UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

For the quarterly period ended ~~September~~March 3031, ~~2011~~2012

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

For the transition period from to .

Commission File Number 000-54170

ZYTO CORP

(Exact name of registrant as specified in its charter)

Delaware		20-5534033
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

387 South 520 West, Suite 200

Lindon, UT

(Address of principal executive offices)

84042

(Zip Code)

Registrant’s telephone number, including area code: (801) 224-7199

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 34,857,543 shares of common stock, par value $0.0001 per share, as of ~~November~~May 1415, ~~2011~~2012.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Page

		Page
Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	25

Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 5.	Other Information	20
Item 6.	Exhibits	20

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	25
Item 6.	Exhibits	26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ZYTO CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	March 31,			December 31,
	September 30,			December 31,
	2012			2011
	2011			2010
ASSETS
Current Assets:
Cash and cash equivalents	$	5399,~~780~~119		$	3987,~~360~~364
Accounts receivable, net of allowance for doubtful accounts
Accounts receivable, net of allowance for doubtful accounts of $82,007 and $115,633, respectively		255,688			217,712
of $90,079 and $56,228, respectively		295,652			307,480
Prepaid expenses		67,310			32,245
Prepaid expenses		20,554			24,873
Inventories		30,840			17,558
Inventories		42,691			55,837
Other current assets		7,525			7,525
Other current assets		9,263			7,500
Total current assets		460,482			362,404
Total current assets		421,940			435,050
Long-term accounts receivable, net of allowance for doubtful accounts of $46,696 and $13,071, respectively		145,027			117,647
Property and Equipment, net of accumulated depreciation
Property and Equipment, net of accumulated depreciation of $276,603 and $259,747, respectively		121,667			132,693
of $242,446 and $186,376, respectively		148,861			182,526
Technology, net of accumulated amortization of $148,721 and $109,650, respectively		338,713			317,581
Technology, net of accumulated amortization
Total assets	$	1,065,889		$	930,325
of $75,558 and $0, respectively		296,321			227,306
Total assets	$	867,122		$	844,882
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable	$	~~545~~421,~~775~~658		$	~~474~~488,~~100~~967
Accrued expenses		~~164~~199,~~517~~954			99178,~~604~~121
Accrued interest related party		~~370~~444,~~888~~383			~~288~~406,~~413~~003
Line of credit		100,000			100,000
Short-term related party note payable		96,942			46,942
Short-term notes payable		96,942			96,942
Deferred revenue		82143,~~617~~419			53104,~~816~~927
Current portion of capital leases		3,915			3,214
Current portion of capital lease		4,296			4,296
Total current liabilities		1,~~364~~410,~~654~~652			1,~~066~~379,~~089~~256
Warranty Reserve		8,476			8,476
Related Party Notes Payable		2,339,051			2,242,482
Related Party Note Payable		2,403,430			2,371,241
Capital leases, less current portion		11,049			13,695
Capital lease, net of current portion		6,854			9,522
Total liabilities		3,~~723~~829,~~230~~412			3,~~330~~768,~~742~~495
STOCKHOLDERS' DEFICIT
Common stock, par value $.0001 per share,
Common stock, par value $.0001 per share, 200,000,000 shares authorized and 34,857,543 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		3,486			3,486
80,000,000 shares authorized and 34,857,543 and 34,932,543
Additional paid-in capital		5,276,589			5,267,765
shares issued and 34,857,543 and 34,332,543 outstanding
at September 30, 2011 and December 31, 2010, respectively		3,486			3,433
Additional paid-in capital		5,254,478			5,198,992
Subscriptions receivable		(2,000	)		(2,000	)
Accumulated deficit		(8,~~112~~041,~~072~~598	)		(78,~~686~~107,~~285~~421	)
Total stockholders' deficit		(2,~~856~~763,~~108~~523	)		(2,~~485~~838,~~860~~170	)
Total liabilities and stockholders' deficit	$	~~867~~1,~~122~~065,889		$	~~844~~930,~~882~~325

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZYTO CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three Months Ended March 31,
	Three Months Ended						Nine Months Ended
	2012			2011
	September 30,						September 30,
Revenues, net	$	1,086,580		$	808,114
	2011			2010			2011			2010
Cost of sales		41,181			69,836
Revenues, net	$	993,411		$	1,052.266		$	2,976,701		$	2,963,098
Gross Profit		1,045,399			738,278
Cost of Sales		53,326			93,546			177,176			232,192
Operating Expenses:
Gross Profit		940,085			958,720			2,799,525			2,730,906
Selling and marketing expenses		343,703			455,353
Operating Expenses:
General and administrative expenses		552,529			489,504
Selling and marketing expenses		380,927			551,609			1,468,257			1,385,017
Research and development expenses		58,884			38,397
General and administrative expenses		451,768			375,389			1,373,296			1,123,027
Total operating expenses		955,116			983,254
Research and development expenses		40,749			19,262			120,727			95,844
Income (Loss) from operations		90,283			(244,976	)
Total operating expenses		873,444			946,260			2,962,280			2,603,888
Other Income (Expense):
Income (Loss) from operations		66,641			12,460			(162,755	)		127,018
Other income		66,897			-
Other Income (Expense):
Interest expense		(91,357	)		(86,176	)
Other income		4,623			-			4,623			-
Total other income (expense)		(24,460	)		(86,176	)
Contingency loss		(10,000	)		-			(10,000	)		-
Net Income (Loss)	$	65,823		$	(331,152	)
Interest expense		(89,661	)		(88,809	)		(257,655	)		(246,774	)
Basic Income (Loss) Per Share	$	0.00		$	(0.01	)
Total other income (expense)		(95,038	)		(88,809	)		(263,032	)		(246,774	)
Basic Weighted Average Shares Outstanding		34,857,543			34,547,170
Net Loss	$	(28,397	)	$	(76,349	)	$	(425,787	)	$	(119,756	)
Diluted Income (Loss) per Share:
Basic and Diluted Loss Per Share	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)
Net Income (Loss) per Common Share	$	0.00		$	(0.01	)
Basic and Diluted Weighted Average Shares Outstanding		34,857,543			34,932,543			34,742,433			33,669,933
Diluted Weighted-Average Shares Outstanding		36,812,541			34,547,170

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZYTO CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended March 31,
	Nine Months Ended September 30,
	2012			2011
	2011			2010
Cash Flows from Operating Activities:
Net Loss	$	(425,787	)	$	(119,756	)
Net Income (Loss)	$	65,823		$	(331,152	)
Adjustments to reconcile net income (loss) to net
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
cash provided by operating activities:
Depreciation and amortization		55,927			39,795
Depreciation and amortization		131,628			41,148
Amortization of debt discount		32,190			32,190
Amortization of debt discount		96,570			-
Provision for bad debt		-			13,544
Contingency loss		10,000			-
Share-based compensation		8,824			-
Provision for bad debt		33,851			-
Issuance of common stock for services		-			41,789
Stock based compensation		55,540			149,055
Issuance of common stock in connection with debt		-			2,251
Changes in operating assets and liabilities:
Accounts receivable		(2265,~~023~~357	)		~~(71~~50,~~017~~698	)
Inventories		(13,~~146~~282	)		928,~~778~~767
Prepaid expenses		4(35,~~319~~065	)		(910,~~467~~710	)
Other current assets		(1,763	)		1,843
Accounts payable		(67,309	)		85,107
Accounts payable		72,102			69,803
Accrued expenses		21,833			29,223
Accounts payable related party		(428	)		3,486
Accrued interest related party		38,380			7,774
Accrued expenses		54,913			47,654
Deferred revenue		38,492			10,734
Accrued interest related party		82,474			69,778
Net cash provided by (used in) operating activities		80,456			(19,990	)
Deferred revenue		28,801			(10,080	)
Net cash provided by operating activities		133,343			265,225
Cash Flows from Investing Activities:
Purchase of equipment		(225,~~405~~830	)		(9812,~~000~~575	)
Capitalization of software development costs		(~~144~~60,~~573~~203	)		(~~101~~45,~~517~~260	)
Long term investment		-			(11,301	)
Net cash used in investing activities		(66,033	)		(57,835	)
Proceeds from related party notes receivable		-			800
Net cash used in investing activities		(166,978	)		(210,018	)
Cash Flows from Financing Activities:
Principal payments on related party notes		-			(42,671	)
Principal payments on notes payable		(2,668	)		(420	)
Proceeds from related party notes payable		50,000			-
Principal payments on line of credit		-			(11,000	)
Principal payments on notes payable		(1,945	)		(35,791	)
Proceeds from notes payable		-			50,000
Proceeds from line of credit		-			50,000
Net cash provided by (used in) financing activities		(2,668	)		38,580
Principal payments on line of credit		-			(50,000	)
Net Increase (Decrease) in Cash and Cash Equivalents		11,755			(39,245	)
Net cash provided by (used in) financing activities		48,055			(78,462	)
Cash and Cash Equivalents, Beginning of Period		87,364			39,360
Net Increase (Decrease) in Cash and Cash Equivalents		14,420			(23,255	)
Cash and Cash Equivalents, End of Period	$	99,119		$	115
Cash and Cash Equivalents, Beginning of Period		39,360			50,289
Cash and Cash Equivalents, End of Period	$	53,780		$	27,034
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	~~172~~51,~~551~~553		$	9175,~~157~~834
Conversion of accrued interest for exercise of warrants		-			70,000
Conversion of debt to common stock		-			69,934

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Business Activity

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of ZYTO Corp and subsidiary (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles. These accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011.

Operating results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012, are not necessarily indicative of the results that may be expected for the entire year ending December 31, ~~2011~~2012, or any portion thereof.

Unless the context otherwise requires, all references to “we,” “us,” “our,” the “Company” and “ZYTO” are to ZYTO Corp and subsidiary.

Organization – Our Company consists of ZYTO Corp (a Delaware corporation, formerly known as Quiver Corporation (“Quiver”)) and its wholly owned subsidiary, ZYTO Technologies, Inc. (a Nevada corporation.)(the “Subsidiary”).

OnBusiness ~~September~~Activity ~~12,~~– ~~2005,~~Our ~~Xito~~Company’s ~~Corp~~operations ~~(which~~consist ~~was~~of ~~incorporated~~the inmanufacturing ~~Nevada~~and ondistribution ~~December~~of ~~30,~~biocommunication ~~2004)~~devices ~~changed~~and ~~its~~software ~~name~~designed to ~~ZYTO~~facilitate ~~Corp~~communication between computers and the human body.

OnBusiness ~~September~~Condition 7,– ~~2006,~~As ~~the founder~~ of ~~ZYTO~~March ~~Corp (a Nevada corporation) (“ZYTO NV”) entered into a share exchange agreement with Quiver. At the date of the share exchange agreement~~31, ~~Quiver had no assets or liabilities and had 12~~2012,~~774,748~~ ~~shares issued~~ and ~~outstanding.~~December ~~Per the share exchange agreement~~31, ~~ZYTO NV exchanged 10~~2011,~~469,500~~ ~~shares~~we ~~(which~~had ~~represented~~an ~~100%~~accumulated ofdeficit ~~the shares issued and outstanding~~ of ~~ZYTO NV) for 5,234,750 shares of Quiver on a 2-for-1 exchange basis. As part of the same transaction, the majority Owner of ZYTO NV also exchanged 300,000 shares of an unrelated entity for~~ $8,~~020~~041,~~000~~598 ~~shares of Quiver. As a result, the shares issued to ZYTO NV~~ and ~~its majority owner represented a controlling interest~~$8, ~~and the transaction has been accounted for as a reverse merger~~107,421 ~~with ZYTO NV being considered the acquiror for accounting purposes~~respectively. Accordingly, the historical consolidated financial statements include the results of operations and cash flows of ZYTO NV, and the consolidated operations and cash flows of Quiver subsequent to September 7, 2006.

