, the Company issued the following
      Units to investors which consisted of:




·
            (i)
                $10,000 principal amount promissory note bearing interest at 10%
                per annum
                and due 365 days from the date of issuance, (ii) 10,000 shares of
                the
                Company’s common stock, and (iii) three-year warrants to purchase 10,000
                shares of common stock at $1.50 per share.


·
            (i)
                $100,000 principal amount promissory notes bearing interest at 10%
                per
                annum and due 365 days from the date of issuance, (ii) 200,000 shares
                of
                the Company’s common stock, and (iii) three-year warrants to purchase
                200,000 shares of common stock at $1.50 per share.


·
            (i)
                $16,700 principal amount promissory notes bearing interest at 10%
                per
                annum and due 365 days from the date of issuance, (ii) 16,700 shares
                of
                the Company’s common stock, and (iii) three-year warrants to purchase
                16,700 shares of common stock at $1.50 per share.


·
            (i)
                $110,000 principal amount promissory note bearing interest at 20%
                per
                annum and due 365 days from the date of issuance, (ii) 100,000 shares
                of
                the Company’s common stock, and (iii) three-year warrants to purchase
                110,000 shares of common stock at $1.25 per share.


·
            (i)
                $100,000 principal amount promissory note bearing interest at 10%
                per
                annum and due 365 days from the date of issuance, (ii) 100,000 shares
                of
                the Company’s common stock, and (iii) three-year warrants to purchase
                100,000 shares of common stock at $1.50 per share.


·
            (i)
                $100,000 principal amount promissory note bearing interest at 10%
                per
                annum and due 30 days from the date of issuance, (ii) 50,000 shares
                of the
                Company’s common stock, and (iii) three-year warrants to purchase 50,000
                shares of common stock at $1.50 per share.


·
            A
                $7,000 non-interest bearing loan from an investor due 60 days from
                the
                date of receipt of the funds.





These
      notes have maturity dates between October 30, 2005 and August 31, 2006.





During
      the three months ended December 31, 2005, the Company issued Units to investors
      consisting of:




·
            (i)
                $25,000 principal amount promissory note bearing interest at 10%
                per annum
                and due 365 days from the date of issuance, (ii) 25,000 shares of
                the
                Company’s common stock, and (iii) three-year warrants to purchase 25,000
                shares of common stock at $1.50 per
                share.





11
 
  Statmon
          Technologies Corp. and Subsidiaries
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)


3.
            NOTES
                PAYABLE, continued





·
            (i)
                $50,000 principal amount promissory note bearing no interest and
                due 20
                days from the date of issuance, (ii) 50,000 shares of the Company’s common
                stock, and (iii) three-year warrants to purchase 50,000 shares of
                common
                stock at $1.50 per share. The note was repaid during the
                period.





In
      total,
      at December 31, 2005, $2,017,000 principal amount of the $2,903,700 principal
      amount of promissory notes are in default and $647,497 of interest has accrued
      on all outstanding notes as of such date.





The
      Company continues to be in default on $250,000 of Senior Notes during the nine
      months ended December 31, 2005. The Senior Notes accrue interest at a penalty
      rate of 15% per annum. Under the penalty provisions of the loan agreements,
      the
      Company continues to issue 25,000 shares of Common Stock per month until full
      repayment of the Senior Notes. The accrued interest on the Senior Notes at
      December 31, 2005 is $149,856.





The
      Company has secured the obligation to two noteholders in second position behind
      the Senior Notes for a total of $890,000. Additionally, the Company has secured
      the obligation to one noteholder in third position behind the Senior Notes
      for a
      total of $250,000.




According
      to the penalty provisions of the loan agreements, the Company issued three-year
      penalty warrants to purchase 1,268,512 shares of common stock at $1.00 per
      share
      and 17,742 shares of common stock at $2.00 per share during the nine months
      ended December 31, 2005, associated with unsecured notes in
      default.





During
      February 2006, the Company issued a $50,000 and a $40,000 promissory note both
      bearing interest at 10% per annum and due 60 days from the date of issuance
      and
      25,000 and 20,000 shares of common stock, respectively, related to these notes,
      to one investor.





4.
            EQUITY
                TRANSACTIONS





In
      September 2005, the Company amended and restated its Articles of Incorporation
      to increase the number of shares of Common Stock, par value of $0.01 per share,
      authorized from 25,000,000 to 100,000,000 and to increase the number of shares
      of Preferred Stock, par value of $0.01 per share, authorized from 5,000,000
      to
      10,000,000.





