**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 September 30, 2006 **

**or      **

**[      ]    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 November 9, 2006** |   |
|---------------------------------------------|--------|----------------------------------------------------|--------|
| Common                Stock, $.01 par value |   | 14,678,297                                         |   |

----

**FORM      10-QSB**

**STATMON      TECHNOLOGIES CORP.**

**September      30, 2006**

**TABLE      OF CONTENTS **

|                                                                                                                                                |   | Page(s) |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|
| Part                I - Financial                Information                                                                                   |   |    |   |
| Item                1. Financial Statements (unaudited):                                                                                            |   |    |   |
| Condensed                Consolidated Balance Sheet at September 30, 2006                                                                           |   |    | 3      |   |
| Condensed                Consolidated Statements of Operations for the Three Months Ended                September                30, 2006 and 2005 |   |    | 4      |   |
| Condensed                Consolidated Statements of Operations for the Six Months Ended September                30, 2006 and 2005                  |   |    | 5      |   |
| Condensed                Consolidated Statements of Cash Flows for the Six Months Ended September                30, 2006 and 2005                  |   |    | 6      |   |
| Notes                to Condensed Consolidated Financial Statements                                                                                 |   |    | 7      |   |
| Item                2. Management’s Discussion and Analysis of Financial Condition                and                Results of Operations    |   |    | 14     |   |
| Item                3. Controls and Procedures                                                                                                      |   |    | 20     |   |
| Part                II - Other                Information                                                                                      |   |    |   |   |
| Item                1. Legal Proceedings                                                                                                            |   |    | 21     |   |
| Item                2. Changes in Securities and Use of Proceeds                                                                                    |   |    | 21     |   |
| Item                3. Defaults Upon Senior Securities                                                                                              |   |    | 22     |   |
| Item                6. Exhibits                                                                                                                     |   |    | 23     |   |
| Signatures                                                                                                                                          |   |    | 24     |   |
| Exhibits                                                                                                                                            |   |    | 25     |   |
| Certifications                                                                                                                                      |   |    | 26     |   |

----

**ITEM      I — FINANCIAL STATEMENTS**

**STATMON      TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEET**

**SEPTEMBER      30, 2006**

**(UNAUDITED)**

|  **ASSETS**                                                                                                                                      |   |   |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|
| Current                  Assets:                                                                                                                      |   |   |        |
|  Cash                                                                                                                                            |   | $      | 35,851      |   |
|  Accounts                  receivable                                                                                                            |   |   | 321,176     |   |
|  Inventories                                                                                                                                     |   |   | 52,321      |   |
|  Prepaid                  expense and other current assets                                                                                       |   |   | 34,010      |   |
|  Total                  Current Assets                                                                                                           |   |   | 443,358     |   |
|                                                                                                                                                  |   |   |        |   |
| Property                  and Equipment, net                                                                                                          |   |   | 19,319      |   |
|                                                                                                                                                  |   |   |        |   |
| Deferred                  Financing Costs                                                                                                             |   |   | 107,951     |   |
| Other                  Assets                                                                                                                         |   |   | 10,465      |   |
|                                                                                                                                                  |   |   |        |   |
|  Total                  Assets                                                                                                                   |   | $      | 581,093     |   |
|                                                                                                                                                  |   |   |        |   |
| **LIABILITIES                  AND STOCKHOLDERS' DEFICIENCY**                                                                                         |   |   |        |   |
| Current                  Liabilities:                                                                                                                 |   |   |        |   |
|  Notes                  payable (including $1,909,700 due to related parties), net of debt                  discount                  of $53,339 |   | $      | 3,643,361   |   |
|  Accounts                  payable                                                                                                               |   |   | 516,604     |   |
|  Accrued                  expenses                                                                                                               |   |   | 487,859     |   |
|  Accrued                  compensation                                                                                                           |   |   | 403,697     |   |
|  Interest                  payable (including $400,189 due to related parties)                                                                   |   |   | 995,855     |   |
|  Deferred                  revenue                                                                                                               |   |   | 78,178      |   |
|  Total                  Liabilities                                                                                                              |   |   | 6,125,554   |   |
| 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, 14,503,752                  issued and outstanding                |   |   | 145,038     |   |
|  Additional                  paid-in capital                                                                                                     |   |   | 6,003,064   |   |
|  Accumulated                  deficit                                                                                                            |   |   | (11,692,563 | ) |
|  Total                  Stockholders' Deficiency                                                                                                 |   |   | (5,544,461  | ) |
|                                                                                                                                                  |   |   |        |   |
|  Total                  Liabilities and Stockholders' Deficiency                                                                                 |   | $      | 581,093     |   |