During the three months ended March 31, 2012 and 2011, we recognized net income of $65,823 and a net loss of $331,152, respectively.

As of March 31, 2012, and December 31, 2011, our current liabilities exceeded our current assets by $950,170 and $1,016,852, respectively.

These factors raise substantial doubt about our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty. To increase revenue, we intend to focus on customer retention and expanding our customer base.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Also, on September 7, 2006, Quiver changed its name to ZYTO Corp (a Delaware corporation.)

On April 20, 2007, ZYTO NV changed its name to ZYTO Technologies, Inc.

Business Activity – Our Company’s operations consist of the manufacturing and distribution of bio-communication devices and software designed to facilitate communication between computers and the human body.

Business Condition – As of September 30, 2011, and December 31, 2010, we had an accumulated deficit of $8,112,072 and $7,686,285, respectively.

During the three months ended September 30, 2011 and 2010, we recognized a net loss of $28,397 and $76,349, respectively. For the nine months ended September 30, 2011 and 2010, we recognized a net loss of $425,787 and $119,756, respectively.

As of September 30, 2011, and December 31, 2010, our current liabilities exceeded our current assets by $942,714 and $631,039, respectively.

Note 2. Summary of Significant Accounting Policies

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s condensed consolidated financial statements. The condensed consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, and its subsidiary in which the Company has a controlling financial interest. The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiary at ~~September~~March 3031, ~~2011~~2012, and for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the consolidated financial position and results of operations for the periods presented. All significant intercompany transactions and accounts are eliminated in consolidation.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates – In preparing our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Revenue Recognition – We recognize revenue from customers upon the delivery of the system hardware. At the time payment is received, the system hardware is shipped and the customer receives an e-mail which includes a link to download the software. Upon shipment, the customer has no right of return and the transaction is final. Thirty days from the date of purchase, the customer is required to pay a monthly subscription fee in order for the software to remain active. Subscription revenue is recognized upon the performance of services. In the event the customer cancels his or her monthly subscription or the monthly subscription fee is not received, the software automatically deactivates and the equipment is no longer functional.

We recognize revenue when persuasive evidence of an arrangement exits, delivery has occurred, the customer no longer has the right of return, the fee is fixed or determinable and collection has been made or is reasonably assured.

Revenues are shown net of any related sales or use taxes for sales transactions where applicable.

Accounts Receivable – Accounts receivable represent monies due to us for products sold and services rendered. We periodically review accounts receivable for amounts considered uncollectible. Accounts receivable are shown net of an allowance for doubtful accounts of $90,079 and $56,228 at September 30, 2011, and December 31, 2010, respectively.5

~~Recent~~ZYTO ~~Accounting~~CORP ~~Pronouncements~~AND - In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350)”. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The adoption of ASU 2011-08 did not have a material effect on the financial position, results of operations or cash flows of the Company.SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounts Receivable – We record receivables due from our customers at the time the sale is recorded in accordance with our revenue recognition policies. These receivables consist of amounts due from the sale of products and services rendered. The future collectability of these amounts can be impacted by our collection efforts, the financial stability of our customers, and the general economic climate in which we operate. Recent economic conditions have increased the uncertainty in making these estimates. Any adverse change in these factors could have a significant impact on the collectability of these assets and could have a material impact on our consolidated financial statements.

We apply a consistent practice of establishing an allowance for accounts that we feel may become uncollectible through reviewing the historical aging of our receivables. When we become aware of the inability of a customer to meet its financial obligations (e.g., where it is in financial distress or has filed for bankruptcy), we specifically reserve for the potential bad debt to reduce the net recognized receivable to the amount we reasonably believe will be collected. The valuation of receivables is performed on a quarterly basis. Amounts considered uncollectible and shown net of an allowance for doubtful accounts were $128,703 and $128,704 at March 31, 2012, and December 31, 2011, respectively.

During 2011, we began to offer long-term financing to our customers. As a result, we have classified receivables that are reasonably expected to be realized outside of our normal operating cycle as long-term. These long-term receivables are realized when a customer signs a financing contract for purchases over $5,000, have a maturity of 3-5 years, and bear interest at an annual rate of 24% if the account remains in good standing. In the event the customer defaults, the annual long-term interest increases to 34%. We recognize interest income from these receivables monthly as it is earned. Interest income is recorded as a component of revenues in our condensed consolidated statement of operations.

Other Income – During the three months ended March 31, 2012, other income included a gain on forgiveness of debt of $66,897.

Basic and Diluted Income (Loss) per Share – Basic income (loss) per share is computed on the basis of the weighted-average number of common shares outstanding during the year. Diluted income (loss) per share is computed on the basis of the weighted-average number of common shares and all dilutive potentially issuable common shares outstanding during the year.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	For the Three Months Ended
	March 31,
	2012		2011
Net Income (loss)	$	65,823	$	(331,152	)

Basic Weighted-Average Common Shares Outstanding		34,857,543		34,547,170
Effect of dilutive-securities Options		1,954,998		-
Diluted Weighted-Average Common Shares Outstanding		36,812,541		34,547,170

Basic Income (loss) Per Common Share Net Income (loss)		0.00		(0.01	)
Diluted Income (loss) Per Common Share Net Income (loss)		0.00		(0.01	)

Note 3. Inventory

Inventory consisted of the following as of ~~September~~March 3031, ~~2011~~2012, and December 31, ~~2010~~2011:

	September 30,		December 31,
	March 31,		December 31,
	2011		2010
	2012		2011
Raw Materials	$	3014,~~871~~330	$	364,~~192~~631
Finished Goods		1116,~~820~~510		1912,~~645~~927
	$	4230,~~691~~840	$	5517,~~837~~558

Note 4. Property and Equipment

Property and equipment consisted of the following as of September 30, 2011, and December 31, 2010:

	September 30,			December 31,
	2011			2010
Computer equipment	$	182,092		$	173,952
Furniture and fixtures		98,966			93,164
Production equipment		62,681			61,185
Software		47,568			40,601
		391,307			368,902
Accumulated depreciation		(242,446	)		(186,376	)
	$	148,861		$	182,526

Depreciation expense for the three months ended September 30, 2011 and 2010 was $18,121 and $14,420, and was $56,070 and $41,148 for the nine months ended September 30, 2011 and 2010, respectively.

Note 5. Technology

At September 30, 2011, and December 31, 2010, intangible assets consisted of the capitalization of significant enhancements and upgrades to our proprietary software. Amortization expense related to these costs of $29,021 and $0 for the three months ended September 30, 2011 and 2010, respectively, are reported as a component of operating expenses. During the nine months ended September 30, 2011 and 2010, amortization expenses related to these costs were $75,558 and $0, respectively.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Amortization~~Note ~~expense~~4. Property ~~for~~and ~~the remaining lives of the intangible assets is estimated to be as follows:~~Equipment

For the three months ending December 31, 2011	$	30,989
For the year ending December 31, 2012		123,960
For the year ending December 31, 2013		123,960
For the year ending December 31, 2014		17,412
	$	296,321

Property and equipment consisted of the following as of March 31, 2012, and December 31, 2011:

Note 6. Line of Credit

	March 31,			December 31,
	2012			2011
Computer equipment	$	186,589		$	182,678
Furniture and fixtures		98,966			98,966
Production equipment		62,681			62,681
Software		50,034			48,115
		398,270			392,440
Accumulated depreciation		(276,603	)		(259,747	)
	$	121,667		$	132,693

OnDepreciation ~~December~~expense ~~14,~~for ~~2010,~~the wethree ~~renegotiated~~months ~~and~~ended ~~amended~~March ~~our~~31, ~~existing~~2012 ~~line~~and ~~of credit with a financial institution. Under this revolving line of credit~~2011, aswas ~~amended, we have~~ $~~100~~16,~~000~~856 ~~of available borrowings with a maturity date of December 5, 2011. As of September 30, 2011~~ and ~~December 31~~$18, ~~2010~~604, ~~the amount drawn on the line totaled $100,000~~respectively. The interest rate to be applied to the unpaid principal balance during the term is 5.25% per annum. Borrowings under the line were collateralized by a security interest in all of our assets. The line of credit is personally guaranteed by one of our principal officers.

~~Note~~Depreciation 7.is ~~Related~~computed ~~Party~~on ~~Notes~~a ~~Payable~~straight-line basis over the estimated useful lives of the assets, as follows:

On January 1, 2005, we issued a note payable to an officer for intellectual property and other related technologies. Per the terms of the agreement, interest began to accrue at an effective interest rate of 5 percent as of January 1, 2007 and the note was scheduled to mature on December 31, 2009. On January 1, 2010, we executed an amended and restated promissory note with the officer, extending the maturity date to December 31, 2012, and increasing the interest rate from 5 percent to 7 percent per annum. In exchange for the amended and restated terms, we issued the officer a warrant for 1,750,000 shares of our common stock at an exercise price of $0.04 per share. We recognized interest expense from the warrant of $44,110 and $44,108 for the three months ended September 30, 2011 and 2010, respectively. During the nine months ended September 30, 2011 and 2010 we recognized interest expense from the warrant of $130,892 and $130,411, respectively.

		Life
Computer equipment		2-3 years
Software		2-3 years
Furniture and fixtures		5-7 years
Production equipment		3-20 years

OnNote ~~January 28, 2011, we received $50,000 in exchange for a promissory note~~5. ~~The~~ Line ~~18-month note expires on June 28, 2012, bearing interest at 10% per annum. As part~~ of ~~the agreement we issued the lender 25,000 shares of common stock (see Note 9.) We will make interest-only payments until the maturity date, at which time the full principal amount is payable.~~Credit

On February 7, 2012, we renegotiated and amended our existing line of credit with a financial institution. Under this revolving line of credit, as amended, we had $100,000 of available borrowings with a maturity date of April 5, 2012. As of March 31, 2012 and December 31, 2011, the amount drawn on the line totaled $100,000. The interest rate to be applied to the unpaid principal balance during the term is 5.25% per annum as of March 31, 2012 and December 31, 2011.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Related~~Borrowings ~~party~~under ~~notes~~the ~~payable~~line ~~consisted~~were collateralized by a security interest in all of ~~the~~our ~~following~~assets. asThe line of ~~September~~credit 30is personally guaranteed by one of our principal officers. As of May 15, ~~2011~~2012, ~~and~~we ~~December~~were ~~31,~~in ~~2010:~~negotiations to extend the maturity date of the line of credit further.

	September 30,			December 31,
	2011			2010
Unsecured note payable to shareholder, interest at 5%,
principal and interest originally due December 31, 2009,
extended to December 31, 2012 with interest at 7%,
net of discount of $160,949 and $257,518, respectively	$	2,339,051		$	2,242,482
Unsecured note payable to InteMedica, LLC,
interest at 12%, monthly payments of $8,000 until paid		46,942			46,942
Unsecured note payable to shareholder, interest at 10% interest payments due monthly, principal due June, 28, 2012		50,000			-
Total related party notes payable		2,435,993			2,289,424
Less current portion		(96,942	)		(46,942	)
Long term portion	$	2,339,051		$	2,242,482

Note 6. Notes Payable

~~Note~~On August 1, 2009, we amended and restated the terms of a note payable with InteMedica, LLC. This note bears interest at 12% per annum, with $8,000 due monthly until paid in full. ~~Commitments~~As of March 31, 2012, the note payable was in default. As of March 31, 2012, the note payable balance was $46,942 and ~~Contingencies~~accrued interest totaled $7,792.