[a]
      Common Stock




During
      the three months ended June 30, 2005, the Company issued 75,000 shares of Common
      Stock valued at $62,000 associated with secured Senior notes that are in
      default. Additionally, the Company issued 250,000 shares of Common Stock valued
      at $89,900 related to new debt in the same period.




During
      the three months ended September 30, 2005, the Company issued 75,000 shares
      of
      Common Stock valued at $44,000 associated with secured Senior notes that are
      in
      default. Additionally, the Company issued 376,700 shares of Common Stock valued
      at $108,983 related to new debt in the same period.




During
      the three months ended December 31, 2005, the Company issued 75,000 shares
      of
      Common Stock valued at $32,250 associated with secured Senior notes that are
      in
      default and 9,090 shares of Common Stock valued at $4,000 associated with a
      certain $100,000 secured promissory note that is in default. Additionally,
      the
      Company issued 75,000 shares of Common Stock valued at $21,059 related to new
      debt in the same period.




[b]
      Stock
      Options and Warrants




During
      the three months ended June 30, 2005, the Company granted 556,155 warrants
      to
      note holders, of which 250,000 warrants were valued at $55,448 related to new
      debt in the period and 306,155 warrants were valued at $125,524 related to
      notes
      in default.  The weighted average exercise price of the warrants granted
      during the period was $1.22. The vesting period on these warrants is immediate
      and the exercise period is for three years from the date of the respective
      issuance.





12
 
  Statmon
          Technologies Corp. and Subsidiaries
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)





4.
            EQUITY
                TRANSACTIONS, continued





During
      the three months ended September 30, 2005, the Company granted 870,500 warrants
      to note holders, of which 486,700 warrants were valued at $80,506 related to
      new
      debt in the period, 308,800 warrants were valued at $89,552 related to notes
      in
      default and 75,000 warrants were valued at $21,750 related to commissions due
      to
      a placement agent for the sale of Units.  Additionally, during the three
      months ended September 30, 2005, warrants to purchase 55,000 shares of Common
      Stock at $1.00 per share expired. The weighted average exercise price of the
      warrants granted during the period was $1.29. The vesting period on these
      warrants is immediate and the exercise period is for three years from the date
      of their respective dates of issuance.





During
      the three months ended December 31, 2005, the Company granted 746,299 warrants
      to note holders, of which 75,000 warrants were valued at $9,547 related to
      new
      debt in the period, 671,299 warrants were valued at $126,660 related to notes
      in
      default. Additionally, during the three months ended December 31, 2005,
      warrants to purchase 156,766 shares of Common Stock at $1.00 per share expired.
      The weighted average exercise price of the warrants granted during the period
      was $1.07. The vesting period on these warrants is immediate and the exercise
      period is for three years from the date of their respective dates of
      issuance.





5.
            COMMITMENTS
                AND CONTINGENCIES





a.
            Legal
                Proceedings




On
      June
      16, 2005 the Company filed an action in the Superior Court of the State of
      California, County of Los Angeles, Central District, case No. BC335098, against
      Application Science and Technology LLC, Chad Kalebic, Michael Hurst, Anthony
      Briede and others (the “Defendants”). The Company initiated the litigation after
      ongoing and reoccurring feedback from the marketplace that the Defendants were
      actively interfering with the Company’s business relationships and violating
      contractual agreements despite formal warnings to cease and desist. The case
      includes allegations of: Unfair Competition; Violations of California Business
      Code, Sections 17.200 ET SEQ and 17.000 ET SEQ; Intentional Interference with
      Plaintiffs Business Relationships, Negligent Interference with Plaintiff’s
      Business Relationships; Slander and Injunction. The Company has retained
      litigation counsel on a 1/3 contingency basis of the net benefit to the Company.
      The Company will advance and pay the costs and expenses of the litigation.
      The
      Company expects to prevail in the proceedings; however, there can be no
      assurances in this regard and in the event of an adverse decision, the Company
      may be liable for costs, expenses and/or attorney’s fees of the
      Defendants.  On December 6, 2005, after losing a demurrer which they filed
      against the Statmon complaint, the Defendants in case No. BC335098 filed a
      Cross
      Complaint in the Superior Court of California against Statmon Technologies
      Corp.
      and employees Mr. Geoffrey Talbot and Mr. Ken Dillard as Cross
      Defendants/Plaintiffs claiming Breach of Settlement Agreement, Intentional
      Interference with Contractual Relationships, Intentional Interference with
      Prospective Business Relationships, Defamation, Trade Libel, Violation of
      California Business and Professional Code, Negligent Interference with
      Prospective Business Relationships, Negligent Interference with Contractual
      relationships. The Company believes that the Cross Complaint lacks merit and
      will be defended vigo r ously.
      In
      addition, the Defendants in case No. BC335098 filed a Complaint For Declaratory
      Relief in the United States district Court For The Northern District of
      Illinois, Eastern Division seeking to secure a judicial determination and
      declaration that they had independently developed their own software without
      impermissibly copying Statmon’s software and that the Defendant’s software does
      not infringe upon any Statmon copyright. The California state case has been
      stayed (temporarily stopped) by the court pending resolution of the declaratory
      relief action filed in the United States District Court in
      Illinois. It is anticipated that the California state litigation will
      resume thereafter.





