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 EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2009~~2010

¨ 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 1-10927

SIMTROL, INC.

(Exact name of smaller reporting company as specified in its charter)

Delaware	~~58-2028246~~	58-2028246
(State of	~~(I.R.S. Employer~~	(I.R.S. Employer
Incorporation)	Identification No.)
incorporation)		Identification No.)
520 Guthridge Ct., Suite 250
Norcross, Georgia 30092		(770) 242-7566
(Address of principal executive offices)		(Issuer’s telephone number)

520 Guthridge Ct., Suite 250
Norcross, Georgia 30092	(770) 242-7566
(Address of principal executive offices)	(Issuer’s telephone number)

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, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		Accelerated filer

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

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

As of ~~November~~ 9May 14, ~~2009~~2010 registrant had 1213,~~241~~807,~~356~~553 shares of $.001 par value Common ~~Stock~~ Stock outstanding.

SIMTROL, INC. AND SUBSIDIARIES

Form 10-Q

Quarter Ended ~~September~~March 3031, ~~2009~~2010

Index

		Page	~~Page~~
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008			3
	Condensed Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)			4
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (unaudited)			5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6		6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	14		16
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	18		21
	Item 4T.Controls and Procedures	18		21
PART II.	OTHER INFORMATION
	Item 6. Exhibits	18		23

SIMTROL, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIMTROL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	March 31,			December 31,
	2009 (unaudited)			2008
	2010 (unaudited)			2009
ASSETS
Current assets
Cash and cash equivalents	$	9220,~~537~~017		$	~~997~~18,~~048~~596
Accounts receivable		5024,~~840~~830			8030,~~015~~549
Inventory		19,~~399~~128			2819,~~905~~128
Prepaid expenses and other assets		2818,~~874~~412			~~129~~20,~~873~~173
Total current assets		191,650			1,235,841
Interest receivable		3,884			4,603
Certificate of deposit-restricted		83,102			81,126
Total current assets		86,271			93,049
Property and equipment, net		73,228			101,509
Certificate of deposit-restricted		29,974			29,911
Right to license intellectual property, net		8,719			27,218
Property and equipment, net		48,427			60,176
Other assets		11,458			11,458
Right to license intellectual property, net		8,719			8,719
Total assets	$	368,157		$	1,457,152
Note receivable, net of deferred revenue of $393,789 and $400,000, respectively		-			-
LIABILITIES AND STOCKHOLDERS’(DEFICIENCY)/ EQUITY
Total assets	$	173,391		$	191,855
LIABILITIES AND STOCKHOLDERS’DEFICIT
Current liabilities
Accounts payable	$	~~273~~324,~~173~~425		$	~~188~~222,~~064~~457
Accrued expenses		6657,~~704~~697			43100,~~505~~374
Deferred revenue		3127,~~471~~800			1929,~~518~~638
Common stock to be issued		26,000			26,000
Derivative liabilities		396,760			518
Derivative liabilities		30,158			-
Notes payable, net		135,691			562,250
Notes payable, net of debt discount of $146,195		416,055			-
Total current liabilities		942,373			915,237
Total current liabilities		843,561			277,087
Derivative liabilities		1,746,670			136,231
Derivative liabilities		350,030			-
Deferred rent payable		19,732			20,459
Deferred rent payable		21,186			20,551
Total liabilities		2,708,775			1,071,927
Total liabilities		1,214,777			297,638
Commitments and contingencies
Stockholders' Equity/(Deficit):
Stockholders' Deficit:
Preferred stock, $.00025 par value; 800,000 shares authorized;
Preferred stock, $.00025 par value; 10,000,000 shares authorized;
Series A Convertible: 770,000 shares designated; 672,664 and 688,664 outstanding; liquidation values of $2,017,992 and $2,065,992		167			171
Series A Convertible: 770,000 shares designated; 672,664 outstanding; liquidation value of $2,017,992		167			167
Series B Convertible: 4,700 shares designated; 4,264 and 4,285 outstanding; liquidation values of $3,198,000 and $3,213,750		1			1
Series B Convertible: 4,700 shares designated; 4,264 outstanding; liquidation value of $3,198,000		1			1
Series C Convertible: 7,900 shares designated; 5,534 and 5,534 outstanding; liquidation values of $4,150,500 and $4,150,500		14			14
Series C Convertible: 7,900 shares designated; 5,534 outstanding; liquidation value of $4,150,000		14			14
Common stock, 100,000,000 shares authorized;
Common stock, 400,000,000 shares authorized;
$.001 par value; 12,241,356 and 10,783,882 issued and outstanding		12,241			10,784
$.001 par value; 13,807,553 and 13,725,921 issued and outstanding		13,807			13,726
Additional paid-in capital		7980,~~551~~552,~~228~~748			8079,~~338~~832,~~073~~011
Accumulated deficit		(8083,~~410~~102,~~271~~121	)		(7980,~~189~~725,~~529~~991	)
Total stockholders' (deficiency)/equity		(846,620	)		1,159,514
Total stockholders' deficit		(2,535,384	)		(880,072	)
Total liabilities and stockholders’ (deficiency)/equity	$	368,157		$	1,457,152
Total liabilities and stockholders’ deficit	$	173,391		$	191,855

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

SIMTROL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						~~Nine Months Ended~~
	September 30						September 30
	March 31,
	2009			2008			2009			2008
	2010			2009
Revenues:
Software licenses	$	2146,~~346~~675		$	6375,~~200~~321		$	~~97,667~~		$	~~83,655~~
Service and hardware		8545,~~594~~544			57175,~~375~~966			~~280,662~~			~~127,700~~
Total revenues		~~106~~92,~~940~~219			~~120~~251,~~575~~287			~~378,329~~			~~211,355~~
Cost of revenues:
Software licenses		~~3,500~~-			~~114~~300			~~3,800~~			~~219~~
Service and hardware		2916,~~108~~539			23107,~~245~~970			~~143,223~~			~~50,551~~
Total cost of revenues		3216,~~608~~539			23108,~~359~~270			~~147,023~~			~~50,770~~
Gross profit		7475,~~332~~680			97143,~~216~~017			~~231,306~~			~~160,585~~
Operating expenses:
Selling, general, and administrative		~~351~~337,~~904~~844			~~659~~778,~~741~~651			~~1,726,183~~			~~2,282,208~~
Research and development		~~186~~102,~~330~~101			~~263~~311,~~818~~865			~~787,203~~			~~907,280~~
Total operating expenses		~~538~~439,~~234~~945			~~923~~1,~~559~~090,515			~~2,513,386~~			~~3,189,488~~
Loss from Operations		(463,902	)		(826,343	)		(2,282,080	)		(3,028,903	)
Loss from operations		(364,265	)		(947,499	)
Other income/(expenses):
Other income/(expense):
Amortization of debt discount-warrant fair value		(~~224~~135,~~167~~691	)		-			~~(304,575~~	)		~~(266,038~~	)
Amortization of beneficial conversion of notes payable		-			-			-			(266,038	)
Finance expense		(956,960	)		-
Amortization of debt issuance costs		(16,117	)		-			(21,898	)		(21,579	)
(Loss)/Gain on derivative liabilities		(303,426	)		59,200
Gain on derivative liabilities		282,751			-			181,245			-
Interest and other income		5,852			5,986
Interest and other income		669			5,122			10,479			14,861
Interest expense		(28,777	)		(420	)
Interest expense		(31,690	)		(519	)		(44,283	)		(80,585	)
Total other income/(expense), net		(1,419,002	)		64,766
Total other income/(expense), net		11,446			4,603			(179,032	)		(619,379	)
Net loss		(1,783,267	)		(882,733	)
Net Loss		(452,456	)		(821,740	)		(2,461,112	)		(3,648,282	)
Deemed dividend on convertible preferred stock		(592,863	)		-
Dividends on convertible preferred stock paid in common stock		-			-			(359,338	)		(274,368	)
Net loss attributable to common stockholders	$	(2,376,130	)	$	(882,733	)
Deemed dividend on convertible preferred stock		-			(675,760	)		-			(1,975,598	)
Net loss per common share:
Net loss attributable to common stockholders	$	(452,456	)	$	(1,497,500	)		(2,820,450	)	$	(5,898,248	)
Basic and Diluted	$	(0.17	)	$	(0.08	)
Net loss per common share, basic and diluted:
Weighted average shares outstanding:
Basic and diluted	$	~~(0.04~~13,776,805	)	$	~~(0.16~~10,829,833	)	$	~~(0.25~~	)	$	~~(0.70~~	)
Weighted average shares outstanding:
Basic and diluted		12,224,540			9,324,521			11,335,145			8,428,401