~~Operating~~On ~~Leases~~January –28, ~~The~~2011, ~~Company~~we isreceived ~~obligated~~$50,000 ~~under~~in ~~certain~~exchange ~~non~~for a promissory note. The 18-~~cancelable~~month ~~operating~~note ~~leases~~matures ~~for~~on ~~the~~June ~~rental~~28, of2012, ~~office~~and ~~space. Total~~bears ~~lease~~interest ~~expense~~at ~~for~~10% ~~the~~per ~~three~~annum. ~~months~~As ~~ended~~part ~~September~~of 30the agreement, ~~2011~~we ~~and~~issued ~~2010,~~the ~~was~~lender ~~$45~~25,~~578~~000 ~~and~~shares ~~$31,429,~~of ~~respectively~~common stock (see Note 11). ~~Total~~We ~~lease~~plan ~~expense~~to ~~for~~make ~~the~~interest-only ~~nine~~payments ~~months~~until ~~ended~~the ~~September~~maturity 30date, ~~2011~~at ~~and~~which ~~2010~~time ~~was~~the ~~$127,301~~full ~~and~~principal ~~$84,591,~~amount ~~respectively~~is payable.

~~Effective~~Notes ~~February~~payable 2,consisted ~~2011, we amended our lease agreement for office space. The amended agreement includes an additional 3,783 square feet~~ of ~~net~~the ~~rentable~~following ~~area,~~as ~~resulting in a total rentable area~~ of ~~11,178~~March ~~square feet. The lease expires February 28~~31, ~~2014~~2012, ~~with~~and ~~the~~December ~~amended rent commencing on March 1~~31, 2011.:

	2012			2011

Unsecured note payable to InteMedica, LLC, interest at 12%, monthly payments of $8,000, in default	$	46,942		$	46,942

Unsecured note payable to shareholder, interest at 10%, interest payments due monthly, principal due at June 28, 2012		50,000			50,000

Total notes payable		96,942			96,942

Less current portion		(96,942	)		(96,942	)

Long-term portion	$	-		$	-

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Future~~Note ~~minimum~~7. ~~lease~~Related ~~payments~~Party ~~under~~Note ~~non-cancelable operating leases are as follows:~~Payable

2011	$	45,579
2012		186,871
2013		192,477
2014		32,236
Total minimum payments	$	457,163

On March 26, 2012, we executed an amended and restated promissory note with an officer for intellectual property and other related technologies, extending the maturity date to December 31, 2013, bearing interest at 7% per annum. During the three months ended March 31, 2012 and 2011, we recognized interest expense from the promissory note of $43,630 and $43,151, respectively. During the three months ended March 31, 2012 and 2011, we paid $5,251 and $37,870 in cash to the officer for interest expense from the promissory note, respectively.

~~Note~~Related 9.party ~~Equity~~note payable consisted of the following as of March 31, 2012, and December 31, 2011:

On June 15, 2010, we entered into an agreement with a public relations firm retained in 2009 and 2010 to provide public and financial communication services. The agreement was for a period of twelve and one half months. As compensation for services, we agreed to issue 1,200,000 shares of restricted common stock to the public relations firm. As of September 30, 2011, we had issued 1,100,000 shares of the 1,200,000 shares due under the contract, and mutually agreed to terminate the remainder of the contract. The shares are valued based on the fair value of the shares on the date they were released from escrow. The total value of shares issued for the three months ended September 30, 2011 and 2010 was $0 and $55,540, of which the entire amount was expensed. The total value of the shares issues for the nine months ended September 30, 2011 and 2010 was $55,540 and $149,055, respectively.

	March 31,		December 31,
	2012		2011

Unsecured note payable to shareholder, interest at 7%, net of discount of $96,570 and $128,759, respectively	$	2,403,430	$	2,371,241

Total related party notes payable		2,403,430		2,371,241

Less current portion		-		-

Long-term portion	$	2,403,430	$	2,371,241

~~As discussed in~~ Note ~~7, we received $50,000 from a related party in exchange for a promissory note~~8. ~~The~~ ~~18-month~~Research ~~note~~and expires on June 28, 2012, bearing interest at 10% per annum. As part of the agreement we issued the lender 25,000 shares of common stock. The shares were valued at a grant date fair value of $0.09 per share. The total value of the shares issued was $2,251, which was determined by multiplying the number of shares granted by the closing market price of our common stock on the grant date.Development

~~Note~~During 10the three months ended March 31, 2012 and 2011, we capitalized $60,203 and $45,260, respectively, of costs relating to significant enhancements and upgrades to our proprietary software. ~~Subsequent~~We ~~Event~~capitalize certain software development costs incurred subsequent to the establishment of technological feasibility and amortize those costs over the estimated lives of the related products. During the three months ended March 31, 2012 and 2011, amortization of these costs was $39,071 and $21,191, respectively. During the three months ended March 31, 2012 and 2011, we expensed $58,884 and $38,397 of research and development costs, respectively. This is recorded in research and development expenses on our condensed consolidated statement of operations.

Lawsuits - The Company was involved in four lawsuits in Orange County Superior Court for the State of California: (1) Orange County Superior Court Case No. 30-2010-00368271 (2) Orange County Superior Court Case No. 30-2010-00344946 (3) Orange County Superior Court Case 30-2009-00323131 and (4) Orange County Superior Court Case 30-2009-00329075.

In November 2011, the Company reached settlements in all four cases to resolve all matters related to the lawsuits against the Company. Under the terms of the settlement, without admitting fault or liability of any kind, the Company has agreed to pay a total of $10,000 to the plaintiffs. These individuals dismissed the lawsuits with no ability to reassert its claims against the Company. As a result, $10,000 for the settlements has been accrued by the Company as of September 30, 2011.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amortization is computed on a straight-line basis over the estimated useful lives of the assets. All capitalized software development costs have been amortized over their estimated useful life of 3 years.

Future amortization costs related to capitalized research and development are as follows:

2012	$	122,167
2013		162,478
2014		52,520
2015		1,548
Total amortization costs	$	338,713

Note 9. Commitments and Contingencies

Operating Leases – The Company is obligated under certain non-cancelable operating leases for the rental of office space. Total lease expense for the three months ended March 31, 2012 and 2011, was $45,578 and $36,145, respectively.

Future minimum lease payments under non-cancelable operating leases are as follows:

2012	$	140,837
2013		192,477
2014		32,236
Total minimum payments	$	365,550

Lawsuits – Litigation has arisen in the course of our business, none of which is deemed to be material.

Note 10. Capital Lease

In October 2010, we entered into a lease agreement for the purpose of financing capital equipment. The lease agreement is payable in 60 monthly payments and bears interest at a rate of 7.00% per annum. The loan amount is collateralized by the equipment leased.

Future minimum lease payments under our non-cancelable capital lease are as follows:

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended December 31, 2012	$	1,118
For the year ended December 31, 2013		4,296
For the year ended December 31, 2014		4,296
For the year ended December 31, 2015		2,809
Total future minimum lease payments		12,519
Amount representing interest		(1,369	)
Present value of future minimum lease payments		11,150
Current portion of capital lease		(4,296	)
Capital lease, less current portion	$	6,854

Note 11. Equity

On June 15, 2010, we entered into an agreement with a public relations firm retained in 2009 and 2010 to provide public and financial communication services. The agreement was for a period of twelve and one half months. As compensation for services, we agreed to issue 1,200,000 shares of restricted common stock to the public relations firm. We issued 1,100,000 shares of the 1,200,000 shares due under the contract, and mutually agreed to terminate the remainder of the contract. The shares are valued based on the fair value of the shares on the date they were released from escrow. The total value of shares issued for the three months ended March 31, 2012 and 2011, was $0 and $41,789, of which the entire amount was expensed.

As discussed in Note 7, we received $50,000 in 2011 from a lender in exchange for a promissory note. The 18-month note expires on June 28, 2012, bearing interest at 10% per annum. As part of the agreement we issued the lender 25,000 shares of common stock. The shares were valued at a grant date fair value of $0.09 per share. The total value of the shares issued was $2,251, which was determined by multiplying the number of shares granted by the closing market price of our common stock on the grant date.

Note 12. Stock Options

On July 8, 2011, the Board of Directors approved the ZYTO Corp 2011 Equity Incentive Plan (“the 2011 Plan”). On December 6, 2011, the stockholders also approved the 2011 Plan.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The 2011 Plan permits the granting of equity awards to purchase up to 5,000,000 shares of common stock. Persons eligible to participate in the 2011 Plan include members of the Board, our consultants, all of our employees, and our subsidiary, as determined by the Board.

There were no issuances from the 2011 Plan for the three months ended March 31, 2012. As of March 31, 2012, there were 3,045,002 shares available for issuance under the 2011 Plan.

On August 16, 2011, we granted stock options to acquire 1,864,998 shares of common stock to our employees, valued at $54,589. These options are exercisable at $0.03 per share, based on the closing price of our common stock on the date of issue. These options vest yearly over three years starting August 16, 2012, and expire on August 16, 2021.

On August 16, 2011, we granted stock options to acquire 90,000 shares of common stock to certain non-employee directors, valued at $2,624. These options are exercisable at $0.03 a share, based on the closing price of our common stock on the date of issue. These options vest annually starting April 1, 2012, and expire August 16, 2021. These options vest over 2 years.

A summary of the status of stock options at March 31, 2012, and changes during the three months then ended, is presented in the following table:

					Weighted
	Shares		Weighted		Average
	Under		Average		Remaining		Aggregate
	Option		Exercise		Contractual		Intrinsic
	or Warrant		Price		Life		Value
Outstanding at December 31, 2011		1,954,998	$	0.03		9.63	$	-
Granted or issued		-		-
Expired		-		-
Outstanding at March 31, 2012		1,954,998		0.03		9.38		19,550

Exercisable at March 31, 2012		-		-		-		-

The fair value of stock options is estimated on the date of grant or issuance using the Black-Scholes option pricing model. The expected life of stock options represents the period of time that the stock options granted are expected to be outstanding prior to exercise. The expected volatility is based on the historical price volatility of the Company’s common stock. The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related stock options. The dividend yield represents anticipated cash dividends to be paid over the expected life of the stock options. The intrinsic values are based on a March 31, 2012, closing price of $0.04 per share.

ZYTO CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Generally accepted accounting principles for stock options require the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements, is measured based on the grant date fair value of the award, and requires the compensation expense to be recognized over the period during which an employee or other service provider is required to provide service in exchange for the award (the vesting period). No income tax benefit has been recognized for share-based compensation arrangements and no compensation cost has been capitalized in the accompanying condensed consolidated balance sheet.

As of March 31, 2012, there was approximately $35,101 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of approximately 1.97 years. For the three months ended March 31, 2012, we recorded compensation expense related to stock options of $8,824 as a general and administrative expense in our condensed consolidated statement of operations. There was no compensation expense related to stock options for the three months ended March 31, 2011.

Note 13. Concentrations

During the three months ended March 31, 2012, we purchased approximately 69% of our inventory from two separate suppliers. During the year ended December 31, 2011, we purchased approximately 83% of our inventory from the same two suppliers. We currently purchase all of our Hand Cradle boards and Hand Cradle shells, important components of our products, from two suppliers. Although there are a limited number of manufacturers of these components, management believes that other suppliers could provide similar components on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely.

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

Forward-looking Statements

This Form 10-Q contains forward-looking statements. All statements other than statements of historical facts are forward-looking statements, including any projections of milestones, royalties or other financial items, any statements of the plans and objectives of management for the future operations, any statements concerning research and development, proposed new products of licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward looking statements can be identified by the use of terminology such as “believes,” “might,” “will,” “expects,” “plans,” “anticipates,” “forecasts,” “estimates,” “potential,” or “continue,” or the negative thereof, or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties. WeExcept as required by U.S. federal securities laws, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise after the date hereof.

About ZYTO Corp

This Quarterly Report sets forth certain financial and business information of ZYTO Corp and its wholly owned subsidiary, ZYTO Technologies, Inc. (collectively, “ZYTO,” “we,” “our,” or “us”).