13
 
  Statmon
          Technologies Corp. and Subsidiaries
 Notes
          to
          Condensed Consolidated Financial Statements
 (Unaudited)





5.
            COMMITMENTS
                AND CONTINGENCIES, continued




b.
            Other




The
      Company has not yet filed certain delinquent Federal, State and Local
      compensation related filings, which may subject the Company to additional
      payroll related liabilities, the amount of which cannot be determined at this
      time. In addition, as of December 31, 2005, the Company has accrued
      approximately $149,000 of payroll taxes which the Company owes for periods
      commencing July 2004. Management of the Company has indicated that such
      delinquent filings and liabilities are expected to be rectified once the Company
      completes its anticipated financing transaction (see note 1).





6.
            MAJOR
                CUSTOMERS AND CONCENTRATION OF CREDIT
                RISK





a.
            Major
                Customers




During
      the three months ended December 31, 2005, three customers comprised 23%, 12%
      and
      11% of the Company’s sales. The accounts receivable balances for these customers
      at December 31, 2005 were $0, $22,273 and $9,410, respectively. During the
      three
      months ended December 31, 2004, two customers comprised 37% and 20% of the
      Company’s sales.




During
      the nine months ended December 31, 2005, three customers comprised 17%, 15%
      and
      11% of the Company’s sales. The accounts receivable balances for these customers
      at December 31, 2005 were $22,273, $0 and $2,006, respectively. During the
      nine
      months ended December 31, 2004, two customers comprised 45% and 22% of the
      Company’s sales.




b.
            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.




14


**ITEM
      2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      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) our need for additional capital and the
      uncertainty of obtaining it; (v) our ability to refinance or renegotiate
      short-term promissory notes that have come due or are coming due; (vi) our
      failure to timely make certain regulatory filings; (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 which 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; and (xxv)
      control by certain stockholders. 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, 2005 filed with the
      Securities and Exchange Commission.





**Recent
      Developments for the Company**





**Overview**





The
      Company develops, markets and licenses a remote control, monitoring and
      facilities management platform designed for application across universal
      vertical markets. Customers use our proprietary products to connect and manage
      multiple site operations in real time by integrating disparate software systems
      with diverse numbers of analog and digital devices. Multiple sites can
      automatically interact with each other and report up stream to a single
      dashboard style application software with customized screens and drill-down
      control capabilities all assessable from any Internet or network connection.
      Additional features of the platform include automatic bi-directional control
      and
      response, root cause analysis, data aggregation and alarm notification. The
      platform proactively automates and optimizes mission critical devices and
      integrates facilities management operations. The Company’s proprietary software
      product is the "Axess" application. Axess interfaces with the "EIF", "UIF"
      and
      "UVM" hardware integration products. Until September 2005 the Company has
      provided specialized systems integration services to a variety of customers
      through our wholly-owned subsidiary, Statmon - eBI Solutions LLC (“SeBI”). The
      SeBI integration activity has been suspended with no current plans to reinstate
      although this position may change in the future. The short term focus of
      integration activities is directed at meeting the needs of the US Energy and
      Interscan/Nautel Navigation new vertical market opportunities and sales
      channels. Specialized integration services will only be offered to broadcast
      and
      new vertical market customers where there is a direct value add to the Company’s
      and our partner’s software solutions and integration products.