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

SIMTROL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2009			2008
	2010			2009
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(21,~~461~~783,~~112~~267	)	$	(3882,~~982,557~~733	)
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of common stock for services		~~3,255~~-			~~119~~3,~~616~~255
Depreciation and amortization		6812,~~495~~852			~~130~~19,~~656~~328
Impairment of right to license intellectual property		~~18,499~~-			-18,499
Amortization of debt discounts		~~304~~135,~~575~~691			~~532,076~~-
Stock-based compensation		~~562~~124,~~387~~208			~~648~~223,~~969~~660
Gain on derivative liabilities		(181,245	)		-
Loss/(gain) on derivative liabilities		303,426			(59,200	)
Changes in operating assets and liabilities		261,573			77,599
Finance expense		956,960			-
Net cash used in operating activities		(1,423,573	)		(2,139,456	)
Changes in operating assets and liabilities		152,654			81,690
Net cash used in operating activities		(97,476	)		(595,501	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		(181,~~267~~103	)		(2812,~~318~~544	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Partial redemption of certificate of deposit		-			24,506
Net proceeds from notes payable issuance		100,000			-
Net proceeds from notes payable issuance		562,250			1,500,00
Increase/(decrease) in cash and cash equivalents		1,421			(608,045	)
Net proceeds from stock issuance		-			2,426,723
Cash and cash equivalents, beginning of the period		18,596			997,048
Capitalized offering costs		(24,921	)		(4,979	)
Cash and cash equivalents, end of the period	$	20,017		$	389,003
Net cash provided by financing activities		537,329			3,946,250
Cash paid during the periods for interest	$	713		$	420
(Decrease)/Increase in cash and cash equivalents		(904,511	)		1,778,476
Cash and cash equivalents, beginning of the period		997,048			256,358
Cash and cash equivalents, end of the period	$	92,537		$	2,034,834
Supplemental schedule of non-cash investing and financing activities:
Dividend on Convertible Preferred Stock paid in common stock	$	359,338		$	274,368
Refinancing of notes payable and accrued interest	$	646,295		$	-
Exchange of convertible notes payable for Series C Convertible Preferred stock	$	-		$	1,572,750
Common shares issued for notes payable extension	$	3,748		$	-

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

SIMTROL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2009~~2010 AND ~~2008~~2009

(Unaudited)

Note 1 – Nature of Operations and Basis of Presentation

Simtrol, Inc., formerly known as VSI Enterprises, Inc., was incorporated in Delaware in September 1988 and, together with its wholly-owned subsidiaries (the "Company"), develops, markets, and supports software based audiovisual control systems and videoconferencing products that operate on PC platforms. The Company operates at a single facility in Norcross, Georgia and its sales are primarily in the United States.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q. It is management’s opinion that these statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the condensed consolidated financial position as of ~~September~~March 3031, ~~2009~~2010, and the condensed consolidated results of operations, and cash flows for all periods presented. Operating results for the three ~~and nine~~ months ended March ~~September 30~~31, ~~2009~~2010, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2009~~2010.

Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2009 and for each of the two years ended December 31, 2009, and 2008, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 filed with the Securities and Exchange Commission on March 3026, ~~2009~~ 2010.

~~Certain~~Note ~~amounts~~2 in– ~~the~~Going ~~2008~~Concern condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current period condensed consolidated financial statements. These reclassifications have no effect on previously reported net loss.Uncertainty

As of March 31, 2010, the Company had cash and cash equivalents totaling $20,017 and negative working capital of $856,102. Since inception, the Company has not achieved a sufficient level of revenue to support its business and incurred a net loss of $1,783,267 and used net cash of $97,476 in operating activities during the three months ended March 31, 2010. While this cash used from operations has decreased significantly from prior year, the Company will require additional funding to fund its development and operating activities during the second quarter of 2010 of at least $100,000. During February 2010, the Company received $100,000 of net proceeds from the issuance of notes payable and entered into an agreement whereby it exchanged outstanding debt and unpaid interest in the amount of $562,250 and $84,045, respectively (see Note 6), in a new convertible note offering. This offering was 2principally –used ~~Liquidity~~to fund first quarter operations. Historically, the Company has relied on private placement issuances of equity and debt. The ~~Going~~Company ~~Concern~~has commenced efforts to raise additional capital through a private placement of debt securities and warrants. No assurance can be given that the Company will be successful in raising this capital. If capital is successfully raised through the issuance of debt, this will increase interest expense and the warrants will dilute existing shareholders. If the Company is not successful in raising this capital, the Company may not be able to continue as a going concern. In that event, the Company may be forced to cease operations and stockholders could lose their entire investment in the Company.

~~As of~~Also, ~~September~~anti-dilution ~~30,~~provisions ~~2009,~~of the ~~Company~~existing ~~had~~Series ~~cash and cash equivalents totaling $92~~A,~~537 and~~ ~~negative working capital of $651~~B,~~911. Since~~ ~~inception,~~and ~~the~~C Convertible ~~Company~~Preferred ~~has~~stock ~~not~~might ~~achieved~~result ain ~~sufficient~~additional ~~level~~dilution ~~of revenue~~ to ~~support~~existing ~~its business~~common ~~and~~shareholders ~~incurred~~if asuch ~~net~~financing ~~loss~~results ~~of $2,461,112 and used net cash of $1,423,573~~ in ~~operating~~ ~~activities~~adjustments ~~during~~to the ~~nine~~conversion ~~months~~terms ~~ended September 30, 2009. The~~of ~~Company will require additional funding to fund its development and operating activities during~~ the ~~fourth~~convertible ~~quarter~~preferred ~~of 2009 or early 2010~~stock. The ~~Company~~ ~~has~~issuance ~~reduced~~of ~~headcount and reduced~~ the ~~salaries of all employees by 50%~~convertible ~~effective~~notes ~~August 14, 2009~~ in ~~order~~February to2010 ~~reduce~~resulted ~~cash used~~ in ~~operations. Historically,~~ ~~the~~dilution ~~Company~~to ~~has~~existing ~~relied~~common onshareholders ~~private placement~~as ~~issuances~~terms of ~~equity~~the ~~and~~convertible debt~~. The~~ ~~Company~~resulted ~~has~~in ~~commenced~~adjustments ~~efforts~~ to ~~raise~~ ~~additional~~the ~~capital~~conversion ~~through~~terms ~~a private placement~~ of ~~debt securities and~~ ~~warrants~~the ~~and~~convertible ~~issued~~preferred ~~$562,250 of these securities on May 29, 2009 (see Note 11)~~stock. ~~The~~(See ~~private~~note ~~placement memorandum allows the Company to raise a maximum of $1~~6).~~5 million at the current terms.~~ NoHowever, ~~assurance can be~~if ~~given that~~ the Company ~~will~~was beunable ~~successful~~to inobtain ~~raising~~ this ~~capital. If capital~~additional ~~is successfully raised through the issuance of debt~~funding, ~~this~~its ~~will increase~~business, ~~interest~~financial ~~expense~~condition and ~~the~~results ~~warrants~~of ~~will~~operations ~~dilute~~would ~~existing shareholders. If the Company is not successful in raising this capital, the Company may not~~ be ~~able to continue as a going~~adversely ~~concern~~affected. ~~In that event, the Company may be forced to cease operations and stockholders could lose their entire investment in the Company.~~

Also, anti-dilution provisions of the existing Series A, B, and C Convertible Preferred stock might result in additional dilution to existing common shareholders if such financing results in adjustments to the conversion terms of the convertible preferred stock. If the Company is unable to obtain this additional funding, its business, financial condition and results of operations would be adversely affected.

Even if the Company obtains additional equity capital, the Company may not be able to execute its current business plan and fund business operations for the period necessary to achieve positive cash flow. In such case, the Company might exhaust its capital and be forced to reduce expenses and cash burn to a material extent, which would impair its ability to achieve its business plan. If the Company runs out of available capital, it might be required to pursue highly dilutive equity or debt issuances to finance its business in a difficult and hostile market, including possible equity financings at a price per share that might be much lower than the per share price invested by current shareholders. No assurance can be given that any source of additional cash would be available to the Company. If no source of additional cash is available to the Company, then the Company would be forced to significantly reduce the scope of its operations or possibly seek court protection from creditors or cease business operations altogether.

These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which ~~contemplate~~contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3 – Selected Significant Accounting Policies

Accounting Standards Codification

The Accounting Standards Codification (“ASC”) has become the source of authoritative U.S. generally accepted accounting principles (U.S. GAAP). The ASC only changes the referencing of financial accounting standards and does not change or alter existing U.S. GAAP.

Revenue recognition

The Company follows the guidance of the ASC 605-10-599, which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured. Certain judgments affect the application of its revenue policy. Revenue consists of the sale of device control software and related maintenance contracts on these systems. Revenue on the sale of hardware is recognized upon shipment. The Company generally recognizes revenue from Device ManagerTM software sales upon shipment as it sells the product to audiovisual integrators, net of estimated returns and discounts. Revenue on maintenance contracts is recognized over the term of the related contract.