Our operations consist of the manufacturing and distribution of “biocommunication” devices and software designed to facilitate communication between computers and the human body. Biocommunication is accomplished by providing a direct connection between a computer and a living organism (i.e., humans or animals), which facilitates observing and recording shifts in ~~determining~~coherence ~~biological~~of ~~preference~~energy ~~and~~patterns ~~perception~~measured ~~reframing. Biological~~by ~~preference~~our isHand aCradle ~~physical~~device, ~~preference~~and toperception ~~certain~~reframing. Coherence ~~clinical~~is ordefined ~~wellness~~as ~~options,~~two ~~like~~or ~~vitamins,~~more ~~minerals,~~things ~~and~~existing ~~other~~without ~~nutritional~~conflict ~~supplements~~or interference. Perception reframing is a technique that opens a person to a different way of seeing a circumstance, an opportunity, a problem, or a relationship. Both of these applications involve concepts that are natural outgrowths of the field of complementary and alternative medicine. Complementary and Alternative Medicine (“CAM”) ~~consists~~is of a diverse group of medical and health care systems, practices, and products that are not generally associated with medicine and medical practices common to western hospitals. These include, but are not limited to, acupuncture, homeopathy, chiropractic, massage, naturopathic medicine, and the use of herbs and nutritional supplements. With many CAM modalities becoming more accepted in allopathic medicine (acupuncture, for example), the line between CAM and “mainstream” medicine has ~~increasingly~~ become increasingly thin.

Recent Corporate Developments

On ~~July~~January 817, ~~2011~~2012, our ~~Board~~patent ofapplication ~~Directors~~for ~~adopted~~“Methods ~~our~~and ~~2011~~Devices ~~Stock~~for ~~Incentive~~Analyzing ~~Plan~~and ~~(the~~Comparing ~~"2011~~Physiological ~~Plan").~~Parameter ~~The~~Measurements” ~~purpose of~~ (the ~~2011~~“Patent”) ~~Plan~~was isissued ~~to enhance our long-term stockholder value~~ by ~~offering~~the ~~opportunities~~United toStates ~~our~~Patent ~~directors, officers, employees~~ and ~~eligible~~Trademark ~~consultants~~Office to(“USPTO”) ~~acquire~~ and ~~maintain~~given ~~stock~~Patent ~~ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service~~No. ~~A total of 5~~8,~~000~~099,~~000 shares of common stock are available for issuance under the 2011 Plan~~159. ~~We intend to seek stockholder approval of the 2011 Plan at our annual shareholders’ meeting to be held on December 6, 2011.~~

~~Additionally,~~The onPatent ~~July~~covers 8,the ~~2011~~methods ~~the~~and ~~Board~~devices that are capable of ~~Directors~~measuring ~~adopted~~physiological parameters of at least two contact points and ~~approved~~determining whether the measured parameters reflect favorable or unfavorable physiological responses. As noted in the application for the Patent filed with the USPTO, the invention encompasses a ~~corporate~~method ~~Code~~that can non-invasively monitor physiological parameters of ~~Business~~at ~~Conduct~~least two contact points before and ~~Ethics~~after ~~(the~~a ~~“Code~~stimulus ofis ~~Ethics”)~~applied to a subject and compare the ~~ZYTO~~measured ~~Corp~~parameters ~~Policy~~to ondetermine ~~Insider~~whether ~~Trading~~the ~~and~~physiological ~~Compliance~~state (of the ~~“Insider~~subject ~~Trading~~is ~~Policy”)~~favorable or unfavorable.

~~The~~We ~~Code~~use ofthis ~~Ethics~~patented ~~was~~method ~~adopted~~of tomeasuring ~~codify and reduce to writing~~ the ~~Company~~skin’s ~~commitment~~galvanic toresponse ~~the highest ethical standards and integrity in its business activities. The Company expects this commitment~~ to ~~extend~~stimuli to ~~its~~provide ~~employees,~~information ~~officers,~~to ~~and~~healthcare ~~directors~~professionals atabout ~~all~~an ~~levels,~~individual’s ~~including~~health ~~its~~and ~~subsidiary~~healthcare options.

The ~~Company~~grant ~~adopted~~of the ~~Insider~~Patent ~~Trading~~follows ~~Policy~~the tonotification ~~provide~~we ~~additional~~received ~~instruction~~from tothe ~~officers,~~US ~~directors,~~Food and ~~employees~~Drug ofAdministration ~~ZYTO~~(the ~~with~~“FDA”) ~~respect~~in toAugust ~~their~~2011 ~~responsibilities~~that asour ~~part~~Premarket ofNotification a(the ~~publicly~~“Notification”), ~~trading~~submitted ~~company. The~~pursuant ~~Insider~~to ~~Trading~~Section ~~Policy~~510(k) ~~instructs~~of onthe ~~reasons~~U.S. ~~for~~Food, ~~maintaining~~Drug ~~confidentiality,~~and ~~defines~~Cosmetic ~~material~~Act ~~information~~(the “Act”), ~~describes~~had ~~prohibited~~been ~~trading~~approved. ~~practices,~~We ~~provides~~filed ~~information~~the ~~for~~Notification ~~executive~~in ~~officers~~May ~~and~~of ~~directors~~2011, ~~about~~and ~~compliance~~on ~~with~~August ~~Section~~30, 162011, of the ~~Securities~~FDA ~~Exchange~~issued ~~Act~~its ofdetermination ~~1934,~~that asthe ~~amended~~Hand ~~(the~~Cradle ~~“1934~~was ~~Act”),~~substantially ~~and~~equivalent ~~provides~~to ~~certain~~other ~~pre-trading~~Galvanic ~~compliance~~skin ~~requirements~~response measurement devices.

1115

Copies of the Company’s 2011 Plan, the Code of Ethics, and the Insider Trading Policy were filed previously as exhibits to the Quarterly Report for the quarter ended June 30, 2011.

On August 30, 2011, the Company received notice from the US Food and Drug Administration (the “FDA”) that our Premarket Notification (the “Notification”), submitted pursuant to Section 510(k) of the U.S. Food, Drug and Cosmetic Act (the “Act”) for the ZYTO Hand Cradle, had been approved.

Our Business Strategy

Our primary financial objective is to market our technology to both healthcare professionals and retail consumers. We consider retail consumers to be non-healthcare professionals who purchase our technology, ~~including~~an ~~clients~~example orbeing ~~patients~~distributors of health products who purchase ~~and~~our ~~use~~Compass product. In addition to placing our ~~technology~~product ~~under~~in the ~~direction~~aforementioned ofmarkets, ~~their~~further ~~healthcare~~financial ~~provider. Financial~~ objectives include collecting initial setup fees, and maintaining and collecting ongoing monthly subscription payments from those with whom we place our products. Because these payments are nominal, our goal is to place a large number of software installations and to provide service and value that motivates our customers to continue making monthly subscription payments. All of our products are ~~internet~~Internet-centric, meaning that our products are deployed over the ~~internet~~Internet, updated through the ~~internet~~Internet, and each month the user’s software license is renewed over the ~~internet~~Internet by syncing the products that they purchase from us with our secured server. Software development and improvement is ongoing, and one of our most important functions. As more powerful development tools are made available and as the internet becomes a more powerful vehicle for our products, we intend to capitalize on these improvements by improving our products with increased speed and power.

Software development and improvement is ongoing, and one of our most important functions. As more powerful development tools are made available and as the Internet becomes a more powerful vehicle for our products, we intend to capitalize on this improvement by improving our products with increased speed and functionality.

As of the date of this Report, we were in the process of adding to our Internet offering to increase the contact we have with our customers and to take us even more directly into the business of Internet transactions. This new offering will facilitate the exchange of knowledge and experience among members of the ZYTO community. Our expectation is that healthcare professionals who purchase our products will enhance each other’s clinical effectiveness through this sharing of information.

Additionally, this new offering (accessible to our customers through www.ZYTO.com) will be the nexus for healthcare professionals using our technology to communicate with their clients. All ZYTO applications that are sold exclusively to healthcare professionals have the ability to be used remotely over the Internet. This allows a healthcare professional to “stay in touch” with his or her clients, even if the client is located a great distance from the healthcare professional’s clinic.

Marketed Products

Our technology is designed to be used in a “‘fee for services”’ environment. ~~All~~Even ofthe ~~our~~Compass ~~products~~is ~~are~~ designed to facilitate the sale of health products, whether the healthcare professional charges the client for the ~~service~~biosurvey or not. In every instance, a significant measure of our ~~customers~~customer’s success is the financial benefit our technology provides them. Proper use byof ~~the~~our ~~healthcare~~products ~~professionals~~by our customers will include anthe ability to explain the technology ~~to the client~~, proper placement, and operation of the technology and devices, and billing practices.

~~Marketing~~By ~~and~~way ~~sales~~of ~~are~~background, ~~segregated~~our ~~into~~technology ~~two~~uses ~~distinct~~an ~~areas:~~ interface called a Hand Cradle on which the subject places his or her hand. The ~~Compass~~Hand Cradle is connected to a computer using a USB port, and ~~Healthcare~~through ~~Professional~~the Hand Cradle the subject receives a stimulus from the computer. The computer then measures the changes in the electrical properties from the skin of the subject’s hand caused by the stimulus. The palm of the hand and the five fingers each contact a separate conductive plate that is in turn connected to the PC board, or computer inside the Hand Cradle.

~~Compass~~Each stimulus from the computer is referred to as a “VSI”, an acronym for Virtual Stimulus Item. VSIs are created in the software using a proprietary process wherein a unique binary string, sometimes referred to as a ‘binary signature,’ is generated, converted to a signal, and that signal is then linked to the physical item. Linking is accomplished using the Tower, a hardware component included in the Elite System which is primarily an array of antennae used to transmit VSI data at the appropriate time. The computer will output to the Tower the binary signature or frequency of the VSI; the item represented by the VSI is placed in front of the Tower and the two are linked. The software used in the linking process indicates when the link is complete. The output at the Tower is in the form of an electromagnetic non-radiating wave.

~~The~~As ~~Compass~~a ispoint ~~sold to distributors~~ of ~~health~~clarification, ~~products~~VSIs ~~who~~are ~~sell~~linked ~~through~~to ~~direct~~specific ~~sales~~items, orincluding ~~network~~drugs, ~~marketing~~nutritional ~~channels~~supplements, etc. ~~Before~~ The welinking ~~create~~process ais ~~Compass~~confidential ~~with~~and aproprietary ~~library~~to ofZYTO. Maintaining ~~products~~such ~~(Virtual~~a ~~Stress~~proprietary ~~Items~~and orconfidential ~~“VSIs”)~~status ~~for~~provides ~~any~~a ~~direct~~tremendous ~~sales~~trade orvalue ~~network~~to ~~marketing company~~ZYTO. Accordingly, ~~that~~we ~~company~~have ~~must~~not ~~meet~~disclosed ~~two~~the ~~requirements:~~particulars atof ~~least~~the ~~twenty~~linking ~~products~~process in ~~their~~this ~~product~~Form ~~offering~~10-Q, ~~and~~or atin ~~least~~any ~~5,000~~other ~~distributors~~publicly released document. ~~Once~~What ancan ~~eligible~~be ~~company~~disclosed, ~~has been identified~~however, weis ~~will~~that ~~obtain~~the asoftware ~~sample~~used ofin ~~each~~the oflinking ~~their~~process ~~products. VSIs~~indicates ~~for~~when ~~each~~the oflink ~~these products are then created and organized into a library of biosurveys. The Compass~~ is ~~then offered for sale for that company~~complete.