15


Our
      significant clients include General Electric - NBC/Telemundo Network, Viacom,
      CBS, Television and Radio Disney - ABC TV & Radio Networks, “Harris
      Broadcast”, a division of Harris Corp. (NYSE symbol - HRS), Belo Corp, and
      Univision. Harris Broadcast is a worldwide OEM distributor of our products
      in
      the radio and television markets. The existing Harris Broadcast non-exclusive
      OEM agreement expires on February 24, 2006. On December 9, 2005, Harris and
      the
      Company jointly announced they had entered into a memorandum of understanding
      for a new non-exclusive reseller agreement for a term of no less than three
      years. The parties are currently negotiating the agreement and are expecting
      to
      make an announcement prior to February 25, 2006, the expiration date of the
      pre-existing OEM agreement. On November 3, 2005, we entered into a formal OEM
      distribution agreement with the Singapore based Pixelmetrix Corporation Pte
      Ltd.
      (“Pixelmetrix”), a leading digital test and measurement technology company
      focused on the broadcast and telecommunications industries. The Company’s Axess
      application empowers the Pixelmetrix branded “Consolidator Plus” management and
      test measurement solution for digital television. The first Consolidator Plus
      installations using Axess are currently taking place with a major government
      owned European television network. On November 1, 2005 the Company entered
      into
      an OEM agreement with Sound Broadcast Services, the United Kingdom based
      manufacturer of the Eddystone brand of digital and analog radio transmitters
      (“SBS”). The first Eddystone/Axess installations are taking place in Singapore
      and Kuwait. The digital radio transmitter market is gaining traction around
      the
      world as radio broadcasters move to compete with competitive satellite content
      providers.





The
      partnership between Statmon and US Energy Systems focuses on the
      telecommunications, DC Power/stored energy and infrastructure markets and is
      building a solid foundation; however, the Company believes that the lack of
      adequate working capital has protracted certain opportunities where there are
      concerns about Statmon’s financial strength for major multiple site rollouts.
      Beta testing with governmental, telecommunications and infrastructure clients
      are preceding according to expectations.





We
      are
      well positioned to expand beyond our traditional broadcast industry activities
      into the identified new vertical markets, including power and energy management,
      telecom, wireless, homeland security, environmental compliance and
      infrastructure management. The current versions of our proprietary application
      software and integration technologies are industry and market universal. We
      believe that the architectural design and functionality development curve of
      our
      products specifically address the needs and emerging demand for economical
      pre-packaged solutions facilitating improved operating efficiencies through
      device convergence, network automation and powerful remote control and
      monitoring capabilities in real time. The ongoing process of identifying
      qualified strategic partners and distributors who already have established
      customer installation bases where our products can readily be employed as a
      middleware and/or provide stand alone end-to-end solutions continues and will
      ramped up dramatically when the Company has additional working
      capital.





**For
      the Quarter Ended December 31, 2005 and 2004**





**Results
      From Operations**





***Revenues*** -
      Revenues were $289,223 and $344,786 for the three months ended December 31,
      2005
      and 2004, respectively.  Revenues consisted of $289,223 of product revenues
      and $0 of integration services revenues for the three months ended December
      31,
      2005. Revenues consisted of $181,333 of product revenues and $163,453 of
      integration services revenues for the three months ended December 31,
      2004.  The increase in product revenues of approximately $108,000 is due to
      the ramping up of our direct sales activities to third-party customers and
      expanded reseller/OEM arrangements, which began in the first part of 2005 as
      a
      result of the weak broadcast sales from our broadcast industry partner, Harris
      Broadcast, as the Company realigned its relationship on a non-exclusive basis.
      Harris Broadcast implemented an internal restructuring which impacted its
      inventory levels and product purchases from the Company. The Statmon
      distribution agreement with Harris Broadcast reverted to a non-exclusive basis
      on July 18, 2004, when it failed to make the minimum purchases as required
      under
      its OEM agreement with the Company. Such agreement expires on February 24,
      2006
      and the Company has executed a Memorandum of Understanding (“MOU”) with Harris
      in regards to our ongoing relationship and are currently negotiating a formal
      reseller agreement with the goal to replace the existing OEM agreement before
      or
      upon its expiration. Harris Broadcast indicates that it remains highly committed
      to the long-term success of the Statmon-owned Axess software application and
      suite of hardware integration products. While the Company continues to have
      confidence in the future of this relationship, it is positioning itself to
      return to previous levels of revenue in the broadcast industry independent
      of
      the Harris Broadcast relationship. The decrease in integration services revenues
      is the result of the Company’s re-focused efforts to expand our core software
      business and the temporary suspension of integration services
      activities.





