**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 June 30, 2006 **

**or      **

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

**THE      SECURITIES EXCHANGE ACT OF 1934 **

**For      the transition period from  ________  to      ________         **

**STATMON      TECHNOLOGIES CORP.**
** **

| **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:         |

| **Class**                                   |   | **Outstanding                at August 9, 2006** |
|---------------------------------------------|--------|--------------------------------------------------|
| Common                Stock, $.01 par value |   | 14,274,662                                       |

----

**FORM      10-QSB**

**STATMON      TECHNOLOGIES CORP.**

**June      30, 2006**

**TABLE      OF CONTENTS **

|                                                                     |                                                                                                                              |                                                                                                                                           | Page(s)                  |
|--------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|
| Part                I - Financial                Information   |                                                                                                                              |
|                                                                     |                                                                                                                              |
|                                                                          | Item                1. Financial Statements (unaudited):                                                                          |                                                                                                                                           |
|                                                                     |                                                                                                                              |                                                                                                                                           |
|                                                                          |                                                                                                                              | Condensed                Consolidated Balance Sheet at June 30, 2006                                                                           | 3                             |
|                                                                     |                                                                                                                              | Condensed                Consolidated Statements of Operations for the Three Months Ended                June 30,                2006 and 2005 | 4                             |
|                                                                          |                                                                                                                              | Condensed                Consolidated Statements of Cash Flows for the Three Months Ended                June 30,                2006 and 2005 | 5                             |
|                                                                     |                                                                                                                              | Notes                to Condensed Consolidated Financial Statements                                                                            | 6                             |
|                                                                          | Item                2. Management’s Discussion and Analysis of Financial Condition and Results                of Operations | 12                                                                                                                                             |
|                                                                          | Item                3. Controls and Procedures                                                                                    | 16                                                                                                                                             |
| Part                II - Other                Information           |                                                                                                                              |
|                                                                     |                                                                                                                              |
|                                                                          | Item                1. Legal Proceedings                                                                                          | 17                                                                                                                                             |
|                                                                     | Item                2. Changes in Securities and Use of Proceeds                                                                  | 17                                                                                                                                             |
|                                                                          | Item                3. Defaults Upon Senior Securities                                                                            | 18                                                                                                                                             |
|                                                                          | Item                6. Exhibits                                                                                                   | 18                                                                                                                                             |
|                                                                     |                                                                                                                              |                                                                                                                                           |
| Signatures                                                               |                                                                                                                              |                                                                                                                                           | 19                            |
|                                                                     |                                                                                                                              |                                                                                                                                           |                          |
| Exhibits                                                                 |                                                                                                                              |                                                                                                                                           | 20                            |
|                                                                     |                                                                                                                              |                                                                                                                                           |                          |
| Certifications                                                           |                                                                                                                              |                                                                                                                                           | 21                            |

----

**ITEM      I — FINANCIAL STATEMENTS**

**STATMON      TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEET**

**JUNE      30, 2006**

**(UNAUDITED)**

|  **ASSETS**                                                                                                                                                    |   |   |        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|
| Current                    Assets:                                                                                                                                  |   |   |        |   |
| Cash                                                                                                                                                                |   | $      | 130,281     |   |
| Accounts                    receivable                                                                                                                              |   |   | 146,224     |   |
| Inventories                                                                                                                                                         |   |   | 39,495      |   |
| Prepaid                    expense and other current assets                                                                                                         |   |   | 4,460       |   |
| Total                    Current Assets                                                                                                                             |   |   | 320,460     |   |
|                                                                                                                                                                |   |   |        |   |
| Property                    and Equipment, net                                                                                                                      |   |   | 15,087      |   |
|                                                                                                                                                                |   |   |        |   |
| Deferred                    Financing Costs                                                                                                                         |   |   | 63,725      |   |
| Other                    Assets                                                                                                                                     |   |   | 10,465      |   |
| Total                    Assets                                                                                                                                     |   | $      | 409,737     |   |
|                                                                                                                                                                |   |   |        |   |
| **LIABILITIES                    AND STOCKHOLDERS' DEFICIENCY**                                                                                                     |   |   |        |   |
| Current                    Liabilities:                                                                                                                             |   |   |        |   |
| Notes                        payable (including $1,809,700 due to related parties), net                        of debt                        discount of $160,079  |   | $      | 3,341,621   |   |
| Accounts                    payable                                                                                                                                 |   |   | 424,022     |   |
| Accrued                    expenses                                                                                                                                 |   |   | 483,726     |   |
| Accrued                    compensation                                                                                                                             |   |   | 369,329     |   |
| Interest                    payable (including $334,404 due to related parties)                                                                                     |   |   | 863,952     |   |
| Deferred                    revenue                                                                                                                                 |   |   | 93,423      |   |
| Total                    Liabilities                                                                                                                                |   |   | 5,576,073   |   |
|                                                                                                                                                                |   |   |        |   |
| Commitments                    and Contingencies                                                                                                                    |   |   |        |   |
|                                                                                                                                                                |   |   |        |   |
| Stockholders'                    Deficiency:                                                                                                                        |   |   |        |   |
| Preferred                        stock, $.01 par value, 10,000,000 shares authorized, none                        issued and                        outstanding     |   |   | -           |   |
| Common                        stock, $.01 par value, 100,000,000 shares authorized, 14,145,117                        issued                        and outstanding |   |   | 141,451     |   |
| Additional                    paid-in capital                                                                                                                       |   |   | 5,381,317   |   |
| Accumulated                    deficit                                                                                                                              |   |   | (10,689,104 | ) |
| Total                    Stockholders' Deficiency                                                                                                                   |   |   | (5,166,336  | ) |
|                                                                                                                                                                |   |   |        |   |
| Total                    Liabilities and Stockholders' Deficiency                                                                                                   |   | $      | 409,737     |   |