~~The~~Once ~~Compass~~this ~~uses~~proprietary ~~the biosurvey~~ process inis ~~the~~complete, ~~same way as~~ the ~~professional~~VSI ~~only line of products but the final report provides much less detail. The Compass~~ is ~~sold~~used toas a ~~broader~~stimulus ~~market~~in ~~having~~a ~~little~~scanning orsequence ~~no medical~~called ~~background~~a ~~or licensure~~biosurvey. ~~For~~ VSIs ~~this~~can ~~reason,~~be ~~the~~created ~~Compass~~for ~~report~~any ~~does~~number ~~not~~of ~~identify~~items ~~detail~~including ~~such~~drugs, asnutritional ~~specific~~supplements, ~~biomarkers~~allergens, or ~~deviation~~homeopathic ~~ratio~~remedies ~~(“dR”)~~to ~~numbers. It~~name isa ~~also limited in its flexibility~~few. ~~Compass~~ To ~~operators~~date, there are ~~only~~approximately ~~allowed~~fifteen tothousand ~~alter~~VSIs ~~the~~available ~~program~~in byvarious ~~filtering~~ZYTO ~~its~~products. This ~~product~~number ~~library~~varies ~~according~~depending toon ~~their~~the ~~physical~~ product ~~inventory~~. If Understanding ~~the~~this ~~inventory~~process ~~filter~~ is ~~used,~~most ~~the~~easily ~~Compass~~explained ~~biosurvey~~by ~~will~~describing ~~only use~~ the ~~VSIs~~stimulus-response ~~for~~sequence, ~~products~~as ~~the operator indicates are part of their product inventory~~follows.

The Compass biosurvey first records the body’s response to a number of VSIs referred to as biomarkers. These VSIs are representative of 75 anatomical components of the body. The results of this part of the biosurvey are displayed graphically in what is called a “Stress Profile.” VSIs that generated the most aggressive responses are plotted outside a range circle and are considered “out of range.” Next, VSIs for a number of products are used to determine and rank their effect on coherence. The product with the highest positive dR is then used as the stimulating VSI as each of the out-of-range biomarkers are rescanned. The stress profile will indicate which biomarkers move into range. If all biomarkers do not move into range, the VSI for the product with the next highest positive dR is used along with the first as the stimulating signal as the biomarkers are again rescanned. This process is repeated, adding a new product each time, until the stress profile is resolved, i.e., until all biomarkers have moved into range.16

~~The~~When ~~exercises~~a ~~involved~~biosurvey is initiated, the computer first queries the Hand Cradle to see if it is properly connected with a hand resting on it. The computer then samples the digital data coming from the hand. This sampling period lasts for a few seconds, allowing the hand to acclimate to the Hand Cradle. Next, the Hand Cradle will take a baseline sampling, measuring electrical resistance (or conductance) of the skin at all contact points. Subtle changes in electrical resistance at each point are then analyzed using a proprietary algorithm to determine a coherent state. That data is then transmitted to the computer. The computer then sends a VSI signal to the Hand Cradle. This signal creates a rapid burst of ~~our~~data, ~~products~~sometimes doreferred ~~not~~to ~~imply~~as ~~that~~a “ping.” The Hand Cradle then takes a second, or response, reading measuring electrical characteristics of the skin at all ~~your~~contact ~~health~~points ~~issues~~and ~~will~~transfers gothat ~~away~~data ifto ~~you~~the ~~take~~computer. The ~~these~~computer ~~products~~then analyzes the baseline against the response and correlates it with the VSI signal. The variance between the baseline and the response are expressed numerically as a “deviation Ratio” ~~However~~or a “dR.” If the response pattern is more coherent than the baseline, ~~management~~the ~~believes~~dR ~~that~~will ~~these~~be ~~exercises~~positive; ~~provide~~if ~~information~~the ~~that~~response is ~~helpful~~less ~~when~~coherent ~~choosing~~the ~~what~~dR ~~supplements~~will tobe ~~buy~~negative. If the coherence of the response is the same as the baseline the dR will be zero. Additionally, the computer will determine variance in coherence and will assign a number, the greater the number the more or less coherent the response.

12The objective of the stimulus-response exercise, called a biosurvey, is to determine the shift the selected VSI or VSIs create in coherence as measured at the contact points on the hand. The biosurvey sequence involves a base line measurement, the introduction of the VSI, and a response measurement. If the energetic position (referred to as “energetic posture”) of the response, measured by the Hand Cradle, differs from the baseline then the VSI is assumed to have influenced that shift. The only input from the operator is the selection of the biosurvey or the VSIs to use in the biosurvey.

The results of a biosurvey are treated similar to information collected in a health history. The biosurvey will provide information that helps the practitioner make better decisions faster, but does not provide them any definitive diagnosis. A shift in coherence is not an indicator of need or deficiency, and no system of the body is evaluated in the process. Therefore, the biosurvey is not considered a diagnosis.

For clarity, we have included the following example, which demonstrates how biosurveys are used clinically: A healthcare professional consults with a client who suffers from a particular ailment for which the healthcare professional may choose one of a number of drugs to treat. The healthcare professional then organizes, or creates a biosurvey containing VSIs for all appropriate drug choices. That biosurvey is then run while the client has his or her hand on the Hand Cradle. The client’s responses to the items in the biosurvey will be ranked and shown in the final report. The healthcare professional then takes this data into account when making his prescriptive choice, giving greater consideration to items (drugs) for which the client shows the most positive shift in coherence; the biosurvey allows the healthcare professional to individualize therapy for his clients.

The operator (healthcare professional) decides which biosurvey to use, or which sets of drugs to include in the biosurvey. One distinct advantage of our technology is the speed at which it operates, allowing the operator to consider a wider variety of choices. All choices included in a biosurvey will be ranked against the entire list.

Marketing and sales of our Products are segregated into two distinct areas: The Compass, and Healthcare Professional.

Compass Product Line

The Compass is a consumer or retail device, sold to distributors of health products who sell through direct sales or network marketing channels. Before we create a Compass with a library of products (“VSIs”) for any direct sales or network marketing company, that company must meet two requirements: at least twenty products in their product offering and at least 5,000 distributors. Once an eligible company has been identified, we obtain a sample of each of their products. VSIs for each of these products are then created and organized into a library of biosurveys. The Compass is then offered for sale for that company.

The Compass operates similarly to the “Healthcare Professional only” products. The difference is the presentation of the data in the final report and the VSIs available for inclusion in the biosurvey. The Compass uses the biosurvey process in the same way as the professional-only line of products but the Compass final report provides much less detail. The Compass is sold to ‘non-professionals’ who may not have any medical background or licensure. For this reason, the Compass report does not identify detail such as specific biomarkers or dR numbers (discussed above). It is also limited in its flexibility. Compass operators are only allowed to alter the program by filtering its product library according to their physical product inventory. If the inventory filter is used, the Compass biosurvey will only use the VSIs for products the operator indicates are part of his/her product inventory.

The Compass biosurvey first records the body’s response to a number of VSIs referred to as biomarkers. These VSIs are representative of 75 anatomical components of the body. The results of this part of the biosurvey are displayed graphically in what is called a “Stress Profile.” VSIs that generated the most aggressive responses are plotted outside a range circle and are considered “out of range.” Next, VSIs for a number of products are used to determine and rank their effect on coherence, or their ability to bring the biomarkers back in range. The product with the highest positive dR is then used as the stimulating VSI as each of the out-of-range biomarkers are rescanned. The stress profile will indicate which biomarkers move into range. If all biomarkers do not move into range the VSI for the product with the next highest positive dR is used, along with the first, as the stimulating signal as the biomarkers are again rescanned. This process is repeated, adding a new product each time, until the stress profile is resolved, i.e., until all biomarkers have moved into range.

The exercises involved with all of our products do not imply that “all your health issues will go away if you take these products.” However, these exercises provide information that is helpful when choosing what supplements to buy, and/or what prescriptions a healthcare professional should issue, and/or how a healthcare professional can further assist his or her client.

Healthcare Professional Product Line

Elite

The Elite (an upgrade to ~~the~~our ~~Limbic~~previous ~~Stress~~product, ~~Assessment~~the (“LSA”) Pro) is sold only to healthcare professionals. This product is the most versatile and capable product in the ZYTO lineup. It gives ~~the~~operators ~~operator~~ an extensive library of VSIs and the ability for the healthcare professional to add new VSIs to their library. This proprietary process is the same as ~~that~~explained ofabove; the ~~Compass: the~~ Elite creates a unique code, converts it to a frequency and that frequency is then linked to the physical item. The software used in the linking process indicates when the link is complete. The VSI is then available for the use in the biosurvey sequence. The Elite also ~~offers~~has the ability to author its own biosurveys and to deploy them to other ZYTO systems, specifically the Select. Additionally, the Elite is able to scan remotely over the ~~internet~~Internet. Remote biosurveys ~~are~~can be conducted over the ~~internet~~Internet with a client ~~having~~who has a Hand Cradle connecting over the Internet to a healthcare professional with ZYTO software in a remote location. ~~The connection is made over the internet.~~

Select; Balance

~~These~~The ~~products~~Select ~~are~~product ~~designed~~was toreleased ~~run~~in aMay ~~limited~~2011 ~~number~~and ofis ~~biosurveys. These~~an ~~two~~upgrade ~~products~~and ~~are~~replacement ~~similar~~for to the ~~Compass~~prior inversion ~~this~~of ~~regard,~~the ~~but~~Balance ~~because~~3.0. The ~~they~~Select ~~are~~includes ~~sold~~full ~~only~~access to ~~healthcare~~products ~~professionals,~~from ~~their~~more ~~final~~than ~~reports~~136 ~~are~~nutritional ~~much~~supplement ~~more~~suppliers ~~detailed~~ and ~~in-depth~~an ~~than~~unlimited ~~those~~range of ~~the Compass~~biosurveys. ~~These products can also scan remotely over the internet.~~

~~One~~The ~~of the biosurveys built into the~~ Balance ~~scans~~5.0 aproduct ~~number~~was ofreleased ~~VSIs~~in ~~relating~~June to2010 ~~vertebrae, teeth,~~ and ~~acupuncture~~includes ~~meridians,~~full ~~and~~access ~~the Balance draws the body’s response~~ to ~~these~~products ~~items~~from infour anutritional ~~graph~~supplement ~~called a Stress Profile~~suppliers. ~~The Balance then measures the body’s responses to the VSIs representative of various products.~~ ~~VSIs~~We ~~for~~cooperate ~~products that create the most positive shift~~ in ~~coherence~~some ~~are~~marketing ~~then~~efforts ~~used~~with ~~in a rescan of the stress profile. As~~ these ~~product~~companies ~~VSIs~~as ~~are introduced throughout the rescan process, the stress profile changes. The change anticipates the physical benefit the client will receive when the supplements are taken, making the process~~ a ~~‘simulation’~~ ofway ~~actually taking the supplements. The presentation of the data in the final report is both educational and motivating~~ to ~~the~~reach ~~client. The~~a ~~education~~broader ~~comes~~audience ~~in the form of describing the products whose VSIs created the most positive shift,~~ and ~~the~~as ~~motivation~~a ~~because~~way ~~the~~to ~~descriptions~~serve ~~will often match what they know about~~ their ~~own~~customers ~~health conditions or concerns~~better. ~~The structure of the report is also motivating, making it simple for the client to understand the benefit that can be expected from the products shown.~~

The ~~Select~~biosurvey isbuilt into the ~~upgrade~~Balance ~~and~~(also ~~replacement~~available ~~for~~in the ~~prior~~Select ~~version~~and of the ~~Balance~~Elite) ~~and~~scans ~~was~~a ~~released~~number inof ~~May~~VSIs ~~2011. The~~for ~~Select~~vertebrae, ~~comes~~teeth, ~~with~~organs, ~~all~~and ~~the~~acupuncture ~~features~~meridians, ofand then draws the ~~Balance,~~body’s ~~and~~response asto ofthese ~~the~~items ~~date~~in ofa ~~this~~graph ~~report,~~called ~~also~~a ~~included~~Stress ~~full~~Profile. The ~~access~~Balance then measures the body’s responses to the VSIs for various nutriceutical products. VSIs ~~from~~for ~~more~~products ~~than~~that ~~136~~create ~~nutritional~~a ~~supplement~~positive ~~suppliers,~~response anare ~~expanded~~then ~~range~~used ofin ~~biosurveys,~~a ~~and~~rescan ~~self-directed~~of ~~scanning~~the ~~options~~stress profile.