----

**STATMON        TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS **

**(UNAUDITED)        **

|                                                                                                                                              |   |  For                  the Three Months Ended September                  30, |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|------------|
|                                                                                                                                              |   | 2006                                                                             |       | 2005 |   |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Revenues                                                                                                                                          |   | $                                                                                | 646,709    |   | $ | 310,983 |   |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Cost                  of Sales                                                                                                                    |   |                                                                             | 144,111    |   |   | 122,703 |   |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Gross                  Profit                                                                                                                     |   |                                                                             | 502,598    |   |   | 188,280 |   |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Selling,                  General and Administrative Expenses                                                                                     |   |                                                                             | 693,976    |   |   | 632,318 |   |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Operating                  Loss                                                                                                                   |   |                                                                             | (191,378   | ) |   | (444,038 | ) |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Other                  Expense:                                                                                                                   |   |                                                                             |       |   |   |   |   |
|  Interest                  (including $65,785 and $30,845 to related parties for 2006                  and 2005 periods, respectively)       |   |                                                                             | 154,734    |   |   | 90,338 |   |
| Common                  stock and warrants issued in association with  debt                  (including $38,500 to related parties for 2006) |   |                                                                             | 441,065    |   |   | 133,552 |   |
| Amortization                  of debt discount                                                                                                    |   |                                                                             | 178,034    |   |   | 123,916 |   |
| Amortization                  of deferred financing costs                                                                                         |   |                                                                             | 38,249     |   |   | 35,127 |   |
| Total                  Other Expense                                                                                                              |   |                                                                             | 812,082    |   |   | 382,933 |   |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| NET                  LOSS                                                                                                                         |   | $                                                                                | (1,003,460 | ) | $ | (826,971 | ) |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| NET                  LOSS PER COMMON SHARE - Basic and Diluted                                                                                    |   | $                                                                                | (0.07      | ) | $ | (0.06 | ) |
|                                                                                                                                              |   |                                                                             |       |   |   |   |   |
| Weighted                    Average Number of Common Shares Outstanding - Basic and                    Diluted                                    |   |                                                                             | 14,291,831 |   |   | 12,975,007 |   |