----

**STATMON      TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

|                                                                                                                                                               |   | For                  the Three Months Ended June 30, |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|------------|
|                                                                                                                                                               |   | 2006                                                 |       | 2005 |   |
|                                                                                                                                                               |   |                                                 |       |   |   |
| Revenues                                                                                                                                                           |   | $                                                    | 252,733    |   | $ | 415,128 |   |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| Cost                  of Sales                                                                                                                                     |   |                                                 | 67,150     |   |   | 129,311 |   |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| Gross                  Profit                                                                                                                                      |   |                                                 | 185,583    |   |   | 285,817 |   |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| Selling,                  General and Administrative Expenses                                                                                                      |   |                                                 | 593,562    |   |   | 645,155 |   |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| Operating                  Loss                                                                                                                                    |   |                                                 | (407,979   | ) |   | (359,338 | ) |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| Other                  Expense:                                                                                                                                    |   |                                                 |       |   |   |   |   |
| Interest                      (including $51,789 and $24,834 to related parties for 2006                      and 2005                      periods, respectively) |   |                                                 | 116,756    |   |   | 79,067 |   |
| Common                  stock and warrants issued in association with debt                                                                                         |   |                                                 | 248,180    |   |   | 187,523 |   |
| Amortization                  of debt discount                                                                                                                     |   |                                                 | 143,381    |   |   | 82,987 |   |
| Amortization                  of deferred financing costs                                                                                                          |   |                                                 | 64,898     |   |   | 7,500 |   |
| Total                  Other Expense                                                                                                                               |   |                                                 | 573,215    |   |   | 357,077 |   |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| NET                  LOSS                                                                                                                                          |   | $                                                    | (981,194   | ) | $ | (716,415 | ) |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| NET                  LOSS PER COMMON SHARE - Basic and Diluted                                                                                                     |   | $                                                    | (0.07      | ) | $ | (0.06 | ) |
|                                                                                                                                                               |   |                                                 |       |   |   |   |   |
| Weighted                      Average Number of Common Shares Outstanding - Basic and                      Diluted                                                 |   |                                                 | 13,768,116 |   |   | 12,573,694 |   |