As these product VSIs are introduced throughout the rescan process, the stress profile typically changes. The change anticipates the physical benefit the client will receive when the supplements are taken, making the process a “simulation” of actually taking the supplements.

The presentation of the data in the final report is both educational and motivating to the client. The education comes in the form of describing the products whose VSIs created the most positive shift, and the process can be motivational because the descriptions often match what they know about their own health conditions or concerns. The structure of the report is also motivating, making it simple for the client to understand the benefit that can be expected from the products shown.

The Select and the Balance are sold only to healthcare professionals. Both products are capable of remote scanning over the Internet.

EVOX

The EVOX is a perception reframing tool and sold only to healthcare professionals. It comes with a Hand Cradle for the purpose of running biosurveys and is used with a headset that plugs into the computer. The EVOX measures the frequencies (energy) in the voice and uses that information to facilitate what is called perception reframing. .

Information carried in the voice exceeds the words spoken. For example, with a phone call from a stranger, in very few seconds ~~you~~the receiver will likely know the caller’s gender, race, approximate age, general health, and what part of the world they lived in when they were young (by their accent). All this non-articulated information is carried in the voice. Non-articulated information varies with each topic. In addition to age, gender, and ~~the~~ other ~~items listed above~~information, voice carries attitudes, memories, and beliefs. In short, voice ~~reflects~~carries perception.

Perception is important because in many instances it creates an individual’s reality. Thus, to the extent perception is inadequate, reality can be dysfunctional. An example of an inadequate perception would be the person who believes all dogs are mean. While it is true that some dogs are mean, all are not, and a person with this perception will live a dysfunctional “dog” reality.

Another interesting characteristic of perception is that it is almost entirely subconscious, resulting in behaviors that are “‘driven”’ by reasons we may not understand or even be aware of. This subconscious nature makes perceptions almost impossible to alter, so they remain static and we live our lives as a recurrent expression of the same dysfunctions.

13The EVOX process begins with the creation of a short recording, with the client speaking about a specific topic for about ten to fifteen seconds. EVOX uses the microphone and the computer’s sound card to record the frequencies in the voice, referred to as voice energy. Those frequencies are plotted into a graph called a Perception Index. The Perception Index is then analyzed by the computer and ‘holes or gaps’ (frequencies that are absent) in the frequency pattern are used to determine various frequency VSIs that could be used in the reframe process. The computer-determined VSIs are then placed into a biosurvey which runs while the client’s hand is on the Hand Cradle. VSIs that generate a negative dR are deleted; those creating a positive dR are saved and are then output to the Hand Cradle sequentially over a period lasting thirty seconds to ten minutes, depending on operator preference. During the output period EVOX plays easy-to-listen-to music into headphones worn by the client, and the client is instructed to close his eyes and think about the topic of which he is speaking. At the end of the output phase, the computer resets for the next recording. This cycle is called a round. Over the course of a session (usually consisting of three to ten rounds), the client will usually experience a shift in perception relative to the topic. This is Perception Reframing. Perception Reframing can result in an improved golf game, a better relationship with a spouse or child, or the elimination of some self-sabotaging behavior. This shift is not the result of ‘treating a condition.’ Rather, it is simply expanding or reframing the way the topic is perceived by the client. Expanded perception creates an ability to exercise more choice.

The EVOX process begins with a short recording, with the client speaking about a specific topic for about ten to fifteen seconds. EVOX uses the microphone and the computer’s sound card to record the frequencies in the voice, referred to as voice energy. Those frequencies are plotted into a graph called a Perception Index. The Perception Index is then analyzed by the computer and ‘holes or gaps’ (frequencies that are absent) in the frequency pattern are used to determine various frequency VSIs that could be used in the reframe process. The computer-determined VSIs are then placed into a biosurvey which runs while the client’s hand is on the Hand Cradle. VSIs that generate a negative dR are deleted; those creating a positive dR are saved and are then output to the Hand Cradle sequentially over a period lasting thirty seconds to ten minutes, depending on operator preference. During the output period EVOX plays easy-to-listen-to music into headphones worn by the client and the client is instructed to close his eyes and think about the topic of which he is speaking. At the end of the output phase the computer resets for the next recording. This cycle is called a round. One client stated, “Over the course of a session (usually consisting of three to ten rounds) the customer will usually experience a shift in perception relative to the topic.” This is Perception Reframing. Perception Reframing can result in an improved golf game, a better relationship with a spouse or child, or the elimination of some self-sabotaging behavior. This shift is not the result of “treating a condition.” Rather, it is simply expanding or reframing the way the topic is perceived by the customer. Expanded perception creates an ability to exercise more choice.

The objective of EVOX and perception reframing is to identify the position of the Perception Index and then use VSIs for frequencies to facilitate a reframe or shift in perception. This can be significant to the extent a person’s reality is created by his perception. Filling in the biosurvey involves the process of stimulus (with the VSI) and response (expressed as a dR). The EVOX expands that process by using the voice as a feedback loop in the process. With EVOX, the Hand Cradle is used in the same way, but voice becomes the primary indicator of perception and the achievement of a subsequent shift or reframe of perception.

ZYTO.com

We ~~have~~anticipate ~~recently~~that ~~consolidated all web activity into~~ our website, www.ZYTO.com~~. This~~, ~~was~~will ~~done~~become ~~in order to maximize traffic and increase search engine effectiveness. ZYTO.com is now~~ the nexus for all ZYTO healthcare professionals and for those professionals and their clients as this will become the portal for all remote biosurvey scans. Remote use of our technology over the ~~internet~~Internet is available and has been ~~available~~ for the last several years under the name of “Virtual Clinic.” (Information contained on, or available through, our website is not a part of, and is not incorporated by reference into, this Quarterly Report.)

In addition to being the nexus between healthcare professionals and their clients as it relates to remote scans, Management plans for ZYTO.com ~~will~~to have a ~~“library”~~Store where healthcare professionals can share biosurveys and clinical applications using ZYTO technology. A healthcare professional owning the Elite will be able to author a biosurvey and post that biosurvey for sale at ~~ZYTO.com~~“The Store,” and other healthcare professionals will be able to benefit from their experience and knowledge. The net effect is expected to be a more robust sharing of intellectual power and experience. Once the Store is created, we anticipate making revenue from a portion of each sale.

Results of Operations

Three Months Ended ~~September~~March 3031, ~~2011~~2012, compared to Three Months Ended ~~September~~March 31, ~~2010~~2011

	For the Three Months Ended
	September 30, 2011 (Unaudited)			September 30, 2010 (Unaudited)
	March 31, 2012 (Unaudited)			March 31, 2011 (Unaudited)
Statement of Operations Data:
Revenues, net	$	~~993~~1,~~411~~086,580		$	1808,~~052,266~~114
Cost of sales		5341,~~326~~181			9369,~~546~~836
Gross profit		~~940~~1,~~085~~045,399			~~958~~738,~~720~~278
Total operating expenses		~~873~~955,~~444~~116			~~946~~983,~~260~~254
Other expense		(9524,~~038~~460	)		(8886,~~809)~~176	)
Net loss		(28,397)			(76,349)
Net income (loss)		65,823			(331,152	)
Net loss per share		(0.00)			0.00
Net income (loss) per share		0.00			(0.01	)

Revenues

Total revenues for the three months ended ~~September~~March 3031, ~~2011~~2012, were $~~993~~1,~~411~~086,580, compared to $1808,~~052,266~~114 for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting aan ~~decrease~~increase of $58278,~~855~~466, or 534.64 percent.

Healthcare Professional Product Line

Revenues generated through our Healthcare Professional product line for the three months ended ~~September~~March 3031, ~~2011~~2012, were $~~524~~592,~~922~~458, compared to $~~671~~382,~~571~~380 for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting aan ~~decrease~~increase of $~~146~~210,~~649~~078, or 2154.89 percent. The primary factors contributing to the difference are a decrease in revenues of our Elite product of $267,925. In January 2011, we replaced the Pro 4.0, which had sales during the three months ended September 30, 2010, of $527,350, with the Elite. We also had an increase in sales of our EVOX, Select, and Virtual Clinic products of $16,989 and $46,050, and $29,460, respectively.

Our Elite product sales for the three months ended March 31, 2012 were $231,045, compared to $150,460 for the three months ended March 31, 2011, reflecting an increase of $80,585, or 53.5 percent. Our EVOX product sales for the three months ended March 31, 2012 were $96,448, compared to $45,678 for the three months ended March 31, 2011, reflecting an increase of $50,770, or 111.1 percent. The primary reasons for increase in sales of the Elite and EVOX systems had to do with a special financing promotion during the month of February, where we offered twelve month financing interest-free.

Our Select product sales for the three months ended March 31, 2012 were $53,809. The Select system was released in May 2011 and replaced our prior version of the Balance, which had product sales during the three months ended March 31, 2011, of $8,500. Our Balance product sales for the three months ended March 31, 2012, were $20,434, compared to $44,198 for the three months ended March 31, 2011, reflecting a decrease of $23,764, or 53.7 percent. This was primarily due to a reduction in travel and expenses related to promoting our Balance product.

Our virtual clinic Hand Cradle sales increased $5,095 compared to the three months ended March 31, 2011, due to increased functionality and use of our remote clinics, which allow healthcare professionals to scan clients remotely.

Professional subscription revenue for the three months ended March 31, 2012, increased $47,335 compared to the three months ended March 31, 2011. The increase in revenues generated through our Healthcare Professional product line is attributable to our existing customers continuing to pay their monthly subscription fees and a steady increase of subscribers.

Compass Product Line

Revenues generated through our Compass product line for the three months ended ~~September~~March 3031, ~~2011~~2012, were $~~403~~464,~~050~~331 compared to $~~355~~416,~~978~~438 for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting an increase of $47,~~072~~893 or 1311.25 percent. The increase in revenues generated through our Compass product line is primarily attributable to a volume increase in our Compass sales of $431,~~788~~915, and by an increase in our monthly subscription fees of $4122,~~296~~808.

The increase in revenues generated through our Compass product line is attributable to our existing customers continuing to pay their monthly subscription fees and a steady increase of subscribers.

Cost of Sales

Cost of sales for the three months ended ~~September~~March 3031, ~~2011~~2012, were $5341,~~326~~181, compared to $9369,~~546~~836 for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting a decrease of $4028,~~220~~655, or 4341.0 percent. This decrease was primarily due to ~~moving~~having our ~~inventory~~virtual ~~function~~hand ~~in-house~~cradles ~~and~~on ~~cancelling~~backorder for much of the quarter, which has a lower gross margin than our ~~outside~~professional ~~fulfillment~~line ~~center~~of ~~contract~~products.

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended ~~September~~March 3031, ~~2011~~2012, were $~~380~~343,~~927~~703 compared to $~~551~~455,~~609~~353 for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting a decrease of $~~170~~111,~~682~~650 or 3024.95 percent. This decrease was primarily attributable to a decrease in outside consulting costs, travel expenses, and ~~commissions~~salaries.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~September~~March 3031, ~~2011~~2012, were $~~451~~552,~~768~~529 compared to $~~375~~489,~~389~~504 for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting an increase of $7663,~~379~~025 or 2012.39 percent. ~~Factors~~The primary factor relating to the increase was an increase in salaries and wages. Other factors relating to the increase included expanding our office space in 2011, which resulted in recognizing an additional $149,~~150~~433 in office rent expense for the three months ended ~~September~~March 3031, ~~2011~~2012, compared to the three months ended ~~September~~March 3031, ~~2010~~2011. ~~During~~These ~~the~~increases ~~three~~were ~~months~~partially ~~ended~~offset ~~September~~by a $30,314 ~~2011,~~decrease wein ~~amortized~~ our ~~proprietary~~investor ~~software~~relations ~~asset~~expenses, ~~resulting~~as inthe ~~$29,021~~engagement of ~~amortization~~our ~~expense.~~public ~~Also,~~relations wefirm ~~had~~ended ~~significantly~~in ~~lower~~May ~~professional fees compared to September 30~~2011, ~~2010.~~and ~~This~~a isdecrease ~~primarily~~in ~~due~~legal ~~to the additional professional~~ fees ~~we incurred during the three months ended September 30, 2010, related to the filing~~ of ~~our Form 10~~$42,980.