----

**STATMON        TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS **

**(UNAUDITED)        **

|                                                                                                                                                               |   |  For                  the Six Months Ended September                  30, |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|------------|
|                                                                                                                                                               |   | 2006                                                                           |       | 2005 |   |
| Revenues                                                                                                                                                           |   | $                                                                              | 899,442    |   | $ | 726,111 |   |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| Cost                  of Sales                                                                                                                                     |   |                                                                           | 211,261    |   |   | 252,014 |   |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| Gross                  Profit                                                                                                                                      |   |                                                                           | 688,181    |   |   | 474,097 |   |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| Selling,                  General and Administrative Expenses                                                                                                      |   |                                                                           | 1,287,538  |   |   | 1,277,473 |   |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| Operating                  Loss                                                                                                                                    |   |                                                                           | (599,357   | ) |   | (803,376 | ) |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| Other                  Expense:                                                                                                                                    |   |                                                                           |       |   |   |   |   |
| Interest                    (including $117,574 and $55,679 to related parties for 2006 and                    2005                    periods, respectively)      |   |                                                                           | 271,490    |   |   | 169,405 |   |
| Common                    stock and warrants issued in association with debt (including                    $38,500 to                    related parties for 2006) |   |                                                                           | 689,245    |   |   | 321,075 |   |
|  Amortization                  of debt discount                                                                                                               |   |                                                                           | 321,415    |   |   | 206,903 |   |
|  Amortization                  of deferred financing costs                                                                                                    |   |                                                                           | 103,147    |   |   | 42,627 |   |
|  Total                  Other Expense                                                                                                                         |   |                                                                           | 1,385,297  |   |   | 740,010 |   |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| NET                  LOSS                                                                                                                                          |   | $                                                                              | (1,984,654 | ) | $ | (1,543,386 | ) |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| NET                  LOSS PER COMMON SHARE - Basic and Diluted                                                                                                     |   | $                                                                              | (0.14      | ) | $ | (0.12 | ) |
|                                                                                                                                                               |   |                                                                           |       |   |   |   |   |
| Weighted                    Average Number of Common Shares Outstanding - Basic and                    Diluted                                                     |   |                                                                           | 14,031,404 |   |   | 12,775,447 |   |

----

**STATMON        TECHNOLOGIES CORP. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS **

**(UNAUDITED)**

|                                                                                                                   |   | For                  the Six Months Ended September                  30, |       |
|------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|------------|
|                                                                                                                   |   | 2006                                                                     |       | 2005 |   |
| CASH                  FLOWS FROM OPERATING ACTIVITIES:                                                                 |   |                                                                     |       |   |   |
|  Net                  loss                                                                                        |   | $                                                                        | (1,984,654 | ) | $ | (1,543,386 | ) |
| Adjustments                    to reconcile net loss to net cash used in operating                    activities: |   |                                                                     |       |   |   |   |   |
| Depreciation                  and amortization                                                                         |   |                                                                     | 6,337      |   |   | 9,564 |   |
| Common                  stock and warrants issued in association with debt                                             |   |                                                                     | 689,245    |   |   | 321,075 |   |
| Amortization                  of debt discount                                                                         |   |                                                                     | 321,415    |   |   | 206,903 |   |
| Amortization                  of deferred financing costs                                                              |   |                                                                     | 103,147    |   |   | 42,627 |   |
| Stock-based                  compensation                                                                              |   |                                                                     | 48,000     |   |   | - |   |
| Changes                  in operating assets and liabilities:                                                          |   |                                                                     |       |   |   |   |   |
| Accounts                  receivable                                                                                   |   |                                                                     | (138,738   | ) |   | (24,206 | ) |
| Inventories                                                                                                            |   |                                                                     | (6,932     | ) |   | 3,653 |   |
| Prepaid                  expense and other current assets                                                              |   |                                                                     | (9,427     | ) |   | (3,558 | ) |
| Other                  assets                                                                                          |   |                                                                     | -          |   |   | (4,000 | ) |
| Accounts                  payable                                                                                      |   |                                                                     | 62,061     |   |   | (52,698 | ) |
| Accrued                  expenses                                                                                      |   |                                                                     | 34,967     |   |   | 139,492 |   |
| Accrued                  compensation                                                                                  |   |                                                                     | 68,737     |   |   | 86,737 |   |
| Interest                  payable                                                                                      |   |                                                                     | 246,807    |   |   | 168,200 |   |
| Deferred                  revenue                                                                                      |   |                                                                     | 15,223     |   |   | (24,831 | ) |
| NET                  CASH USED IN OPERATING ACTIVITIES                                                                 |   |                                                                     | (543,812   | ) |   | (674,428 | ) |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| CASH                  FLOWS USED IN INVESTING ACTIVITIES:                                                              |   |                                                                     |       |   |   |   |   |
| Purchase                  of property and equipment                                                                    |   |                                                                     | (10,366    | ) |   | (1,184 | ) |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| CASH                  FLOWS FROM FINANCING ACTIVITIES*:*                                                               |   |                                                                     |       |   |   |   |   |
| Proceeds                  from notes payable                                                                           |   |                                                                     | 530,000    |   |   | 693,700 |   |
| Repayment                  of notes payable                                                                            |   |                                                                     | -          |   |   | - |   |
| Deferred                  financing costs                                                                              |   |                                                                     | (6,306     | ) |   | (108,265 | ) |
| NET                  CASH PROVIDED BY FINANCING ACTIVITIES                                                             |   |                                                                     | 523,694    |   |   | 585,435 |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| NET                  DECREASE IN CASH                                                                                  |   |                                                                     | (30,484    | ) |   | (90,177 | ) |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| CASH,                  BEGINNING OF PERIOD                                                                             |   |                                                                     | 66,335     |   |   | 191,974 |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| CASH,                  END OF PERIOD                                                                                   |   | $                                                                        | 35,851     |   | $ | 101,797 |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| SUPPLEMENTAL                  DISCLOSURE OF CASH FLOW INFORMATION:                                                     |   |                                                                     |       |   |   |   |   |
| Cash                  paid for:                                                                                        |   |                                                                     |       |   |   |   |   |
| Interest                                                                                                               |   | $                                                                        | 21,758     |   | $ | 668 |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| NON-CASH                  INVESTING AND FINANCING ACTIVITIES:                                                          |   |                                                                     |       |   |   |   |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| Value                  of Common Stock and Warrants issued related to new debt                                         |   | $                                                                        | 292,517    |   | $ | 333,837 |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| Value                  of warrants issued to Placement Agent                                                           |   | $                                                                        | 20,300     |   | $ | 21,750 |   |
|                                                                                                                   |   |                                                                     |       |   |   |   |   |
| Value                  of common stock issued to Placement Agent for                  Investor relation services  |   | $                                                                        | 54,750     |   | $ | - |   |