Capitalized software and research and development costs

The Company’s policy on capitalized software and research and development costs determines the timing of recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or is capitalized. Software development costs incurred after technological feasibility has been established are capitalized and amortized, commencing with product release, using the greater of the income forecast method or on a straight-line basis over the useful life of the product. Management is required to use professional judgment in determining whether research and development costs meet the criteria for immediate expense or capitalization. The Company did not capitalize any software and research and development costs during either 2009 or 2008, all previously capitalized assets were fully amortized, and research and development efforts during 2008 and 2009 primarily involved product improvements to its Device Manager and Video Visitation products to improve their functionality and ease of use for end users.

Inventory

The Company purchases certain hardware connectivity devices to allow connectivity of devices with different interfaces in classrooms. The inventory is stated at the lower of cost or market value and is recorded at the actual cost paid to third-party vendors. The Company accounts for the inventory using the first-in, first-out (“FIFO”) method of accounting.

Impairment of Long-Lived Assets

The Company records impairment losses on assets when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. The Company’s cash flow estimates are based on historical results adjusted to reflect its best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. The estimates of fair value represent the Company’s best estimate based on industry trends and reference to market rates and transactions. The Company recorded an impairment of approximately $18,000 in the nine months ended September 30, 2009 to lower the carrying value of its right to license intellectual property based on estimated future gross profit from sales of its Curiax Arraigner software product and due to sales that occurred during the period. No impairment was recorded in the nine months ended September 30, 2008. See note 9.

Loss Per Share

ASC 260, "Earnings per Share", requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted. The following equity securities are not reflected in diluted loss per share because their effects would be anti-dilutive:

	September 30, 2009		September 30, 2008
	March 31, 2010		March 31, 2009
Options		7,~~001~~523,~~950~~450		67,~~452~~270,~~763~~950
Warrants		2761,~~403~~051,~~891~~795		2726,~~999~~548,~~509~~014
Convertible Preferred Stock		2234,~~286~~143,~~656~~918		22,~~393~~318,~~323~~656
Convertible Notes Payable		115,~~612~~212,~~294~~130		-
Totals		58117,~~304~~931,~~791~~293		56,~~845~~137,~~595~~620

Accordingly, basic and diluted net loss per share are identical.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on the term of the underlying derivative instrument. See note 10.

Recently Implemented Accounting Pronouncements

~~In December~~The ~~2007, the~~ FASB has issued ~~ASC~~Accounting ~~805,~~Standards ~~Business~~Update ~~Combinations~~ (~~formerly~~ASU) ~~SFAS~~ No. ~~141~~ 2010-06, Fair Value Measurements and Disclosures (~~revised~~Topic ~~2007~~820),: ~~Business~~Improving ~~Combinations).~~Disclosures ~~ASC 805~~about ~~establishes~~Fair ~~principles~~Value Measurements. ~~and~~This ~~requirements~~ASU ~~for~~requires ~~how~~some ~~companies~~new ~~recognize~~disclosures and clarifies some ~~measure~~existing ~~identifiable~~disclosure ~~assets~~requirements ~~acquired,~~about ~~liabilities~~fair ~~assumed,~~value ~~and~~measurement ~~any noncontrolling~~as ~~interest~~set forth in Codification ~~connection~~Subtopic ~~with~~820-10. aASU ~~business~~2010-06 ~~combination;~~amends ~~recognize~~Codification ~~and~~Subtopic 820-10 ~~measure~~and ~~the~~now ~~goodwill~~requires ~~acquired in~~ a ~~business~~reporting ~~combination~~entity orto ause ~~gain~~judgment ~~from~~in adetermining ~~bargain~~the ~~purchase;~~appropriate ~~and~~classes ~~determine~~of ~~what~~assets ~~information~~and toliabilities ~~disclose~~and to ~~enable~~provide ~~users~~disclosures ~~of the~~about ~~financial~~the ~~statements~~valuation techniques and inputs used to ~~evaluate~~measure ~~the~~fair ~~nature~~value for both recurring and ~~financial~~nonrecurring ~~effects~~fair ofvalue ~~the~~measurements. ASU 2010-06 is effective ~~business~~for ~~combination.~~interim ~~The~~and ~~Company~~annual ~~adopted~~reporting ~~ASC~~periods ~~805~~beginning onafter ~~January~~December 115, 2009., ~~ASC 805~~As ~~will~~this ~~have~~standard anrelates ~~impact~~specifically onto disclosures, the ~~Company’s~~adoption ~~accounting~~did ~~for~~not ~~future~~have ~~business combinations~~an ~~but~~impact on the ~~effect~~Company’s iscondensed ~~dependent~~consolidated financial ~~upon~~position ~~acquisitions~~and results ~~that~~of ~~are made in the future~~operations.

InEffective ~~December~~June ~~2007~~30, 2009, the ~~FASB~~Company ~~issued~~adopted ~~ASC~~a ~~810,~~new ~~"Consolidations~~accounting standard included in ASU No.~~” ASC~~ 2010-09 ~~810~~(Topic 855): Subsequent Events that establishes ~~accounting~~general ~~and~~standards ~~reporting~~of ~~standards~~accounting for ~~the~~and ~~noncontrolling~~disclosure ~~interest~~of events that inoccur aafter ~~subsidiary~~the ~~(previously~~balance ~~referred~~sheet todate asbut ~~minority~~before ~~interests). ASC~~the financial statements are ~~810~~issued ~~also~~or ~~requires~~are ~~that~~available ato ~~retained~~be ~~noncontrolling~~issued. ~~interest~~This ~~upon~~new ~~the~~accounting standard provides ~~deconsolidation~~guidance ofon athe ~~subsidiary~~period beafter ~~initially~~the ~~measured~~balance atsheet ~~its~~date ~~fair~~during ~~value.~~which ~~Under~~management of a ~~ASC~~reporting ~~810,~~entity ~~noncontrolling~~should ~~interests~~evaluate ~~are~~events ~~reported~~or astransactions athat ~~separate~~may ~~component~~occur offor ~~consolidated~~potential ~~stockholders’~~recognition ~~equity.~~or Indisclosure ~~addition,~~in ~~net~~the ~~income~~financial ~~allocable~~statements, tothe ~~noncontrolling~~circumstances ~~interests~~under ~~and~~which ~~net~~an ~~income~~entity ~~attributable~~should ~~to stockholders~~recognize events or transactions ~~are reported~~occurring ~~separately~~after the balance sheet date in ~~the~~its ~~consolidated~~financial statements ofand ~~operations. ASC~~the ~~810~~disclosures ~~became~~that ~~effective~~an ~~beginning~~entity ~~January~~should 1,make ~~2009. ASC~~about ~~810~~events ~~would~~or ~~have~~transactions anthat ~~impact~~occurred onafter the ~~presentation~~balance ~~and~~sheet ~~disclosure~~date. The implementation of ~~the~~this ~~noncontrolling~~standard ~~interests~~did not ofhave ~~any~~a material impact on our consolidated financial statements. The Company ~~non-wholly~~evaluated ~~owned~~subsequent ~~businesses~~events ~~acquired~~through inthe date the ~~future~~accompanying financial statements were issued.

In February 2008, the FASB issued an update to ASC 820, Fair Value Measurements and Disclosures (formerly FSP No. FAS 157-2, Effective Date of FASB Statement No. 157). This update amended ASC 820 to delay the effective date for the fair valuation of non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company has assessed the impact of this update for its non-financial assets and liabilities and determined that there was no material impact.

In August 2009, the FASB issued an Update to ASC 820, Fair Value Measurements and Disclosures 2009-05 Measuring Liabilities at Fair Value to provide guidance on measuring the fair value of liabilities under ASC 820. This update clarifies the fair value measurements for a liability in an active market and the valuation techniques in the absence of a Level 1 measurement. This update is effective for the interim period beginning October 1, 2009. The adoption of this update is not anticipated to have a material impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued updates to ASC 350-30-35, General Intangibles Other Than Goodwill-Subsequent Measurement (formerly FSP No. 142-3, Determination of the Useful Life of Intangible Assets), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The Company’s adoption of these updates, on January 1, 2009, is effective prospectively for intangible assets acquired or received after January 1, 2009.