Research and Development

Research and development expenses for the three months ended March 31, 2012, were $58,884 compared to $38,397 for the three months ended March 31, 2011, reflecting an increase of $20,487 or 53.3 percent. The increase was primarily due to hiring an additional programmer, and an increase in the time spent on improving our current software.

Other Expense

Other expense for the three months ended March 31, 2012, was $24,460 compared to $86,176 for the three months ended March 31, 2011, reflecting a decrease of $61,716 or 71.6 percent. The decrease was primarily due to other income of $66,897 during the three months ended March 31, 2012, resulting from forgiveness of debt.

Net Income/Loss

Our net ~~loss~~income for the three months ended ~~September~~March 3031, ~~2011~~2012, was $2865,~~397~~823 compared to a loss of $76331,~~349~~152 for the three months ended ~~September~~March 3031, ~~2010~~2011. The net ~~loss~~income for the three months ended ~~September~~March 3031, ~~2011~~2012, is a direct result of the increase in revenues, and a reduction ofin operating expenses, as explained in the ~~aforementioned~~preceding ~~expenses~~paragraphs.

Nine Months Ended September 30, 2011 compared to Nine Months Ended September 30, 2010

	For the Nine Months Ended
	September 30, 2011 (Unaudited)			September 30, 2010 (Unaudited)
Statement of Operations Data:
Revenues, net	$	2,976,701		$	2,963,098
Cost of sales		177,176			232,192
Gross profit		2,799,525			2,730,906
Total operating expenses		2,962,280			2,603,888
Other expense		(263,032	)		(246,774)
Net loss		(425,787)			(119,756)
Net loss per share		(0.01)			0.00

Revenues

Total revenues for the nine months ended September 30, 2011, were $2,976,701, compared to $2,963,098 for the nine months ended September 30, 2010, reflecting an increase of $13,603, or 0.5 percent.

Healthcare Professional Product Line

Revenues generated through our Healthcare Professional product line for the nine months ended September 30, 2011, were $1,545,012 compared to $1,564,067 for the nine months ended September 30, 2010, reflecting a decrease of $19,055 or 1.2 percent. The primary factors contributing to the decrease are a transition from our Pro 4.0 product to our Elite product in January 2011, which resulted in a decrease in revenues of $379,803. Also, we had an increase in our EVOX and Select sales of $230,874 and $80,575, respectively.

Compass Product Line

Revenues generated through our Compass product line for the nine months ended September 30, 2011, were $1,249,197 compared to $1,124,373 for the nine months ended September 30, 2010, reflecting an increase of $124,824 or 11.1 percent. The increase in revenues generated through our Compass product line is primarily attributable to an increase in our Compass subscription revenues of $135,942, offset partially by a volume decrease in product sales.

Selling and Marketing Expenses

Selling and marketing expenses for the nine months ended September 30, 2011, were $1,468,257, compared to $1,385,017 for the nine months ended September 30, 2010, reflecting an increase of $83,240 or 6.0 percent. This increase was primarily due to an increase of sales representatives and account managers. Our account managers focus solely on post sale follow-up and successful software implementation. They work directly with our customers to ensure they have implemented our technology and received adequate training.

General and Administrative

General and administrative expenses for the nine months ended September 30, 2011, were $1,373,296, compared to $1,123,027 for the nine months ended September 30, 2010, reflecting an increase of $250,269, or 22.3 percent. Factors relating to the increase included expanding our office space in 2011, which resulted in recognizing an additional $42,711 in office rent expense. Also, during the nine months ended September 30, 2011, we amortized our proprietary software asset resulting in $75,558 of amortization expense. During the nine months ended September 30, 2011, we wrote off an additional $31,253 compared to 2010. In addition, we had an increase in our payroll expense compared to the same period in the prior year due to payroll increases and the addition of accounting and inventory personnel.

Other

Other expense for the nine months ended September 30, 2011, was $263,032, compared to $246,774 for the nine months ended September 30, 2010, reflecting an increase of $16,258 or 6.6 percent. This increase resulted from our executing an amended promissory note with Vaughn R Cook, our Chairman and CEO, on January 1, 2010, extending the maturity date on his original promissory note of $2,500,000 to December 31, 2012. In exchange for the amended and restated terms, we increased the interest rate from 5 percent to 7 percent per annum and issued a warrant to purchase 1,750,000 shares of common stock at an exercise price of $0.04 per share. The warrant was exercised on February 3, 2010, and valued at $375,547 using the Black-Scholes pricing model with the following assumptions: risk free interest rate of 0.30 percent, dividend yield of 0.0 percent, volatility of 199 percent and an expected life of 1 year. The warrant value of $375,547 is being recognized over the length of the amended promissory note. Accordingly, we did not recognize interest expense associated with this warrant transaction in January 2010.

Net Income/Loss

Our net loss for the nine months ended September 30, 2011, was $425,787, compared to a loss of $119,756 for the nine months ended September 30, 2010. The net loss for the nine months ended September 30, 2011, is a direct result of the reduction of the aforementioned expenses.

Liquidity and Capital Resources

Our sources of liquidity have historically been cash from operations, a working capital line of credit, and debt and equity financing.

As of ~~September~~March 3031, ~~2011~~2012, we had cash and cash equivalents of $5399,~~780~~119, current liabilities of $1,~~364~~410,~~654~~652, and total current assets of $~~421~~460,~~940~~482, with our current liabilities exceeding current assets by $~~942~~950,~~714~~170.

Cash Flow

	For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
Net cash provided by (used in):	~~2011~~2012			~~2010~~2011
Operating activities	$	~~133~~80,~~343~~456		$	~~265~~(19,~~225~~990	)
Investing activities		(~~166~~66,~~978~~003	)		(~~210~~57,~~018~~835	)
Financing activities		48(2,~~055~~688	)		~~(78~~38,~~462~~580	)
Net increase (decrease) in cash		1411,~~420~~755			(2339,~~255~~245	)

Operating activities:

Cash provided by (used in) operating activities was $~~133~~80,~~343~~456 ~~during~~and ($19,990) for the ~~nine~~three months ended ~~September~~March 3031, 2012 and 2011, respectively. ~~Cash~~ Net cash provided by operating activities ~~was $265,225~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2010.~~2012, ~~The~~consisted ~~primary~~of ~~factor~~our ~~relating to the decrease in~~ net ~~cash provided by operating activities was a decrease in net~~ income of $~~306~~65,~~031 during the nine months ended September 30~~823, ~~2011.~~which ~~This~~ was ~~partially~~ offset by ~~increases~~non-cash inexpenses of depreciation and amortization ~~expenses~~ of $9055,~~480~~927, changes in amortization of debt discount of $9632,~~570~~190, ~~and~~share-based ~~provision~~compensation ~~for bad debt~~ of $338,~~851.~~824 Weand ~~also had~~ a ~~decrease~~change in ~~the~~working ~~cash~~capital ~~provided by inventory~~ of ($7982,~~632~~308).

Net cash used in operating activities during the three months ended March 31, 2011, consisted of our net loss of $331,152, which was offset by non-cash expenses of depreciation and amortization of $39,795, changes in amortization of debt discount of $32,190, provision of bad debt of $13,544, issuance of common stock for services of $41,789, issuance of common stock in connection with debt of $2,251 and a change in working capital of $181,593.

Investing activities:

Cash used in investing activities was $~~166~~66,~~978~~033 during the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, which included $225,~~405~~830 for property, plant, and equipment purchases, and $~~144~~60,~~573~~203 for capitalizing costs relating to significant enhancements and upgrades to our proprietary software.

Cash used in investing activities was $~~210~~57,~~018~~835 during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, which included $9812,~~000~~575 for property, plant, and equipment purchases, and $~~101~~45,~~517~~260 for capitalizing costs relating to significant enhancements and upgrades to our proprietary software ~~and $11,301 for our long term investment~~.

Financing activities:

Cash ~~provided~~used byin financing activities was $482,~~055~~668 during the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, which ~~included~~consisted ~~proceeds from related party notes payable~~ of ~~$50,000, and~~ principal payments on notes payable of $12,~~945~~668.

Cash ~~used~~provided inby financing activities was $7838,~~462~~580 during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, which included principal payments on ~~related party~~ notes of $42420,~~671,~~ ~~and~~ principal payments on our line of credit of $11,000, and proceeds from notes payable of $3550,~~791~~000.

Contractual Obligations

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Off-Balance sheet arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, other intangible assets and going concern.

Revenue recognition

We recognize revenue from customers upon the delivery of the system hardware. At the time payment is received, the system hardware is shipped and the customer receives an e-mail which includes a link to download the software. Upon shipment, the customer has no right of return, and the transaction is final. Thirty days from the date of purchase, the customer is required to pay a monthly subscription fee in order for the software to remain active. Subscription revenue is recognized upon the performance of services. In the event the customer cancels ~~his~~the ~~or her~~ monthly subscription or the monthly subscription fee is not received, the software automatically deactivates and the equipment is no longer functional.

We recognize revenue when persuasive evidence of an arrangement exits, delivery has occurred, the customer no longer has the right of return, the fee is fixed or determinable, and collection has been made or is reasonably assured.

Revenues are shown net of any related sales or use taxes for sales transactions where applicable.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts from estimated losses resulting from the potential inability of certain customers to make required future payments on amounts due. We determine the adequacy of this allowance by periodically evaluating the aging and past due nature of the individual customer accounts receivable balances and considering the customer’s current financial situation as well as the existing industry economic conditions and other relevant factors that would be useful towards assessing the risk of collectability. If the future financial condition of our customers were to deteriorate, resulting in their inability to make specific required payments, additions to the allowance for doubtful accounts may be required. In addition, if the financial condition of our customers improves and collections of amounts outstanding commence or are reasonably assured, then we may reverse previously established allowances for doubtful accounts.

Share-Based Compensation

We recognize compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value. We estimate the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.

Going concern

AsOur ofindependent ~~September~~auditors ~~30,~~have ~~2011~~issued ~~and~~a “going concern” qualification in its report on our consolidated financial statements for the year ended December 31, ~~2010~~2011, stating that we had an accumulated deficit ~~of $8,112,072~~ and ~~$7,686,285,~~negative ~~respectively~~cash flows.

~~During~~As ~~the~~of ~~three~~March ~~months ended September 30~~31, ~~2011 and 2010~~2012, ~~we recognized a net loss of $28,397~~ and ~~$76,349,~~December ~~respectively. For the nine months ended September 30~~31, 2011, ~~and 2010~~ we ~~recognized~~had aaccumulated ~~net~~deficits ~~loss~~ of $~~425~~8,~~787~~041,598 and $~~119~~8,~~756~~107,421 respectively.

AsDuring ofthe ~~September~~three ~~30,~~months ~~2011~~ended ~~and~~March ~~December~~ 31, ~~2010~~2012 ~~our~~and ~~current~~2011, ~~liabilities~~we ~~exceeded~~recognized ~~our~~net ~~current~~income ~~assets~~of by $~~942~~65,~~714~~823 and a net loss of $~~631~~331,~~039~~152, respectively.

As of March 31, 2012, and December 31, 2011, our current liabilities exceeded our current assets by $950,170 and $1,016,852, respectively.

~~Recent Accounting Pronouncements~~23

In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350)”. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The adoption of ASU 2011-08 did not have a material effect on the financial position, results of operations or cash flows of the Company.