16


***Cost
      of Sales*** - Cost
      of sales were $43,243 and $126,763 for the three months ended December 31,
      2005
      and 2004, respectively. Cost of sales consisted of $43,243 related to product
      revenues and $0 related to integration services revenues for the three months
      ended December 31, 2005. Cost of sales consisted of $54,859 related to product
      revenues and $71,904 related to integration services revenues for the three
      months ended December 31, 2004.  Overall gross profit percentage increased
      to 85% in the three months ended December 31, 2005 compared to 63% in the
      comparable prior year period. The increase in overall gross profit percentage
      is
      attributable to a decrease in integration services revenues and an increase
      in
      product sales of software only solutions during the period. The shift in the
      overall mix of revenues and an increase in the sales of software products have
      caused an overall increase in the gross profit percentage of approximately
      22%
      from the prior year period.





***Selling,
      General and Administrative Expenses*** -
      Selling, general and administrative expenses were $485,543 and $500,851 for
      the
      three months ended December 31, 2005 and 2004, respectively, a decrease of
      approximately $15,000.  The decrease in selling, general and administrative
      expenses is principally attributed to a decrease of approximately $90,000
      related to integration services and $40,000 related to audit/professional fees
      offset by an increase in research and development expenses related our new
      EIF-32+ product and our development activities focused on vertical market
      penetration of approximately $30,000, an increase in marketing expenses of
      approximately $16,000 and an increase in personnel related expenses of
      approximately $69,000.





***Other
      Expense*** - Other
      Expense was $471,263 and $426,217 for the three months ended December 31, 2005
      and 2004, respectively. The increase of approximately $45,000 can be attributed
      to an increase in amortization of debt discount of approximately $77,000 due
      to
      an increase in the relative amount of new short-term debt during the most recent
      prior period, a decrease in common stock and warrants issued in association
      with
      debt of approximately $90,000 related to the issuance of penalty warrants
      associated with delinquent notes due to a decrease in the stock price as
      compared to the prior year period, an increase in amortization of deferred
      financing costs of approximately $22,000 related to such new debt and an
      increase in interest expense of approximately $36,000 related to increased
      outstanding debt in the period.





***Net
      Loss*** - As a
      result of the above, for the three months ended December 31, 2005, the Company
      recorded a net loss of $710,826, compared to a net loss of $709,045 for the
      same
      period the previous year.





**For
      the Nine Months Ended December 31, 2005 and 2004**





**Results
      From Operations**





***Revenues*** -
      Revenues were $1,015,334 and $1,153,606 for the nine months ended December
      31,
      2005 and 2004, respectively.  Revenues consisted of $624,897 of product
      revenues and $390,437 of integration services revenues for the nine months
      ended
      December 31, 2005. Revenues consisted of $686,738 of product revenues and
      $466,868 of integration services revenues for the nine months ended December
      31,
      2004.  The decrease in product revenues of approximately $62,000 is due to
      the weak broadcast sales from our broadcast industry partner, Harris Broadcast,
      as the Company realigned its relationship on a non-exclusive basis, offset
      by
      the ramping up of our direct sales activities to third-party customers, which
      began in the first part of 2005. Harris Broadcast implemented an internal
      restructuring which impacted its inventory levels and product purchases from
      the
      Company. The Statmon distribution agreement with Harris Broadcast reverted
      to a
      non-exclusive basis on July 18, 2004, when it failed to make the minimum
      purchases as required under its OEM agreement with the Company. Such agreement
      expires on February 24, 2006 and the Company is currently negotiating a reseller
      agreement with the goal to replace the existing OEM agreement. Such agreement
      expires on February 24, 2006 and the Company has executed a Memorandum of
      Understanding (“MOU”) with Harris in regards to our ongoing relationship and are
      currently negotiating a formal reseller agreement with the goal to replace
      the
      existing OEM agreement before or upon its expiration. Harris Broadcast indicates
      that it remains committed to the long-term success of the Statmon-owned Axess
      software application and suite of hardware integration products. While the
      Company continues to have confidence in the future of this relationship, it
      is
      positioning itself to return to previous levels of revenue in the broadcast
      industry independent of the Harris Broadcast relationship. The decrease in
      integration services revenues of approximately $77,000 is the result of the
      Company’s re-focused efforts to expand our core software business and the
      temporary suspension of integration services activities.




17


***Cost
      of Sales*** - Cost
      of sales were $295,257 and $310,920 for the nine months ended December 31,
      2005
      and 2004, respectively. Cost of sales consisted of $123,465 related to product
      revenues and $171,792 related to integration services revenues for the nine
      months ended December 31, 2005. Cost of sales consisted of $105,828 related
      to
      product revenues and $205,092 related to integration services revenues for
      the
      nine months ended December 31, 2004.  Overall gross profit percentage
      decreased slightly to 71% in the nine months ended December 31, 2005 compared
      to
      73% in the comparable prior year period. The decrease in overall gross profit
      percentage is attributable to an increase in product sales of hardware
      integration devices to Harris Broadcast during the second quarter of fiscal
      year
      end March 31, 2006.