In June 2008, the FASB issued updates to ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (ASC 815-40) (formerly EITF Bulletin No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock). ASC 815-40 provides guidance on how a company should determine if certain financial instruments (or embedded features) are considered indexed to its own stock, including instruments similar to the conversion option of the Notes, convertible note hedges, and warrants to purchase Company stock. This update requires that a two-step approach be used to evaluate an instrument’s contingent exercise provisions and settlement provisions in determining whether the instrument is considered to be indexed to its own stock, and exempt from the application of ASC 815, Derivatives and Hedging (ASC 815) (formerly SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities). The Company adopted the updates to ASC 815-40 effective January 1, 2009. The Company evaluated its financial instruments and embedded instrument features and determined that the accounting for certain previously issued financial instruments are impacted by the provisions of this update to ASC 815. Accordingly, the adoption of this new update had a material effect on the Company’s results of operations and financial position. (See Note 9 “Derivatives” for further details)

In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”. This standard changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The statement is effective for us on December 31, 2010. The Company is currently evaluating the impact this statement may have on our consolidated results of operations and financial condition and does not expect the impact, if any, to be material.

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13) (formerly EITF 08-1, Revenue Arrangements with Multiple Deliverables) which amends ASC Topic 605, Revenue Recognition. This accounting update establishes a hierarchy for determining the value of each element within a multiple deliverable arrangement. ASU 2009-13 is effective for the Company beginning July 1, 2010 and applies to arrangements entered into on or after this date. The Company is currently evaluating the impact that ASU 2009-13 may have on its financial position and results of operations, and does not expect the impact, if any, to be material.

In October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements (ASU 2009-14) (formerly EITF 09-3, Applicability of AICPA Statement of Position 97-2 to Certain Arrangements That Include Software Elements), which updates ASC Topic 985, Software. ASU 2009-14 clarifies which accounting guidance should be used for purposes of measuring and allocating revenue for arrangements that contain both tangible products and software, and where the software is more than incidental to the tangible product as a whole. ASU 2009-14 is effective for the Company’s fiscal year beginning July 1, 2010 and applies to arrangements entered into on or after this date. The Company is currently evaluating the impact that ASU 2009-14 may have on its financial position and results of operations, and does not expect the impact, if any, to be material.

Effective June 30, 2009, the Company adopted a new accounting standard included in ASC 855 Subsequent Events that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This new accounting standard provides guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The implementation of this standard did not have a material impact on our condensed consolidated financial statements. The Company evaluated subsequent events through November 10, 2009, the date the accompanying financial statements were issued.

In August 2009, the FASB issued new accounting guidance to provide clarification on measuring liabilities at fair value when a quoted price in an active market is not available. This guidance is effective for the Company on October 1, 2009 and is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

Note 4 – Income Taxes

~~The~~NOL Company recognized a deferred tax asset of approximately $18.5 million as of September 30, 2009, primarily relating to net operating loss carry forwards of approximately $48.7 million, which expire through 2028. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. At present, the Company does not have a history of income to conclude that it is more likely than not that the Company will be able to realize all of its tax benefits; therefore, a valuation allowance of $18.5 million was established for the full value of the deferred tax asset. For the nine months ended September 30, 2009, the valuation allowance decreased by approximately $673,000, due to certain net operating losses expiring unused. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance net of appropriate reserves. Should the Company be profitable in future periods with supportable trends, the valuation allowance will be reversed accordingly.Limitations

The Company’s utilization of NOL carryforwards may be subject to an annual limitation due to ownership changes that have occurred previously or that could occur in the future as provided in Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as well as similar state and foreign provisions. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public group in the stock of a corporation by more than fifty percentage points over a three-year period. Since its formation, the Company has raised capital through the issuance of capital stock and various convertible instruments. The Company continually performs tests for ownership change under Section 382 and believes no ownership change, as defined by Section 382, has taken place as a result of transactions that have increased the ownership of certain stockholders.

The Company has not utilized any of its NOL carryforwards as it has never reported taxable income. The Company recognized deferred tax assets of approximately $19.5 million, primarily relating to net operating loss carry forwards of approximately $48.7 million at March 31, 2010. The losses expire through 2030. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. At present, the Company does not have a history of income to conclude that it is more likely than not that the Company will be able to realize all of its tax benefits; therefore, a valuation allowance of $19.5 million is established for the full value of the deferred tax assets at March 31, 2010. The valuation allowance decreased by $53,000 during the three months ended March 31, 2010 due to certain previous losses expiring unused. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance net of appropriate reserves. Should the Company be profitable in future periods with supportable trends, the valuation allowance will be reversed accordingly.

Note 5 – Stockholders’ Equity

During the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively, the Company ~~issued~~ 52issued 6,~~625~~666 and 1028,~~626~~125 shares of common stock valued at $~~10,000~~400 and $4,500 to members of the Board of Directors for attendance at meetings. These amounts were recorded as selling, general, and administrative expense.

~~During~~Note ~~the~~6 ~~nine~~– ~~months~~Notes ended September 30, 2009 and 2008, respectively, the Company issued 15,500 and 240,300 restricted common shares to Triton Value Partners valued at $3,255 and $119,616 as part of its 24-month engagement with the Company that expired in January 2009. These amounts were recorded as selling, general, and administrative expense.Payable

~~During~~In February 2010, the ~~nine~~Company ~~months~~completed ~~ended~~the ~~September~~sale ~~30,~~of ~~2009~~$746,295 ~~one~~of ~~Series~~Participation Interests A(“Participation ~~Convertible~~Interests”) ~~Preferred~~in a secured master promissory note ~~Stock~~(“Master ~~holder~~Note”) ~~converted~~and 16five-year warrants to purchase 14,~~000~~925,900 shares of ~~preferred~~ common stock ~~and~~at ~~was~~an ~~issued~~exercise ~~64,000~~price of $0.05 per share to accredited private ~~shares~~investors. The Master Note includes $646,295 of ~~common~~interest ~~stock~~and principal exchanged from past due notes payable originated on May 29, 2009.

~~During the nine months ended September 30, 2009, two Series B Convertible Preferred Stock holders converted 21 shares of preferred stock and were issued 42,000 shares of common stock.~~8

~~During the~~The ~~nine months ended September 30, 2008, two Series A Convertible Preferred~~net ~~Stock~~proceeds ~~holders~~of ~~converted~~this ~~40,000~~offering ~~shares~~will ofbe ~~their~~used ~~Preferred~~for ~~Stock~~working capital and ~~were~~general ~~issued~~corporate ~~160,000~~purposes. Important ~~shares~~terms of ~~common~~the ~~stock.~~Master Note include:

~~During~~ · The Master Note bears interest at the ~~nine~~rate ~~months~~of ~~ended~~12% ~~September~~per 30annum, ~~2008~~is payable December 31, ~~thirteen~~2010 ~~Series~~(“Maturity BDate”) ~~Convertible Preferred~~and ~~Stock~~can ~~holders~~be ~~converted~~pre-paid ~~415~~at ~~shares~~any oftime. ~~Preferred~~Accrued ~~Stock~~interest ~~and~~is ~~were~~payable ~~issued 830,000~~in ~~shares~~cash ofon ~~common~~the ~~stock~~Maturity Date.

~~Pursuant to~~· ~~the~~The ~~terms~~Maturity Date of the ~~Certificates~~Master ofNote ~~Designation~~may ofbe ~~Preferences,~~extended ~~Rights,~~by ~~and Limitations (~~the ~~“Certificates”)~~Company offor two 30-day periods. If the ~~Series~~Company Aelects ~~Convertible~~to ~~Preferred~~extend ~~Stock~~the Maturity Date, ~~Series~~ Bthe ~~Convertible~~Company ~~Preferred~~will ~~Stock,~~pay ~~Series~~a C5% ~~Convertible~~Extension ~~Preferred~~Fee ~~Stock~~at the conclusion of ~~Simtrol~~ each such 30-day Extension Period, ~~Inc.~~payable (at the ~~“Company”),~~option of the Company isin ~~required~~cash toor ~~pay~~the aCompany’s 4%common ~~semi-annual dividend~~stock. toIf the ~~holders~~Extension offee ~~its~~is ~~outstanding~~paid ~~shares~~in ofcommon ~~Series A~~stock, ~~Preferred Stock~~the ~~and~~common stock will be deemed to have a 6%value ~~semi-annual~~per ~~dividend~~share equal to ~~holders~~the greater of ~~its~~$0.375 ~~Series~~or Bthe ~~and~~10-day ~~Series~~simple ~~C Preferred~~average ~~Stock,~~of ~~respectively. The~~closing ~~Company~~prices ~~has~~on the ~~option~~Over toThe ~~pay these~~Counter ~~dividends~~Bulletin inBoard ~~cash~~(“OTCBB”) orfor inthe ~~shares~~10 oftrading ~~its~~days ~~common~~preceding ~~stock~~the date the payment is due.