----

**STATMON      TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

|                                                                                                              |   | For                  the Three Months Ended June 30,   |     |
|-------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|----------|
|                                                                                                              |   | 2006                                                             |     |  2005 |   |
| CASH                  FLOWS FROM OPERATING ACTIVITIES:                                                            |   |                                                             |     |   |   |   |   |
| Net                  loss                                                                                         |   | $                                                                | (981,194 | ) | $ | (716,415 | ) |
| Adjustments                    to reconcile net loss to net cash used in operating                    activities: |   |                                                             |     |   |   |   |   |
| Depreciation                  and amortization                                                               |   |                                                             | 2,916    |   |   | 4,751 |   |
| Common                  stock and warrants issued in association with debt                                   |   |                                                             | 248,180  |   |   | 187,523 |   |
| Amortization                  of debt discount                                                               |   |                                                             | 143,381  |   |   | 82,987 |   |
| Amortization                  of deferred financing costs                                                    |   |                                                             | 64,898   |   |   | 7,500 |   |
| Changes                  in operating assets and liabilities:                                                |   |                                                             |     |   |   |   |   |
|  Accounts                  receivable                                                                        |   |                                                             | 36,214   |   |   | (43,841 | ) |
|  Inventories                                                                                                 |   |                                                             | 5,894    |   |   | (10,771 | ) |
|  Prepaid                  expense and other current assets                                                   |   |                                                             | 20,123   |   |   | (2,072 | ) |
|  Other                  assets                                                                               |   |                                                             | -        |   |   | (4,000 | ) |
|  Accounts                  payable                                                                           |   |                                                             | (30,522  | ) |   | (29,949 | ) |
|  Accrued                  expenses                                                                           |   |                                                             | 48,334   |   |   | 40,519 |   |
|  Accrued                  compensation                                                                       |   |                                                             | 34,369   |   |   | 50,869 |   |
|  Interest                  payable                                                                           |   |                                                             | 114,904  |   |   | 78,530 |   |
|  Deferred                  revenue                                                                           |   |                                                             | 30,468   |   |   | (32,478 | ) |
| NET                  CASH USED IN OPERATING ACTIVITIES                                                            |   |                                                             | (262,035 | ) |   | (386,847 | ) |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| CASH                  FLOWS USED IN INVESTING ACTIVITIES:                                                         |   |                                                             |     |   |   |   |   |
| Purchase                  of property and equipment                                                               |   |                                                             | (2,713   | ) |   | - |   |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| CASH                  FLOWS FROM FINANCING ACTIVITIES*:*                                                          |   |                                                             |     |   |   |   |   |
| Proceeds                  from notes payable                                                                      |   |                                                             | 335,000  |   |   | 250,000 |   |
| Deferred                  financing costs                                                                         |   |                                                             | (6,306   | ) |   | - |   |
| NET                  CASH PROVIDED BY FINANCING ACTIVITIES                                                        |   |                                                             | 328,694  |   |   | 250,000 |   |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| NET                  INCREASE/(DECREASE) IN CASH                                                                  |   |                                                             | 63,946   |   |   | (136,847 | ) |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| CASH,                  BEGINNING OF PERIOD                                                                        |   |                                                             | 66,335   |   |   | 191,974 |   |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| CASH,                  END OF PERIOD                                                                              |   | $                                                                | 130,281  |   | $ | 55,127 |   |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| SUPPLEMENTAL                  DISCLOSURE OF CASH FLOW INFORMATION:                                                |   |                                                             |     |   |   |   |   |
| Cash                  paid for:                                                                                   |   |                                                             |     |   |   |   |   |
| Interest                                                                                                     |   | $                                                                | 926      |   | $ | 536 |   |
|                                                                                                              |   |                                                             |     |   |   |   |   |
| Income                  taxes                                                                                |   | $                                                                | -        |   | $ | - |   |

----

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

**Company      Overview**

**Going      Concern**

**Management      Plans**

----

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

**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.  * | 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                $183,000 and $148,000 for the three months ended June 30, 2006 and                2005,                respectively. |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *d.  * | 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. |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *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 8,037,721 and                5,152,305                shares of common stock as of June 30, 2006 and 2005,                respectively. |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *f.  * | Deferred                Financing Costs                -                Deferred financing costs are costs incurred in connection with debt                financings and amortized over the term of the related debt. If any                or all                of the related debt is 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 repayment in the consolidated                statement of operations. |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *g.  * | 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. |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**2.**
**CERTAIN      SIGNIFICANT ACCOUNTING POLICIES, continued**

| *h.  * | Stock-Based                Compensation                -                On April 1, 2006, the Company adopted Statement of Financial Accounting                Standard ("SFAS") No. 123R, "Share Based Payment." This statement                is a                revision of SFAS Statement No. 123, "Accounting for Stock-Based                Compensation" and supersedes APB Opinion No. 25, Accounting for Stock                Issued to Employees, and its related implementation guidance. SFAS                123R                addresses all forms of share based payment ("SBP") awards including                shares                issued under employee stock purchase plans, stock options, restricted                stock and stock appreciation rights. Under SFAS 123R, SBP awards                result in                a cost that will be measured at fair value on the awards' grant date,                based on the estimated number of awards that are expected to vest. |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *i.  * | New                Accounting Pronouncements                -                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. The adoption of this pronouncement did not have a material                effect on                the Company’s consolidated financial                statements. |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**3. **
**NOTES      PAYABLE**

| ·                    | (i)                $25,000 principal amount promissory note bearing interest at 10%                per annum                and due 365 days from the date of issuance, (ii) 30,000 shares of                common                stock and (iii) warrants to purchase 25,000 shares of common stock                exercisable at a price of $1.00 per share for a term of five                years. |
|----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|

| ·                    | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 340,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on July 31, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|----------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|

| ·                    | (i)                $10,000 principal amount promissory note bearing interest at 10%                per annum                and due 180 days from the date of issuance, (ii) 10,000 shares of                common                stock and (iii) warrants to purchase 10,000 shares of common stock                exercisable at a price of $1.25 per share for a term of three years.                This                note matures on December 3, 2006 after which interest will increase                to 15%                per annum until the note is                repaid. |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**3. **
**NOTES      PAYABLE, continued**

| ·                    | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 100,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on August 15, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|

| ·                    | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 100,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on August 29, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**4.       **
**EQUITY      TRANSACTIONS**