***Selling,
      General and Administrative Expenses*** -
      Selling, general and administrative expenses were $1,763,016 and $1,424,668
      for
      the nine months ended December 31, 2005 and 2004, respectively, an increase
      of
      approximately $338,000.  The increase in selling, general and
      administrative expenses is principally attributed to an increase in sales and
      marketing expenses of approximately $140,000, an increase in research and
      development expense related to our new EIF-32+ product and development
      activities focused on vertical market penetration of approximately $130,000,
      an
      increase in personnel related expenses of approximately $108,000 offset by
      a
      decrease in integration services related expenses of $40,000.





***Other
      Expense*** - Other
      Expense was $1,211,273 and $1,407,810 for the nine months ended December 31,
      2005 and 2004, respectively. The decrease of approximately $197,000 can be
      attributed to a decrease in amortization of debt discount of approximately
      $165,000 due to a decrease in the relative amount of new debt during the current
      and most recent prior period, a decrease in common stock and warrants issued
      in
      association with debt of approximately $124,000 related to the issuance of
      penalty warrants associated with delinquent notes due to a decrease in the
      stock
      price as compared to the prior year period and a decrease in amortization of
      deferred financing costs of approximately $5,000 related to such new debt,
      offset by an increase in interest expense of approximately $97,000 related
      to
      increased outstanding debt in the period.





***Net
      Loss*** - As a
      result of the above, for the nine months ended December 31, 2005 the Company
      recorded a net loss of $2,254,212, compared to a net loss of $1,989,792 for
      the
      same period in the previous year.





**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 a material current or
      future effect on financial conditions, changes in financial conditions, result
      of operations, liquidity, capital expenditures, capital resources, or
      significant components of revenue or expenses.





**Liquidity
      and Capital Resources**





The
        Company has financed its cash requirements primarily through operations and
        short-term borrowings. During the nine months ended December 31, 2005, the
        Company issued Units to investors which consisted of (i) $761,700 principal
        amount promissory notes bearing interest between 0% and 20% per annum, of
        which
        $50,000 was repaid, $100,000 due 30 days from the date of issuance and the
        balance due 365 days from the date of issuance, (ii) 801,700 shares of the
        Company’s common stock, and (iii) three-year warrants to purchase 811,700 shares
        of Common Stock, of which 110,000 were exercisable at $1.25 per share and
        the
        remainder at $1.50 per share. Additionally, the Company received a $7,000
        non-interest bearing loan from an investor due 60 days from the date of receipt
        of the funds.




The
      Company continues to be in default on $250,000 of Senior Notes during the nine
      months ended December 31, 2005. The Senior Notes accrue interest at a penalty
      rate of 15% per annum. Under the penalty provisions of the loan agreements,
      the
      Company continues to issue 25,000 shares of Common Stock per month until full
      repayment of the Senior Notes. The accrued interest on the Senior Notes at
      December 31, 2005 is $149,856. Additionally, the Company issued 4,545 shares
      of
      Common Stock per month related to a $100,000 note per the default provisions
      of
      the promissory note.




According
      to the penalty provisions of the loan agreements, the Company issued three-year
      penalty warrants to purchase 1,268,512 shares of common stock at $1.00 per
      share
      and three-year warrants to purchase 17,742 shares of common stock at $2.00
      per
      share during the nine months ended December 31, 2005 associated with both
      secured and unsecured notes in default.




18


Net
      cash
      used in operating activities was $824,749 and $223,998 for the nine months
      ended
      December 31, 2005 and 2004, respectively.  The use of cash in 2005 is the
      result of a net loss of approximately $2,254,000, partially offset by non-cash
      charges of approximately $955,000 and a net change in operating assets and
      liabilities of approximately $474,000 which includes the Company’s accrual of
      payroll taxes due and not yet paid of approximately $149,000. The cash used
      in
      operating activities in 2004 is the result of a net loss of approximately
      $1,990,000, partially offset by non-cash charges of approximately $1,244,000
      and
      a net change in operating assets and liabilities of approximately
      $522,000.





Cash
      used
      in investing activities was $1,184 and $6,375 for the nine months ended December
      31, 2005 and 2004, respectively.