· The ~~Company~~ ~~elected~~Master toNote ~~pay~~is ~~the~~secured ~~June~~by ~~30,~~all ~~2009~~of ~~dividends in~~ the ~~form~~Company’s ofcash ~~common~~and ~~stock valued~~cash atequivalents, ~~$0.75~~accounts ~~per~~and ~~common~~notes ~~share~~receivable, ~~for~~prepaid ~~the~~assets, ~~Series A Preferred Stock~~ and $0equipment.~~375~~ ~~per common~~The ~~share~~Master ~~for~~Note ~~the Series B~~ and ~~Series~~Participation CInterests ~~Preferred~~will ~~Stock,~~be ~~per~~convertible ~~the~~into ~~terms~~equity ofsecurities ~~the Certificates. Based~~ on ~~this value,~~ the ~~Company~~following ~~issued~~terms:

~~(i)~~· ~~107~~If the Company closes a “Qualifying Next Equity Financing” before the Maturity Date,~~629~~ the then-outstanding balance of principal and accrued interest on the Master Note will automatically convert into shares of ~~common~~the ~~stock~~“Next toEquity Financing Securities” the ~~Series~~Company Aissues. ~~shareholders~~“Next ~~(672~~Equity Financing Securities” means the type and class of equity securities that the Company sells in a Qualifying Next Equity Financing or a Non-Qualifying Next Equity Financing. If the Company sells a unit comprising a combination of equity securities,~~664~~ ~~Series~~then Athe Next Equity Financing Securities shall be deemed to constitute that unit. Upon conversion, the Company would issue that number of shares ~~issued~~of ~~and~~Next Equity Financing Securities equal the quotient obtained by dividing the then-outstanding onbalance ~~that~~of ~~date);~~principal and accrued interest on the Master Note by the price per share of the Next Equity Financing Securities.

~~(ii)~~· ~~511~~If the Company closes a “Non-Qualifying Next Equity Financing” before the Maturity Date,~~680~~ ~~shares~~the then-outstanding balance of ~~common~~principal ~~stock~~and toaccrued interest represented by a Participation Interest can be converted, at the ~~Series~~option Band ~~shareholders~~election (4of the investor,~~286~~ into shares ~~issued~~of ~~and~~the ~~outstanding~~“Next onEquity ~~that~~Financing ~~date)~~Securities” the Company issues.

· A “Qualifying Next Equity Financing” means the first bona fide equity financing (~~iii~~or series of related equity financing transactions) ~~664,040~~occurring ~~shares~~subsequent to the date of ~~common~~issue ~~stock~~of tothe Master Note in which the ~~Series~~Company Csells ~~shareholders~~and issues any securities for total consideration totaling not less than $2.0 million in the aggregate (~~5,534~~including ~~shares~~the ~~issued~~principal balance and ~~outstanding~~accrued but unpaid interest to be converted on ~~that~~all ~~date~~our outstanding Participation Interests in the Master Note) at a price per share for equivalent shares of common stock that is not greater than $0.05 per share.

~~The Company~~· ~~elected~~A to“Non-Qualifying ~~pay~~Next Equity Financing” means that the ~~June~~Company ~~30,~~completes ~~2008~~a ~~dividends~~bona infide ~~the~~equity ~~form~~financing ofbut ~~common~~fails ~~stock valued~~to raise total consideration of at least $02.750 ~~and~~million, ~~0.375~~or ~~per~~the ~~common~~price per share, ~~per~~for ~~the~~equivalent ~~terms~~shares of ~~the Certificates. Based~~common onstock ~~this~~is ~~value,~~greater ~~the~~than ~~Company issued~~$0.05 per share.

The Investor Warrants have a term ending on the earlier to occur of (i) the fifth anniversary of the Investor Warrant issue date; or (ii) the closing of a change of control event. The Investor Warrants will have a cashless exercise feature and anti-dilution provisions that adjust both the exercise price and quantity if subsequent equity offerings are completed where the Company issues common stock at a lower effective price per share than the exercise price. The Investor Warrants were valued using the Black-Scholes option pricing model and the following assumptions:

Assumptions

Risk-free rate		2.38	%
Annual rate of dividends		0
Volatility		110.8	%
Average life	5 years

The fair value of the warrants, $594,918, was classified as a discount on the notes payable issued during February 2010, and are classified as derivative liabilities due to their re-pricing provisions. The amount will be amortized over the life of the notes and $108,167 was amortized as finance expense during the three months ended March 31, 2010. See Note 10.

The fair value of the conversion feature of the notes payable, $302,356, was also determined using Black-Scholes option pricing model and the following assumptions:

Assumptions

Risk-free rate		0.33	%
Annual rate of dividends		0
Volatility		110.8	%
Term of notes	11 months

The fair value of the conversion feature of the notes payable was recorded as a derivative liability due to the re-pricing provision and $151,377 of the fair value was classified as a debt discount and will be amortized over the life of the notes. Amortization totaling $27,524 was charged as additional finance expense in the three months ended March 31, 2010 for the conversion feature option of the debt. The balance of the fair value of $150,979 was recorded as an additional finance expense because the fair value of the conversion feature and the warrants exceeded the face value of the notes payable. See Note 10.

Pursuant to the terms of the Certificates of Designation of Preferences, Rights, and Limitations (the “Certificates”) of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, and Series C Convertible Preferred Stock of the Company, the issuance of the convertible notes payable with $0.05 conversion price represents a Dilutive Issuance and adjusts the Conversion Shares of each class of Convertible Preferred Stock as follows:

Series A changes from 4 shares common per one share of preferred to 6.1 shares common

Series B changes from 2,000 shares common per one share of preferred to 3,066 shares common

Series C changes from 2,000 shares common per one share of preferred to 3,066 shares common

The common share equivalents represented by the three Series of Convertible Preferred Stock as of March 31, 2010, therefore, increased as follows:

Series A from 2,690,656 to 4,103,250

Series B from 8,528,000 to 13,073,424

Series C from 11,068,000 to 16,967,244

The fair value of the increased number of common shares resulting from the change in conversion rates of $592,863 was recorded as a deemed preferred dividend in the three months ended March 31, 2010.

~~(iv)~~Note 7 ~~220,375~~- ~~shares of common stock to the Series A shareholders (688,664 Series A shares issued and outstanding on that date) The Company erroneously issued holders of Series A Preferred~~ Stock ~~common~~Based stock dividends on September 30, 2008 with a value of $0.375 per share. As a result, the holders were issued twice the number of common shares to which they were entitled in payment of the September 30, 2008 dividend and no additional shares were issued on December 31, 2008; andCompensation

On January 1, 2006, the Company adopted, using the modified prospective application, ASC 718, “Compensation-Stock Compensation” (v“ASC 718”), ~~521~~which requires all share-based payments to employees,~~160~~ ~~shares~~including grants of ~~common~~ employee stock options, to be recognized in the ~~Series~~financial Bstatements ~~shareholders~~based (4on their fair values. Under ASC 718,~~343~~ ~~shares~~share-based ~~issued~~payment ~~and~~awards ~~outstanding~~result onin a cost that will be measured at fair value on the awards’ grant date) based on the estimated number of awards that are expected to vest. Compensation costs for awards that vest will not be reversed if the awards expire without being exercised.

On April 17, 2009, in conjunction with the termination of the Company’s private placement of Series C Convertible Preferred Stock and warrants begun in 2008, the Company issued Gilford Securities as a placement fee, as underwriter, warrants to purchase 181 units represented by the offering. The 181 units include 181 shares of Series C Convertible Preferred Stock and warrants to purchase 362,000 share of common stock (2,000 shares of common stock for each share of Series C Convertible Preferred stock) at an exercise price of $0.375 per share. The unit exercise price is $750 per unit and the warrants to purchase the units have five-year terms. The estimated fair value of the warrants to purchase the 181 units is approximately $97,000 on the date of issuance using the Black Scholes valuation model for the warrant.

Note 6 - Stock Based Compensation

On January 1, 2006, the Company adopted, using the modified prospective application of ASC 718,”Compensation-Stock Compensation”, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Under ASC 718, share-based payment awards result in a cost that will be measured at fair value on the awards’ grant date based on the estimated number of awards that are expected to vest. Compensation costs for awards that vest will not be reversed if the awards expire without being exercised.

Equity-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized over the vesting periods. The expenses are included in selling, general, and administrative or research and development expense depending on the grant recipient.

~~Under ASC 718, share-based payment awards result in a cost that will be measured at fair value on the awards’ grant date based on the estimated number of awards that are expected to vest.~~ Compensation costs for awards that vest will not be reversed if the awards expire without being exercised. Stock compensation expense under ASC 718 was $~~137~~124,~~700~~208 and $~~205~~223,~~401~~660 during the three months ended ~~September~~ 30March 31, ~~2009~~2010 and ~~2008~~2009, respectively. Of these totals, $26109,~~158~~ 139 and $41178,~~801were~~049 ~~classified as research~~ and ~~development expense and~~ $~~111~~15,~~542~~069 and $~~163~~45,~~600~~611 were classified as selling, general, and administrative expense ~~for the three months ended September 30, 2009~~ and ~~2008, respectively. Stock~~ ~~compensation expense under SFAS 123R was $562,387 and $648,969 during the nine months ended September 30, 2009 and 2008, respectively. Of these totals $116,751 and $129,527 were classified as~~ research and development expense ~~and~~ ~~$446,636 and $519,442 were classified as selling, general, and administrative expense~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~ 2010 and ~~2008~~2009, respectively.