Technology

The ZYTO 5.0 platform is the 2010-~~2011~~2012 update to ZYTO Technology. It ~~was~~is being released in phases. The first product to be updated/released in 2010 was the EVOX 5.0. The next product was a new version of the Balance called Balance 5.0. This product was first shipped ~~mid-July,~~in June 2010. The Elite 5.0 is the upgrade and replacement for the LSA Pro 4.0 and was released in January 2011. ~~The~~A new product, Select 5.0 iswas ~~the~~released ~~upgrade~~in ~~and~~May ~~replacement~~2011. We ~~for~~anticipate ~~the~~that ~~Balance~~our 3website, www.0ZYTO.com, will become the nexus for all ZYTO healthcare professionals and ~~was~~for ~~released~~those inprofessionals ~~May~~and ~~2011~~their clients as this will become the portal for all remote biosurvey scans. ARemote ~~new~~use ~~website,~~of ~~ZYTOLife.com~~our ~~was~~technology ~~also~~over ~~released~~the inInternet ~~May~~is ~~2011. ZYTOLife.com~~as ~~was~~of ~~first~~the ~~announced~~date inof ~~2008~~this Report available and has been for the last several years under the name of “Virtual Clinic. ” The ZYTO 5.0 platform has taken over ~~two~~three years to develop, and many of the concepts included in it were formulated in 2008.

WeIn ~~have~~addition ~~recently~~to ~~consolidated~~being ~~all~~the ~~web~~nexus ~~activity~~between ~~into~~healthcare ~~our~~professionals ~~website~~and ~~www.ZYTO.com. This~~their ~~was~~clients ~~done~~as init ~~order~~relates to ~~maximize~~remote ~~traffic~~scans, ~~and increase search engine effectiveness.~~ ZYTO.com iswill ~~now~~have ~~the~~a ~~nexus~~Store ~~for~~where ~~all ZYTO~~ healthcare professionals ~~and~~can ~~for~~share ~~those~~biosurveys ~~professionals~~ and ~~their~~clinical ~~clients~~applications ~~for~~using ~~remote~~ZYTO ~~biosurvey scans~~technology. ~~Remote~~A ~~use~~healthcare ofprofessional ~~our~~owning ~~technology~~the ~~over~~Elite ~~the~~will ~~internet~~be ~~has~~able ~~been~~to ~~available~~author ~~for~~libraries ~~the~~and ~~last~~biosurveys ~~several~~and ~~years~~post ~~under~~them ~~the~~for ~~name~~sale ofat “~~Virtual~~The ~~Clinic~~Store.” ~~(Information~~ ~~contained~~In ~~on,~~this orway ~~available~~other ~~through,~~healthcare ~~our~~professionals ~~website~~will isbe ~~not~~able ato ~~part~~benefit ~~of,~~from their experience and knowledge. The net effect is ~~not~~expected ~~incorporated~~to bybe ~~reference~~a ~~into,~~more ~~this~~robust ~~Quarterly~~sharing ~~Report~~of intellectual power and experience.)

InWe ~~addition~~capitalize toall ~~being~~salaries ~~the nexus between healthcare professionals~~ and ~~their~~associated ~~clients~~expenses asrelating ~~it relates~~ to ~~remote~~significant ~~scans,~~enhancements ~~ZYTO.com will have a “library” where healthcare professionals can share biosurveys~~ and ~~clinical~~upgrades ~~applications~~to ~~using~~our ~~ZYTO~~proprietary ~~technology~~software. AEach ~~healthcare~~employee ~~professional~~who ~~owning~~is involved in the ~~Elite~~development ~~will~~process beis ~~able~~required to ~~author~~maintain a ~~biosurvey~~detailed ~~and~~accounting ~~post~~of ~~that~~his ~~biosurvey~~or ~~for~~her ~~sale~~time atas ~~ZYTO.com,~~it ~~and~~relates ~~other~~specifically ~~healthcare~~to ~~professionals~~enhancements ~~will~~and beupgrades ~~able~~ to ~~benefit~~our ~~from~~proprietary ~~their experience and knowledge~~software. ~~The~~ As ~~net~~of ~~effect~~March is31, ~~expected~~2012, tothe betotal acapitalized ~~more~~amount ~~robust~~was ~~sharing of intellectual power and experience~~$487,434.

WeDuring ~~capitalize~~the ~~all~~three ~~salaries~~months ~~and~~ended ~~associated~~March ~~expenses~~31, ~~relating~~2012 ~~to significant enhancements~~ and ~~upgrades to our proprietary software. As of September 30,~~ 2011, ~~the~~we ~~total~~ capitalized ~~amount~~$60,203 ~~was~~and $~~296~~45,~~321~~260, ~~net~~respectively, of ~~amortization.~~costs ~~Accordingly,~~relating ~~this~~to ~~amount~~significant isenhancements ~~classified~~and asupgrades ~~Technology~~to on our ~~balance~~proprietary ~~sheet~~software. ~~and~~We ~~considered~~capitalize acertain ~~critical~~software ~~accounting~~development ~~estimate~~costs ~~due~~incurred tosubsequent ~~the fact that certain updates relating~~ to the ~~5.0~~establishment ~~platform~~of ~~are~~technological ~~still~~feasibility inand ~~the~~amortize ~~development~~those ~~phase. Specifically,~~costs weover ~~have completed~~ the ~~entire~~estimated ~~planning~~lives ~~stage~~ of the 5related products.0 ~~platform,~~During ~~and~~ the ~~Select~~three ~~5.0~~months ~~and~~ended ~~have~~March ~~determined~~31, ~~that~~2012 ~~the 5.0 platform~~ and, ~~most recently~~2011, ~~the~~amortization ~~Select~~of ~~5.0~~these ~~have achieved technological feasibility. We have only capitalized~~ costs ~~for~~was ~~those~~$39,071 ~~components~~and ~~that~~$21,191, ~~have achieved technological feasibility~~respectively.

These capitalized software development costs are classified as Technology on our balance sheet and considered a critical accounting estimate due to the fact that certain updates relating to the ZYTO 5.0 platform are still in the development phase. Specifically, we have completed the entire planning stage of the ZYTO 5.0 platform and have determined that the ZYTO 5.0 platform has achieved technological feasibility. We have not completed all the designing, coding or testing activities for various products that are required prior to release. Technological feasibility will be established for these products once we have completed the designing, coding and testing activities mentioned above and we conclude that software meets its design specifications including functions, features, and technical performance requirements. We have only capitalized costs for those components that have achieved technological feasibility.

We account for intangible assets under the applicable guidelines of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 350, “Intangibles – Goodwill and Other” (formerly SFAS 142 “Goodwill and Other Intangible Assets”) and FASB ASC 360, “Property, Plant, and Equipment” (formerly SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”). Where intangible assets have finite lives, they are amortized over their useful life unless factors exist to indicate that the asset has been impaired. We evaluate if the assets are impaired annually or on an interim basis if an event occurs or circumstances change to suggest that the assets value has diminished. Under FASB ASC 360, when deemed necessary, we complete the evaluation of the recoverability of its long-lived assets by comparing the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. If such evaluations indicate that the future undiscounted cash flows of long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values. Under FASB ASC 360 intangible assets with indefinite useful lives are required to be tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. As of March 31, 2012, we had not recognized any impairment.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~This~~We ~~interim~~maintain ~~report~~disclosure ~~does~~controls ~~not~~and ~~include~~procedures ~~either~~that ~~management~~are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s ~~assessment~~rules onand ~~our~~forms, ~~internal~~and ~~control~~that ~~over~~such ~~financial~~information ~~reporting~~is oraccumulated anand ~~attestation~~communicated ~~report~~to ofour management, including our ~~registered~~Chief ~~public~~Executive ~~accounting~~Officer ~~firm~~and ~~due~~Chief Financial Officer, as appropriate, to aallow ~~transition~~timely ~~period~~decisions ~~established~~regarding byrequired ~~rules~~disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the ~~Securities~~desired control objectives, and ~~Exchange~~management ~~Commission~~necessarily ~~for~~was ~~newly~~required ~~public~~to ~~companies~~apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the participation of management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, management, including the principal executive officer and principal financial officer, concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

During the quarter ended ~~September~~March 3031, ~~2011~~2012, there were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

1925

Item 26. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~ Exhibits

On January 28, 2011, we received $50,000 in exchange for a promissory note. As part of the agreement, we issued the lender 25,000 shares of common stock. The shares were valued at a grant date fair value of $0.09 per share. The total value of the shares issued was $2,251, which was determined by multiplying the number of shares granted by the closing market price of our common stock on the grant date.

31. 1	Certification of Chief Executive Officer of ZYTO Corp, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31. 2	Certification of Chief Financial Officer of ZYTO Corp, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32. 1	Certification of Chief Executive Officer of ZYTO Corp, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32. 2	Certification of Chief Financial Officer of ZYTO Corp, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS	XBRL Instance Document*

101 SCH	XBRL Schema Document*

101 CAL	XBRL Calculation Linkbase Document*

101 DEF	XBRL Definition Linkbase Document*

101 LAB	XBRL Labels Linkbase Document*

101 PRE	XBRL Presentation Linkbase Document*

On* The ~~September~~XBRL ~~15,~~related ~~2010,~~information wein ~~entered~~Exhibit ~~into~~101 anshall ~~agreement~~not ~~with~~be adeemed ~~public~~“filed” ~~relations~~for ~~firm~~purposes ~~retained~~of inSection ~~2009~~18 ~~and~~of ~~2010~~the toSecurities ~~provide~~Exchange ~~public~~Act ~~and~~of ~~financial~~1934, ~~communication~~as ~~services. The~~amended, ~~agreement~~or ~~was~~otherwise ~~for~~subject ato ~~period~~liability of ~~twelve~~that section and ~~one~~shall ~~half~~not ~~months. As~~be ~~compensation~~incorporated ~~for~~by ~~services,~~reference weinto ~~agreed~~any tofiling ~~issue~~or ~~1,200,000~~other ~~shares~~document ofpursuant ~~restricted common stock~~ to the ~~public~~Securities ~~relations~~Act ~~firm. As~~ of ~~September 30~~1933, ~~2011,~~as ~~we had issued 1~~amended,~~100,000~~ ~~shares~~except ofas ~~the~~shall ~~1,200,000~~be ~~shares~~expressly ~~due~~set ~~under~~forth ~~the~~by ~~contract,~~specific ~~and~~reference ~~mutually~~in ~~agreed~~such tofiling ~~terminate~~or ~~the remainder of the contract~~document.

In each of the transactions listed above, the shares of common stock were issued in private transactions without registration under the Securities Act in reliance on Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder.

Item 5. Other Information

As noted above, on July 8, 2011, the Board of Directors approved and adopted:

- The 2011 Stock Incentive Plan;

- A corporate Code of Business Conduct and Ethics; and

- The ZYTO Corp Policy on Insider Trading and Compliance.

The 2011 Stock Incentive Plan, the Code of Ethics, and the Insider Trading Policy are discussed above on page 11, and copies of the Company’s 2011 Plan, the Code of Ethics, and the Insider Trading Policy were filed previously as exhibits to the Quarterly Report for the quarter ended June 30, 2011.

Item 6.	Exhibits
31.01	Certification of Chief Executive Officer of ZYTO Corp, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification of Chief Financial Officer of ZYTO Corp, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certification of Chief Executive Officer of ZYTO Corp, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.02	Certification of Chief Financial Officer of ZYTO Corp, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.Ins	XBRL Instance
101.Sch	XBRL Schema
101 Cal	XBRL Calculation
101.Def	XBRL Definition
101.Lab	XBRL Label
101.Pre	XBRL Presentation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ZYTO CORP
		(Registrant)

	By	/s/ Vaughn R Cook
		Chief Executive Officer
		(Principal Executive Officer)

	By	/s/ Brian E. Halladay
		Chief Financial Officer (Principal Financial Officer)

Date: ~~November~~May 1415, ~~2011~~2012

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