Cash
      provided by financing activities was $639,452 and $265,000 for the nine months
      ended December 31, 2005 and 2004, respectively. Borrowings in the nine
      months ended December 31, 2005 were $768,700 as compared to $470,000 for the
      same period last year. These borrowings were offset by repayments of $50,000
      and
      $205,000 for the 2005 and 2004 periods, respectively and an increase in
      financing costs incurred in the period of $79,248. The increase in borrowings
      can be directly attributed to a decrease in revenue related to the realignment
      of the broadcast sales channel with the Company’s broadcast industry partner,
      Harris, on a non-exclusive basis.





During
      February 2006, the Company issued a $50,000 and a $40,000 promissory note both
      bearing interest at 10% per annum and due 60 days from the date of issuance
      and
      25,000 and 20,000 shares of common stock, respectively, related to these notes,
      to one investor.




As
      of
      December 31, 2005, the Company had a working capital deficiency of approximately
      $4,142,000, including notes payable and accrued interest totaling approximately
      $3,351,000, net of applicable debt discount of approximately $208,000. The
      Company has no long-term debt.





In
      order
      to continue its operations beyond June 2006, the Company will need to attain
      its
      revenue and profit margin goals, repay or obtain extensions/conversions on
      its
      existing debt and raise additional working capital through a private placement
      of equity or debt. The Company has entered into a letter of intent with a NASD
      registered placement agent to sell a minimum of $5.0 million and a maximum
      of
      $8.0 million of units consisting of convertible preferred stock and warrants
      to
      purchase common stock. Management expects that at least the minimum offering,
      which is conducted on a best efforts basis, will be made to institutions and
      accredited investors before March 31, 2006. The Company’s promissory note
      holders are being approached to convert a minimum of $1.5 million, or an amount
      as otherwise agreed to between the Company and the Placement Agent, of their
      principal into the above mentioned offering. The Company intends to use the
      proceeds of this or any other offering to repay short-term debt, fund new
      vertical markets and provide working capital. If the Company raises additional
      funds through the issuance of equity securities, the percentage ownership of
      its
      current stockholders would be reduced. In addition, these equity securities
      might have rights, preferences or privileges senior to the outstanding Common
      Stock.





The
      Company has incurred net losses of approximately $8,924,000 since inception,
      a
      substantial portion of which relates to the amortization of debt discount and
      other debt related charges. As indicated above, the Company has a working
      capital deficiency of approximately $4,142,000, 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 auditors, included with
      its
      annual report on Form 10-KSB for the year ended March 31, 2005, that includes
      an
      explanatory paragraph describing the conditions that raise substantial doubt
      about our ability to continue as a going concern. The accompanying financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





There
      can
      be no assurance that the Company will be able to raise the capital it requires
      in the necessary time frame or at all or that it will be able to raise the
      capital in terms acceptable to it. In addition, there can be no assurances
      that
      the Company will be successful in obtaining extensions/conversions 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.




19


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.




**Inflation
      and Seasonality**





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





**ITEM
      3 - 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. The Company did hire an additional
      person to enhance its accounting staff during the nine months ended December
      31,
      2005. 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.





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.





20


**PART
      II - OTHER INFORMATION**




**ITEM
        1. **Legal
        Proceedings****




On
        June
        16, 2005 the Company filed an action in the Superior Court of the State of
        California, County of Los Angeles, Central District, case No. BC335098, against
        Application Science and Technology LLC, Chad Kalebic, Michael Hurst, Anthony
        Briede and others (the “Defendants”). The Company initiated the litigation after
        ongoing and reoccurring feedback from the marketplace that the Defendants
        were
        actively interfering with the Company’s business relationships and violating
        contractual agreements despite formal warnings to cease and desist. The case
        includes allegations of: Unfair Competition; Violations of California Business
        Code, Sections 17.200 ET SEQ and 17.000 ET SEQ; Intentional Interference
        with
        Plaintiffs Business Relationships, Negligent Interference with Plaintiff’s
        Business Relationships; Slander and Injunction. The Company has retained
        litigation counsel on a 1/3 contingency basis of the net benefit to the Company.
        The Company will advance and pay the costs and expenses of the litigation.
        The
        Company expects to prevail in the proceedings; however, there can be no
        assurances in this regard and in the event of an adverse decision, the Company
        may be liable for costs, expenses and/or attorney’s fees of the
        Defendants.  On December 6, 2005, after losing a demurrer which they filed
        against the Statmon complaint, the Defendants in case No. BC335098 filed
        a Cross
        Complaint in the Superior Court of California against Statmon Technologies
        Corp.
        and employees Mr. Geoffrey Talbot and Mr. Ken Dillard as Cross
        Defendants/Plaintiffs claiming Breach of Settlement Agreement, Intentional
        Interference with Contractual Relationships, Intentional Interference with
        Prospective Business Relationships, Defamation, Trade Libel, Violation of
        California Business and Professional Code, Negligent Interference with
        Prospective Business Relationships, Negligent Interference with Contractual
        relationships. The Company believes that the Cross Complaint lacks merit
        and
        will be defended vigo r ously.
        In
        addition, the Defendants in case No. BC335098 filed a Complaint For Declaratory
        Relief in the United States district Court For The Northern District of
        Illinois, Eastern Division seeking to secure a judicial determination and
        declaration that they had independently developed their own software without
        impermissibly copying Statmon’s software and that the Defendant’s software does
        not infringe upon any Statmon copyright. The California state case has been
        stayed (temporarily stopped) by the court pending resolution of the declaratory
        relief action filed in the United States District Court in
        Illinois. It is anticipated that the California state litigation will
        resume thereafter.