The Company uses historical data to estimate option exercise and employee termination ~~data~~ within the valuation model and historical stock prices to ~~estimate~~ estimate volatility. The fair value for options to purchase ~~150~~785,000 ~~and~~ 2and 150,~~856,500~~000 shares issued during the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008,~~ 2009, respectively, were estimated at the date of grant using a Black-Scholes option-pricing model to be $1727,~~603~~299 and $~~949~~17,~~299~~603, with the following weighted-average assumptions.

	For the three months ended September 30,						For the Nine months ended September 30,
	For the three months ended March 31,
Assumptions	~~2009~~2010		~~2008~~		2009		~~2009~~			~~2008~~
Risk-free rate	~~None granted~~	1.44	%	~~2.70-3.00~~	%	1.90	%	~~1.90~~	%		~~2.57-3.67~~	%
Annual rate of dividends		0	%	0	%	0	%	0	%		0	%
Volatility		113.4	%	~~111-115~~	%	107.8	%	~~107.8~~	%		~~111-131~~	%
Average life	3.6 years		~~5 years~~		5 years		~~5 years~~			~~5 years~~

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

A summary of option activity under the Company’s 1991 Stock Option Plan and the Company’s 2002 Equity Incentive Plan as of March 31, 2010 and changes during the three months then ended are presented below:

				Weighted- Average		Weighted-Average Remaining
	Shares			Exercise Price		Term (in years)
Outstanding January 1, 2010		6,894,700		$	0.67
Granted		785,000		$	0.05
Exercised		-		$	-
Terminated		-		$	-
Expired		(250	)	$	4.70
Forfeited		(156,000	)	$	0.53
Outstanding at March 31, 2010		7,523,450		$	0.62		6.8
Exercisable at March 31, 2010		5,210,112		$	0.68		6.1

The weighted-average grant-date fair values of options granted during the three months ended March 31, 2010 and 2009 were $0.04 and $0.12, respectively. No options were exercised during the three months ended March 31, 2010.

AAs ~~summary~~of March 31, 2010, there was $379,225 of ~~option~~total ~~activity~~unrecognized ~~under~~compensation ~~the~~cost related ~~Company’s~~to ~~1991~~non-vested ~~Stock~~share-based ~~Option~~compensation ~~Plan~~arrangements ~~and~~granted ~~the~~under ~~Company’s~~the 2002 Equity Incentive Plan. That ascost ofis ~~September~~expected ~~30,~~to ~~2009~~be ~~and~~recognized over ~~changes~~a ~~during~~weighted ~~the~~average ~~nine months~~period ~~then~~of ~~ended~~1.25 ~~are presented below:~~years.

				Weighted- Average		Weighted-Average Remaining
	Shares			Exercise Price		Term (in years)
Outstanding January 1, 2009		7,420,950		$	0.67
Granted		150,000		$	0.15
Exercised		-		$	-
Forfeited		(569,000	)	$	0.43
Outstanding at September 30, 2009		7,001,950		$	0.68		7.0
Exercisable at September 30, 2009		3,941,497		$	0.69		6.0

At March 31, 2010, 17,378,050 options remain available for grant under the 2002 Equity Incentive Plan. No options are available to be issued under the 1991 Stock Option Plan.

~~The~~On ~~weighted-average~~January ~~grant-date~~18, ~~fair~~2010, ~~values~~the ofCompany granted options ~~granted~~to ~~during~~purchase ~~the~~785,000 ~~nine~~shares of ~~months~~stock ~~ended~~to ~~September~~six ~~30,~~employees ~~2009~~with ~~and~~an ~~2008~~exercise ~~were~~price ~~$0.12~~equal ~~and~~to ~~$0.33,~~the fair market value of ~~respectively. No~~the ~~options~~stock ~~were~~on ~~exercised~~that ~~during~~date. The shares vest on the ~~nine~~one-year ~~months~~anniversary ~~ended~~of ~~September~~the ~~30,~~grant ~~2009~~date.

~~As of~~Note ~~September 30, 2009, there was $707,733 of total unrecognized compensation cost related to non~~8-~~vested~~ ~~share-based~~Major ~~compensation arrangements granted under the 2002 Equity Incentive Plan. That cost is expected to be recognized over a weighted average period of 1.4 years.~~Customers

AtRevenue ~~September~~from ~~30,~~three ~~2009,~~customers ~~899,800~~comprised ~~options~~95% ~~remain~~of ~~available~~consolidated revenues for ~~grant under~~ the ~~2002~~three months ~~Equity~~ended ~~Incentive~~March ~~Plan~~31, 2010. No ~~options~~At ~~are~~March ~~available~~31, to2010, berelated ~~issued~~accounts ~~under~~receivable of $22,650 ~~the~~from ~~1991~~one ~~Stock~~of ~~Option~~these ~~Plan~~three customers comprised 91% of consolidated receivables.

~~On March~~Revenue 9,from ~~2009,~~four ~~the~~customers ~~Company~~comprised ~~executed~~91% ~~a license agreement with ACIS, Inc. ("ACIS"), that significantly expanded the scope~~ of ~~the~~consolidated ~~Company's~~revenues ~~rights to certain ACIS technology. Pursuant to the agreement, ACIS granted to the Company the right, in perpetuity, to use and modify the ACIS technology on a royalty-free basis~~ for ~~all future Company products, without restrictions regarding~~ the ~~underlying~~ ~~platform. As~~three ~~consideration for the rights to the ACIS~~months ~~technology,~~ended ~~the~~March ~~Company granted to ACIS nonqualified options to purchase 150~~31,~~000 shares~~ ~~of Company common stock at an exercise price of $0~~2009.15 per share, with immediate vesting. The Black Scholes option valuation model was used to calculate the estimated fair value of $17,601, which was recorded as stock-based compensation in selling, general, and administrative expense. The license agreement replaces and supersedes the license agreement dated September 27, 2001, under which the Company had been required to pay per-unit royalties for use of the ACIS technology, which was restricted to a single specified platform.

Note 7-9 ~~Major~~– ~~Customers~~Intangibles

~~Revenue~~In ~~from~~conjunction ~~three~~with ~~customers~~the ~~comprised~~purchase ~~78%~~of the Integrated Digital Systems (“IDS”) interest in Justice Digital Solutions, LLC (“JDS”) in November 2006, the Company recorded an intangible asset of $130,000 on November 28, 2006, representing the fair value of 500,000 shares of common stock paid and ~~revenue~~payable ~~from~~to ~~two~~IDS, ~~customers~~to ~~comprised~~reflect ~~88%~~the value of ~~consolidated~~the ~~revenues~~license ~~for~~to use the ~~three~~OakVideo ~~months~~Software. Prior ~~ended~~to ~~September~~December 31, 302008, ~~2009~~the ~~and~~amount was being amortized over the estimated remaining life of the license agreement for JDS’ use of the OakVideo software through October 2015. At December 31, 2008, the Company recorded an impairment charge ~~respectively~~of $76,782 to reduce the value of the intangible to the amount of gross profit anticipated from purchase orders previously received for the Company’s Curiax Arraigner software. At ~~September~~March 3031, 2009, ~~related~~the ~~accounts~~Company ~~receivable~~recorded ofan impairment charge of $1118,~~928~~499 ~~from~~to ~~these~~reduce ~~customers~~the ~~comprised~~value ~~23%~~of the intangible to the amount of ~~consolidated~~gross profit anticipated for one remaining purchase order for sale of the ~~receivables~~Company’s Curiax Arraigner software. This installation has not yet been completed The charge during the three months ended March 31, 2009 equaled the approximate gross profit on the revenue recorded for a Curiax Arraigner sale made during the three months ended March 31, 2009. Due to difficulties in gaining end user acceptance of the product, the Company is unable to estimate whether any additional future sales of the product will take place.