----

**Statmon        Technologies Corp. and Subsidiaries**

**Notes        to Condensed Consolidated Financial Statements**

**(Unaudited)**

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

**Company      Overview**

**Going      Concern**

----

**Statmon          Technologies Corp. and Subsidiaries**

**Notes          to Condensed Consolidated Financial Statements**

**(Unaudited)**

| **1.  ** | **BUSINESS                DESCRIPTION, GOING CONCERN AND MANAGEMENT PLANS (**continued)**** |
|--------------------|---------------------------------------------------------------------------------------------|

**Management      Plans**

| **2.  ** | **CERTAIN                SIGNIFICANT ACCOUNTING                POLICIES** |
|--------------------|---------------------------------------------------------------------------|

| *a.  * | Basis                of Consolidation                -                The consolidated financial statements of the Company include the                accounts                of our wholly-owned subsidiaries, Statmon-eBI Solutions, LLC, a Nevada                limited liability company and STC Software Corp., a Delaware corporation.                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                $150,000 and $134,000 for the three months ended September 30, 2006                and                2005, respectively. Research and development expenditures were                approximately $333,000 and $282,000 for the six months ended September                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. |
|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Statmon            Technologies Corp. and Subsidiaries**

**Notes            to Condensed Consolidated Financial Statements**

**(Unaudited)**

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

| ***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, and consist of warrants to purchase 9,020,170                and                5,995,647 shares of common stock as of September 30, 2006 and 2005,                respectively. |
|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| *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 July 2006, FASB Interpretation No. 48 - Accounting for Uncertainty                in                Income Taxes, or FIN 48, was issued. FIN 48 clarifies the accounting                for                uncertainty in income taxes recognized in an enterprise's financial                statements in accordance with FASB Statement No. 109 - Accounting                for                Income Taxes. FIN 48 is effective for fiscal years beginning after                December 15, 2006. We expect to implement FIN 48 beginning on April                1,                2007. We are evaluating the impact that adopting FIN 48 will have                on our                financial position and results of                operations. |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Statmon          Technologies Corp. and Subsidiaries**