----

**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 Court filing and third party 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 and Negligent Interference with                Contractual relationships. The Company believes that the Cross Complaint                lacks merit and will be defended vigorously,                in this regard a defense to the cross-complaint is being furnished                by an                insurance carrier of Statmon. 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. |
|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| [b]   | Other                -                At June 30, 2006, the Company has accrued approximately $286,000                of past                due payroll taxes payable. During the previous fiscal year, the Company                received two notices from the federal tax authority related to the                accrued                amount due totaling approximately $114,000 and on July 6, 2006, the                Company paid such amount. The Company is in the process of filing                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. Management of                the                Company has indicated that such delinquent filings are expected to                be                completed no later than the end of the Company’s third fiscal                quarter. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**6.      **
**MAJOR      CUSTOMERS, FOREIGN REVENUE AND CONCENTRATION OF CREDIT      RISK**

| [a]   | Major                Customers |
|-----------------|--------------------------------|

----

**6.**
**MAJOR      CUSTOMERS, FOREIGN REVENUE AND CONCENTRATION OF CREDIT RISK,**
**continued**

| [b]   | Foreign                Revenue |
|-----------------|--------------------------------|

| [c]   | Concentration                of Credit Risk |
|-----------------|---------------------------------------------|

**7.** **SUBSEQUENT      EVENTS**

----

**ITEM      2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF OPERATIONS **

;      (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, 2006 filed with the      Securities and Exchange Commission.

**Recent      Developments for the Company **

**Overview      **

----

**Off-Balance      Sheet Arrangements**

**For      the Quarter Ended June 30, 2006 and 2005 **

**Results      From Operations **

***Revenues***

----

***Cost      of Sales***

***Selling,      General and Administrative Expenses***

***Other      Expense***

***Net      Loss***

**Liquidity      and Capital Resources **

| ·   | (i)                $25,000 principal amount promissory note bearing interest at 10%                per annum                and due 365 days from the date of issuance, (ii) 30,000 shares of                common                stock and (iii) warrants to purchase 25,000 shares of common stock                exercisable at a price of $1.00 per share for a term of five                years. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 340,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on July 31, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $10,000 principal amount promissory note bearing interest at 10%                per annum                and due 180 days from the date of issuance, (ii) 10,000 shares of                common                stock and (iii) warrants to purchase 10,000 shares of common stock                exercisable at a price of $1.25 per share for a term of three years.                This                note matures on December 3, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 100,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on August 15, 2006 after which interest will increase                to 15%                per annum until the note is                repaid. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | (i)$100,000                principal amount promissory note bearing interest at 10% per annum                and due                60 days from the date of issuance, (ii) 100,000 shares of common                stock and                (iii) warrants to purchase 100,000 shares of common stock exercisable                at a                price of $1.25 per share for a term of five years. This note matures                on                August 29, 2006 after which interest will increase to 15% per annum                until                the note is repaid. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Inflation      and Seasonality **

**ITEM      3 - CONTROLS AND PROCEDURES **

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**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 Court filing and third party 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 and Negligent Interference with                Contractual relationships. The Company believes that the Cross Complaint                lacks merit and will be defended vigorously, in this regard a defense                to                the cross-complaint is being furnished by an insurance carrier of                Statmon.                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** |   |
|                       |   |                                                         |   |   |   |
|                       |   |                                                         |   | Between                April 1 and June 30, 2006, the Company sold Units to investors as                follows: |   |