**ITEM
      2.** **Changes
      in Securities and Use of Proceeds**




During
        the three months ended December 31, 2005, the Company issued the following
        Units
        to investors which consisted of:




·
              (i)
                  $25,000 principal amount promissory note bearing interest at 10%
                  per annum
                  and due 365 days from the date of issuance, (ii) 25,000 shares
                  of the
                  Company’s common stock, and (iii) three-year warrants to purchase 25,000
                  shares of common stock at $1.50 per
                  share.
  ·
              (i)
                  $50,000 principal amount promissory note bearing no interest and
                  due 20
                  days from the date of issuance, (ii) 50,000 shares of the Company’s common
                  stock, and (iii) three-year warrants to purchase 50,000 shares
                  of common
                  stock at $1.50 per share. The note was repaid during the
                  period.
  In
        addition, the Company provided secured positions to three noteholders for
        a
        total of $1,140,000 of principal behind the Senior Notes.




21




**ITEM
        3.** **Defaults
        Upon Senior Securities**




The
        Company continued to be in default on $250,000 of Senior Notes during the
        three
        months ended December 31, 2005. The Senior Notes accrue interest at a penalty
        rate of 15% per annum. Under the penalty provisions of the loan agreements,
        the
        Company continues to issue 25,000 shares of common stock per month until
        full
        repayment of the Senior Notes. The accrued interest on the Senior Notes at
        December 31, 2005 is $149,856.
  The
        Company also continues to be in default on a $50,000 principal amount promissory
        note issued in June 2002, a $50,000 principal amount promissory note issued
        in
        September 2003, a $100,000 principal amount promissory note issued in November
        2003, a $60,000 principal amount promissory note issued in January 2004,
        a
        $100,000 principal amount promissory note issued in March 2004, a $250,000
        promissory note issued in August 2004, a $100,000 promissory note issued
        in
        October 2004, a $100,000 promissory note issued in December 2004 and a $100,000
        promissory note issued on September 30, 2005 and due in 30 days. The Notes
        continue to accrue interest at 15% per annum and 2,500 penalty warrants per
        month continue to be granted on the first $50,000 note since January 10,
        2003,
        2,500 penalty warrants per month continue to be granted on the second $50,000
        note since April 19, 2004, 20,000 penalty warrants per month continue to
        be
        granted on the first $100,000 note since May 22, 2004, 3,000 penalty warrants
        per month continue to be granted on the $60,000 note since August 2, 2004,
        5,000
        penalty warrants per month continue to be granted on the second $100,000
        note
        since October 14, 2004, 50,000 penalty warrants per month continue to be
        granted
        on the $250,000 note since March 23, 2005, 10,000 penalty warrants per month
        have begun to be granted on the third $100,000 note since November 8, 2005.
        The
        accrued interest on these Notes at December 31, 2005 is
        $182,237.
  In
        total,
        at December 31, 2005, $2,017,000 principal amount of the $2,903,700 principal
        amount of promissory notes are in default and $647,497 of interest had accrued
        on all outstanding notes as of such date.




**ITEM
        6.** **Exhibits
        and Reports on Form 8-K**




(a)
              Exhibits
  31.1
              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.
  (b)
                The
                    Company filed no reports on Form 8-K during the quarterly period
                    ended
                    December 31, 2005.
  22





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date:
                February 21, 2006
            /s/ Geoffrey
                P. TalbotName:
                Geoffrey P. Talbot
              Title: Chief
                  Financial Officer




23




**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.
  24