**Notes          to Condensed Consolidated Financial Statements**

**(Unaudited)**

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

| **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 matured on July 31, 2006 and will accrue interest at the rate                of 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 matured on August 15, 2006 and has begun to accrue interest                at the                rate of 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 matured on August 29, 2006 and will accrue interest at the rate                of                15% per annum until the note is                repaid. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $20,000 principal amount promissory note bearing interest at 10%                per annum                and due 180 days from the date of issuance, (ii) 20,000 shares of                common                stock and (iii) warrants to purchase 20,000 shares of common stock                exercisable at a price of $1.25 per share for a term of three                years. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $50,000 principal amount promissory note bearing interest at 10%                per annum                and due 60 days from the date of issuance, (ii) 50,000 shares of                common                stock and (iii) warrants to purchase 50,000 shares of common stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matured on September 15, 2006 and has begun to accrue interest                from                that date at the rate of 15% per annum until the note is                repaid. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $125,000 principal amount promissory notes bearing interest at 10%                per                annum and due November 30, 2006, (ii) 75,000 shares of common stock                and                (iii) warrants to purchase 75,000 shares of common stock exercisable                at a                price of $1.00 per share for a term of five                years. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Statmon          Technologies Corp. and Subsidiaries**

**Notes          to Condensed Consolidated Financial Statements**

**(Unaudited)**

| **3.  ** | **NOTES                PAYABLE (continued)** |
|--------------------|----------------------------------------------|

| **4.  ** | **EQUITY                TRANSACTIONS** |
|--------------------|----------------------------------------|

----

**Statmon          Technologies Corp. and Subsidiaries**

**Notes          to Condensed Consolidated Financial Statements**

**(Unaudited)**

| **5.  ** | **RELATED                PARTY TRANSACTIONS** |
|--------------------|-----------------------------------------------|

| **6.  ** | **COMMITMENTS                AND CONTINGENCIES** |
|--------------------|--------------------------------------------------|

| [b]   | Other                -                At September 30, 2006, the Company has accrued approximately $234,000                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 has yet to file 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. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Statmon          Technologies Corp. and Subsidiaries**

**Notes          to Condensed Consolidated Financial Statements**

**(Unaudited)**

| **7.  ** | **MAJOR                CUSTOMERS, FOREIGN REVENUE AND CONCENTRATION OF CREDIT                RISK** |
|--------------------|-----------------------------------------------------------------------------------------------------|

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

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

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

| **8.  ** | **SUBSEQUENT                EVENTS** |
|--------------------|--------------------------------------|

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**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**

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

**Results      From Operations **

***Revenues***

***Cost      of Sales***

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

***Other      Expense***

***Net      Loss***

----

**For      the Six Months Ended September 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 matured on July 31, 2006 and will accrue interest at the rate                of 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 matured on August 15, 2006 and will accrue interest at the rate                of                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 matured on August 29, 2006 and will accrue interest at the rate                of                15% per annum until the note is                repaid. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $20,000 principal amount promissory note bearing interest at 10%                per annum                and due 180 days from the date of issuance, (ii) 20,000 shares of                common                stock and (iii) warrants to purchase 20,000 shares of common stock                exercisable at a price of $1.25 per share for a term of three                years. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $50,000 principal amount promissory note bearing interest at 10%                per annum                and due 60 days from the date of issuance, (ii) 50,000 shares of                common                stock and (iii) warrants to purchase 50,000 shares of common stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matured on September 15, 2006 and has begun to accrue interest                from                that date at the rate of 15% per annum until the note is                repaid. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | (i)                $125,000 principal amount promissory notes bearing interest at 10%                per                annum and due November 30, 2006, (ii) 75,000 shares of common stock                and                (iii) warrants to purchase 75,000 shares of common stock exercisable                at a                price of $1.00 per share for a term of five                years. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Inflation      and Seasonality **