| ·                   | (i)                $25,000 principal amount promissory note bearing interest at 10%                per annum                and due 365 days from the date of issuance, (ii) 30,000 shares of                common                stock and (iii) warrants to purchase 25,000 shares of common stock                exercisable at a price of $1.00 per share for a term of five                years. |
|----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| ·                   | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 340,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on July 31, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| ·                   | (i)                $10,000 principal amount promissory note bearing interest at 10%                per annum                and due 180 days from the date of issuance, (ii) 10,000 shares of                common                stock and (iii) warrants to purchase 10,000 shares of common stock                exercisable at a price of $1.25 per share for a term of three years.                This                note matures on December 3, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| ·                   | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 100,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on August 15, 2006 after which interest will increase                to 15%                per annum until the note is repaid. |
|----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| ·    | (i)                $100,000 principal amount promissory note bearing interest at 10%                per                annum and due 60 days from the date of issuance, (ii) 100,000 shares                of                common stock and (iii) warrants to purchase 100,000 shares of common                stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matures on August 29, 2006 after which interest will increase                to 15%                per annum until the note is                repaid. |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| **ITEM                3.** |   | **Defaults                Upon Senior Securities** |   |
|----------------------------|--------|----------------------------------------------------|--------|
|                       |   |                                               |   |
|                       |   |                                               |   | The                Company continued to be in default on $250,000 of Senior Notes during                the                three months ended June 30, 2006. 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 June 30, 2006 is $168,452. The                Company also continues to be in default or defaulted on: ·  A                $50,000 principal amount promissory note issued in June 2002 and                accruing                15% penalty interest per annum and earning 2,500 penalty warrants                per                month since January 10, 2003; ·  A                $50,000 principal amount promissory note issued in September 2003                and                accruing 15% penalty interest per annum and earning 2,500 penalty                warrants                per month since April 19, 2004; ·  A                $100,000 principal amount promissory note issued in November 2003                originally due in May 2004, extended to November 2004 and accruing                15%                penalty rate per annum and earning 20,000 penalty warrants per month                since                May 22, 2004; ·  A                $60,000 principal amount promissory note issued in January 2004 and                accruing 15% penalty interest per annum and earning 3,000 penalty                warrants                per month since August 2, 2004; ·  A                $100,000 principal amount promissory note issued in March 2004 and                accruing 15% penalty interest per annum and earning 5,000 penalty                warrants                per month since October 14, 2004; ·  A                $250,000 promissory note issued in August 2004 and accruing 15% penalty                interest per annum and earning 50,000 penalty warrants per month                since                March 25, 2005; ·  A                $100,000 promissory note issued in October 2004 and accruing 15%                penalty                interest per annum and earning 10,000 penalty warrants per month                since                November 8, 2005; ·  A                $100,000 promissory note issued in December 2004 and accruing 15%                penalty                interest per annum and earning 10,000 penalty warrants per month                since                January 29, 2006; ·  A                $100,000 promissory note issued in September 2005 and accruing 15%                penalty                interest per annum and earning 4,545 penalty warrants per month since                October 30, 2005; ·  A                $225,000 promissory note issued in March 2005 and accruing 15% penalty                interest per annum and earning 22,500 penalty warrants per month                since                April 17, 2006; ·  A                $100,000 promissory note issued in April 2005 and accruing 15% penalty                interest per annum and earning 10,000 penalty warrants per month                since May                29, 2006; ·  A                $75,000 promissory note issued in May 2005 and accruing 15% penalty                interest per annum and earning 7,500 penalty warrants per month since                June                30, 2006; ·  A                $50,000 promissory note issued in June 2005 and accruing 15% penalty                interest per annum and earning 5,000 penalty warrants per month since                July                15, 2006; ·  A                $50,000 promissory note issued in February 2006 due April 2006 and                accruing 15% penalty interest per annum and a one-time issuance upon                default of 25,000 penalty shares; ·  A                $50,000 promissory note issued in March 2006 due May 2006 and accruing                15%                penalty interest per annum and a one-time issuance upon default of                25,000                penalty shares; ·  A                $100,000 promissory note issued in March 2006 due May 2006 and accruing                15% penalty interest per annum and a one-time issuance upon default                of                50,000 penalty shares; The                accrued interest on these Notes in default at June 30, 2006 is                $315,947. In                total, at June 30, 2006, $2,782,000 principal amount of the $3,501,700                principal amount of promissory notes are in default and $863,952                of                interest had accrued on all outstanding notes as of such date. |   |
|                       |   |                                               |   |   |   |

| **ITEM                6.** |   |   | **Exhibits** |   |
|----------------------------|--------|--------|--------------|--------|
|                       |   |   |         |   |
| (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. |   |
|                       |   |   |         |   |   |

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**SIGNATURES**

|                                 |                                                                                        |                        |
|--------------------------------------|---------------------------------------------------------------------------------------------|-----------------------------|
| Date:                August 14, 2006 |                                                                                   | /s/ Geoffrey P. Talbot |
|                                 | Name:                Geoffrey P. TalbotTitle: 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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