~~Revenue~~Note ~~from three~~10 ~~customers~~– ~~comprised 71% and revenue from two customers comprised 83% of consolidated revenues for the nine months ended September 30, 2009 and 2008, respectively.~~Derivatives

In September 2008, the FASB finalized Update ASC 815-40, “Derivatives and Hedging”, “Contracts in an Entity’s Own Equity”. Under the update, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The warrants issued to a placement agent and investors in 2005 (“2005 Warrants”) do not have fixed settlement provisions because their exercise prices, may be lowered if the Company issues securities at lower prices in the future. Also, convertible notes and warrants issued to investors in a private placement of convertible notes and warrants on May 29, 2009 (“2009 Warrants”) do not contain fixed settlement provisions. (See Note 6). In accordance with the update, the Placement Agent Warrants and 2005 Warrants were re-characterized as derivative liabilities in 2009 and the 2009 Warrants were classified as derivative liabilities. The update requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

On February 1, 2010, in accordance with the anti-dilution provisions of the 2005 Warrants to purchase 1,233,691 shares of common stock, warrant holders had the exercise prices of the warrants adjusted from $0.375 per share to $0.05 per share. Also, in accordance with the anti-dilution provisions of certain warrants to purchase 2,998,667 shares of common stock that were issued on May 29, 2009, warrants to purchase an additional 19,491,336 shares of common stock were issued to these holders and their exercise prices were adjusted from $0.375 to $0.05 per share. A finance expense charges of $17,168, was recorded on that date to reflect the fair value of the exercise price adjustments to the 2005 Warrants. A finance expense charge of $788,812 was recorded on that date to reflect the fair value of the quantity and exercise price adjustments to the 2009 Warrants. In conjunction with the notes payable issued during February 2010, the Company issued warrants to purchase 14,925,900 shares of common stock with an exercise price of $0.05 (“2010 Warrants”). The exercise price of these warrants adjusts downward if the Company issues any future convertible debt or equity instruments with exercise prices lower than $0.05. See Note 6.

The notes payable issued by the Company in February 2010 are classified as short-term derivative liabilities due to the re-pricing mechanism in the note terms and the December 31, 2010 due date of the notes.

~~Note~~The 8Derivative –Warrants ~~Intangibles~~and Notes Payable conversion feature were valued using the Black-Scholes option pricing model and the following assumptions:

In conjunction with the purchase of the Integrated Digital Systems (“IDS”) interest in Justice Digital Solutions, LLC (“JDS”) in November 2006, the Company recorded an intangible asset of $130,000 on November 28, 2006, representing the fair value of 500,000 shares of common stock paid and payable to IDS, to reflect the value of the license to use the OakVideo Software. In accordance with the purchase agreement, 100,000 shares of the Company’s common stock were issued to IDS on November 22, 2008 and the final issuance of 100,000 shares is due on November 22, 2009. Prior to December 31, 2008, the amount was being amortized over the estimated remaining life of the license agreement for JDS’ use of the OakVideo software through October 2015. At December 31, 2008, the Company recorded an impairment charge of $76,782 to reduce the value of the intangible to the amount of gross profit anticipated in the year ending December 31, 2009 from purchase orders previously received for the Company’s Curiax Arraigner software. During the nine months ended September 30, 2009, the Company recorded an impairment charge of $18,499 to reduce the value of the intangible to the amount of gross profit anticipated in the remainder of 2009 on sales of the Company’s Curiax Arraigner software from previously received purchase orders. The charge during the nine months ended September 30, 2009 equaled the approximate gross profit on the revenue recorded for a Curiax Arraigner sale made during the nine months ended September 30, 2009. Due to difficulties in gaining end user acceptance of the product, the Company is unable to estimate whether any additional future sales of the product will take place. Amortization during the nine months ended September 30, 2008 totaled $7,428. No impairment charge occurred during the three months ended September 30, 2009.

				Dec. 31,
	March 31, 2010			2009
2005 Warrants:
Risk-free rate		0.16	%		0.20	%
Annual rate of dividends		0			0
Volatility		107.7	%		113.4	%
Weighted Average life (years)		0.25			0.5

2009 Warrants:
Risk-free rate		2.55	%		2.69	%
Annual rate of dividends		0			0
Volatility		107.7	%		113.4	%
Weighted Average life (years)		4.2			4.4

2010 Warrants:
Risk-free rate		2.55	%		-
Annual rate of dividends		0			-
Volatility		107.7	%		-
Weighted Average life (years)		4.8			-

2010 Convertible Notes Payable
Risk-free rate		0.40			-
Annual rate of dividends		0			-
Volatility		107.7	%		-
Weighted Average life (years)		0.75			-

Fair Value	$	2,143,430		$	136,749

~~Note~~ASC 9815-40 –was ~~Derivatives~~implemented in the first quarter of 2009 and is reported as the cumulative effect of a change in accounting principles. At January 1, 2009, the cumulative effect on the accounting for the warrants was recorded as decrease in additional accumulated deficit by $1,599,708. The difference was recorded as derivative liability for $110,663. At March 31, 2009, derivative liability associated with the Placement Agent and 2005 Warrants were revalued, the $59,200 decrease in the derivative liability at March 31, 2009 is included as other income in the Company’s condensed consolidated statement of operations for the quarter ended March 31, 2009.

~~In September~~At ~~2008~~March 31, ~~the FASB finalized Update ASC 815-40~~2010, ~~“Derivatives and Hedging”, “Contracts in an Entity’s Own Equity”. Under~~ the ~~update,~~ ~~instruments which do not have fixed settlement provisions are deemed to be~~ derivative ~~instruments.~~liability ~~The~~associated ~~warrants~~with ~~issued to a placement agent in 2004 (“Placement Agent Warrants”) and~~ the ~~placement agent and investors in~~ 2005 ~~(“2005~~ Warrants”), ~~do not have fixed settlement provisions because their exercise~~2009 ~~prices~~Warrants, ~~may~~2010 beWarrants ~~lowered~~and if the ~~Company~~conversion ~~issues~~feature ~~securities~~of ~~at lower prices in~~ the ~~future. The~~ ~~2004~~notes ~~Placement~~payable ~~Agent Warrants expired on various dates~~were ~~during the nine months ended September 30~~revalued, ~~2009~~ and ~~none~~the ~~were outstanding on that date. Also~~$303,426 ~~convertible~~increase ~~notes and warrants issued to investors~~ in athe ~~private~~derivative ~~placement~~liability ofat ~~convertible~~March ~~notes and warrants on May 29~~31, ~~2009 (“2009~~ ~~Warrants”)~~2010 dois ~~not~~included ~~contain fixed settlement provisions. See Note 11. In accordance with the update, the Placement Agent Warrants and 2005 Warrants have been re-characterized~~ as ~~derivative~~other ~~liabilities~~expense ~~and~~in the ~~2009~~ ~~Warrants~~Company’s ~~classified~~condensed ~~as derivative liabilities. The update requires that the~~consolidated ~~fair~~statement ~~value~~ of ~~these~~operations ~~liabilities~~for ~~be re-measured at~~ the ~~end~~quarter ofended ~~every~~March ~~reporting period~~31, ~~with the change in value reported in the statement of operations~~2010.

~~The~~Note ~~Derivative~~11 ~~Warrants were valued using the Black~~-~~Scholes~~ ~~option~~Fair ~~pricing~~Value ~~model and the following assumptions:~~Measurement

	September 30, 2009			January 1, 2009			Date of Issuance
Placement Agent Warrants:
Risk-free rate		-			0.37	%		3.38-3.97	%
Annual rate of dividends		-			0			0
Volatility		-			109.9	%		169-171	%
Weighted Average life (years)		-			0.3			5
2005 Warrants:
Risk-free rate		0.40	%		0.76	%		3.98	%
Annual rate of dividends		0			0			0
Volatility		91.0	%		109.9	%		134.3	%
Weighted Average life (years)		0.8			1.5			5
2009 Warrants:
Risk-free rate		2.31	%		-			2.34	%
Annual rate of dividends		0			-			0
Volatility		91.0	%		-			108.8	%
Weighted Average life (years)		4.7			-			5.0
Fair Value	$	380,188		$	110,663		$	2,161,141

The derivative liability amounts reflect the fair value of each derivative instrument as of the January 1, 2009 date of implementation.

ASC 815-40 was implemented in the first quarter of 2009 and is reported as the cumulative effect of a change in accounting principles. At January 1, 2009, the cumulative effect on the accounting for the warrants was recorded as decrease in additional accumulated deficit by $1,599,708. The difference was recorded as derivative liability for $110,663. At September 30, 2009, the derivative liability associated with the Placement Agent Warrants and 2005 Warrants were revalued, the $88,497 decrease in the derivative liability at September 30, 2009 is included as other income in the Company’s condensed consolidated statement of operations for the three months ended September 30, 2009. The fair value of the 2009 Warrants was estimated at $350,030 at the date of issuance and this amount was classified as a derivative liability. The 2009 Warrants were revalued as of September 30, 2009 and the $194,253 decrease in the value of the derivative liability is included as other income in the Company’s condensed consolidated statement of operations for the three months ended September 30, 2009.