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**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 unless a settlement is reached.                The parties are now attempting to work out a global settlement which                will                resolve all of the litigation. |   |
|                       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| **ITEM                2.** |   |   |   | **Changes                in Securities and Use of Proceeds**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|                       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                       |   |   |   | Between                July 1 and September 30, 2006, the Company sold Units to investors                as                follows: • (i)                $20,000 principal amount promissory note bearing interest at 10%                per annum                and due 180 days from the date of issuance, (ii) 20,000 shares of                common                stock and (iii) warrants to purchase 20,000 shares of common stock                exercisable at a price of $1.25 per share for a term of three                years.• (i)                $50,000 principal amount promissory note bearing interest at 10%                per annum                and due 60 days from the date of issuance, (ii) 50,000 shares of                common                stock and (iii) warrants to purchase 50,000 shares of common stock                exercisable at a price of $1.25 per share for a term of five years.                This                note matured on September 15, 2006 and has begun to accrue interest                from                that date at the rate of 15% per annum until the note is                repaid.• (i)                $125,000 principal amount promissory notes bearing interest at 10%                per                annum and due November 30, 2006, (ii) 75,000 shares of common stock                and                (iii) warrants to purchase 75,000 shares of common stock exercisable                at a                price of $1.00 per share for a term of five years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |

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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 September 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 September 30, 2006 is $177,904. 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;·  A                $100,000 promissory note issued on June 1, 2006 due July 31, 2006                and                accruing 15% penalty interest per annum since default. Due out of                first                monies at the closing of a substantial liquidity event;·  A                $100,000 promissory note issued on June 16, 2006 due August 15, 2006                and                accruing 15% penalty interest per annum since default. Due out of                first                monies at the closing of a substantial liquidity event;·  A                $100,000 promissory note issued on June 30, 2006 due August 29, 2006                and                accruing 15% penalty interest per annum since default. Due out of                first                monies at the closing of a substantial liquidity event;·  A                $50,000 promissory note issued on July 17, 2006 due September 15,                2006 and                accruing 15% penalty interest per annum since default. Due out of                first                monies at the closing of a substantial liquidity event;·  A                $100,000 promissory note issued on September 1, 2005 and accruing                15%                penalty interest per annum and earning 10,000 penalty warrants per                month                since October 1, 2006;·  A                $75,000 promissory note issued in July 2005 and accruing 15% penalty                interest per annum and earning 7,500 penalty warrants per month since                August 14, 2006; The                accrued interest on these Notes in default at September 30, 2006                is                $783,828. In                total, at September 30, 2006, $3,358,700 principal amount of the                $3,696,700 principal amount of promissory notes are in default and                $995,855 of interest had accrued on all outstanding notes as of such                date. |   |

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| **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:                November 14, 2006 | /s/                 Geoffrey P. Talbot        |   |   |
|                                   | Name:                Geoffrey P. Talbot            |   |
|                                   | Title: Chief                Financial Officer |   |

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**EXHIBIT      INDEX**

| **Exhibit** |   | **Description**                                                                                                                                                     |   |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 31.1        |   | Certificate                of Geoffrey P. Talbot, Chief Executive Officer, pursuant to                Section 302 of the Sarbanes-Oxley Act of 2002.           |   |
| 31.2        |   | Certificate                of Geoffrey P. Talbot, Chief Financial Officer, pursuant to                Section 302 of the Sarbanes-Oxley Act of 2002.           |   |
| 32.1        |   | Certificate                of Geoffrey P. Talbot, Chief Executive Officer, pursuant to                Section 906 of the Sarbanes-Oxley Act of 2002.           |   |
| 32.2        |   | Certificate                of Geoffrey P. Talbot, Chief Financial Officer, pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002. |   |