Note 10 - Fair Value Measurement

Valuation Hierarchy

ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of ~~September~~March 3031, ~~2009~~2010:

			Fair Value Measurements at September 30, 2009
	Total Carrying Value at September 30, 2009		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liabilities	$	380,188	$	-	$	-	$	380,188

			Fair Value Measurements at March 31, 2010
	Total Carrying Value at March 31, 2010		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Derivative liabilities	$	2,143,430	$	-	$	-	$	2,143,430

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock, and are classified within Level 3 of the valuation hierarchy.

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2009			2008			2009			2008
	2010			2009
Beginning balance	$	(~~662~~136,~~939~~749	)	$	-(110,663	)	$	~~(110,663~~	)	$	-
Net unrealized gain on derivative financial instruments		282,751			-			181,245			-
Net unrealized (loss)/gain on derivative financial instruments		(303,426	)		59,200
New derivative liabilities issued		-(1,703,255	)		-			~~(450,770~~	)
Ending balance	$	(~~380~~2,~~188~~143,430	)	$	-(51,463	)	$	~~(380,188~~	)	$	-

Note 11 – Notes Payable

On May 29, 2009, the Company completed the sale of $562,250 of Participation Interests (“Participation Interests”) in a secured master promissory note (“Master Note”) and five-year investor warrants to purchase 2,998,667 shares of common stock at an exercise price of $0.375 per share to accredited private investors.

The net proceeds of $537,329 from this offering will be used for working capital and general corporate purposes. Important terms of the Master Note include:

· The Master Note bears interest at the rate of 22% per annum, is payable Nine months from the issue date (“Maturity Date”) and can be pre-paid at any time. Accrued interest is payable in cash on the Maturity Date.

· The Maturity Date of the Master Note may be extended by the Company for two 30-day periods. If the Company elects to extend the Maturity Date, the Company will pay a 5% Extension Fee at the conclusion of each such 30-day Extension Period, payable at the option of the Company in cash or the Company’s common stock.

· The Master Note is secured by all of the Company’s cash and cash equivalents, accounts receivable, prepaid assets, and equipment. The Master Note and Participation Interests will be convertible into equity securities on the following terms:

· If the Company closes a “Qualifying Next Equity Financing” before the Maturity Date, the then-outstanding balance of principal and accrued interest on the Master Note will automatically convert into shares of the “Next Equity Financing Securities” the Company issues. “Next Equity Financing Securities” means the type and class of equity securities that the Company sells in a Qualifying Next Equity Financing or a Non-Qualifying Next Equity Financing. If the Company sells a unit comprising a combination of equity securities, then the Next Equity Financing Securities shall be deemed to constitute that unit. Upon conversion, the Company would issue that number of shares of Next Equity Financing Securities equal the quotient obtained by dividing the then-outstanding balance of principal and accrued interest on the Master Note by the price per share of the Next Equity Financing Securities.

· If the Company closes a “Non-Qualifying Next Equity Financing” before the Maturity Date, the then-outstanding balance of principal and accrued interest represented by a Participation Interest can be converted, at the option and election of the investor, into shares of the “Next Equity Financing Securities” the Company issues.

· A “Qualifying Next Equity Financing” means the first bona fide equity financing (or series of related equity financing transactions) occurring subsequent to the date of issue of the Master Note in which the Company sells and issues any securities for total consideration totaling not less than $2.0 million in the aggregate (including the principal balance and accrued but unpaid interest to be converted on all our outstanding Participation Interests in the Master Note) at a price per share for equivalent shares of common stock that is not greater than $0.375 per share.

· A “Non-Qualifying Next Equity Financing” means that the Company completes a bona fide equity financing but fails to raise total consideration of at least $2.0 million, or the price per share for equivalent shares of common stock is greater than $0.375 per share.

At any time prior to payment in full of this Note, an Investor may convert all, but not less than all, of such Investors interest in this Note (as represented by such Investor’s Participation Interest) into that number of Series C Preferred Stock Units equal to (A) the principal balance plus accrued but unpaid interest hereunder due and payable to the investor in accordance with such Investor’s Participation Interest, divided by (B) $750. Each Series C Preferred Stock Unit comprises one share of our Series C Convertible Preferred Stock and detachable five-year warrants (“Series C Warrants”) to acquire 2,000 shares of our common stock at an exercise price of $0.375 per share.

The Investor Warrants have a term ending on the earlier to occur of (i) the fifth anniversary of the Investor Warrant issue date; or (ii) the closing of a change of control event. The Investor Warrants have a cashless exercise feature and anti-dilution provisions that adjust both the exercise price and quantity if subsequent equity offerings are completed where Simtrol issues common stock at a lower effective price per share than the exercise price. The Investor Warrants were valued using the Black-Scholes option pricing model and the following assumptions:

Assumptions
Risk-free rate		2.34	%
Annual rate of dividends		0
Volatility		108.8	%
Average life	5 years

The fair value of the warrants, $450,770, was classified as a discount on the notes payable issued on May 29, 2009. This amount will be amortized over the life of the convertible notes and $224,167 and $304,575 was amortized as a financing expense during the three and nine months ended September 30, 2009. $31,177 and $42,361 of interest payable was accrued during the three and nine months ended September 30, 2009.

Note 12 – Subsequent Event

On October 23, 2009, the Company assigned ownership of its Simtrol Visitor™ and Simtrol Scheduler™ software (“Software”) to Strike Industries, Inc., a Florida corporation, (“Strike”) granting Strike the right to modify, advertise, promote, market, and license the software in exchange for $100,000 cash and a $400,000 note payable with the following terms:

· 60 month-term

· 6% simple interest calculated on an annual basis

· Minimum payment of $6,000 per quarter

· Note secured by the Software

Simtrol will be due a software royalty for sales of Visitor and Scheduler as follows:

Until the note is fully paid, the royalty will be 45% of net Software revenues earned by Strike. Upon payment in full of the note, the royalty will be 10% of net Software revenues.

In the event that the Strike sells, assigns or otherwise liquidates the Software, derivative works or other applications utilizing the Company’s Device ManagerTM software, the Company will receive 10% of the proceeds resulting from such an event.

On November 6, 2009, the Company received notification of a compliant draw on its standby letter of credit from its landlord on its office space lease totaling $53,476, representing the past due rent on the office space for the four months of August through November 2009, including late fees. The funds were withdrawn, without penalty, from the restricted certificate of deposit collateralizing the standby letter of credit on November 9, 2009.

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

The following discussion highlights the material factors affecting our results of operations and the significant changes in the balance sheet items. The notes to our condensed consolidated financial statements included in this report and the notes to our consolidated financial statements included in our Form 10-K for the year ended December 31, ~~2008~~2009 should be read in conjunction with this discussion and our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions 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 periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

16· Revenue recognition. We follow the guidance of the ASC 605-10-599 which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured. Certain judgments affect the application of its revenue policy. Revenue consists of the sale of device control software and related maintenance contracts on these systems. Revenue on the sale of hardware is recognized upon shipment. The Company generally recognizes revenue from Device ManagerTM software sales upon shipment as it sells the product to audiovisual integrators, net of estimated returns and discounts. Revenue on maintenance contracts is recognized over the term of the related contract.

· Revenue recognition. We follow the guidance ASC 605-10-599 for revenue recognition. We adhere strictly to the criteria outlined in ASC 605-10-599, which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured. Certain judgments affect the application of our revenue policy. Revenue consists of the sale of device control software and related maintenance contracts on these systems. Revenue on the sale of hardware is recognized upon shipment. We recognize revenue from Device ManagerTM software sales upon shipment as we sell the product to audiovisual integrators, net of estimated returns and discounts. Revenue on maintenance contracts is recognized over the term of the related contract.14

· Capitalized software ~~and research and~~ development costs. Our policy on capitalized software ~~and research and~~ development costs determines the timing of our recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or is capitalized. Software development costs incurred after technological feasibility has been established are capitalized and amortized, commencing with product release, using the greater of the income forecast method or on a straight-line basis over the useful life of the product. Management is required to use professional judgment in determining whether research and development costs meet the criteria for immediate expense or capitalization. We did not capitalize any software and research and development costs during either ~~2009~~2010 or ~~2008~~2009 and all assets were fully amortized by December 31, 2006. Our research and development efforts during ~~2008~~2009 and ~~2009~~2010 primarily involved product improvements to our Device Manager and Video Visitation products to improve their functionality and ease of use for end users.

· Impairment of Long-Lived Assets. We record impairment losses on assets when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions. We recorded an impairment of approximately $18,000 in the ~~nine~~three months ended ~~September~~March 3031, 2009 to lower the carrying value of our right to license intellectual property based on estimated future gross profit from sales of our Curiax Arraigner software product and due to sales that occurred during the period. No impairment was recorded in the ~~nine~~three months ended ~~September~~March 3031, ~~2008~~2010. See Note 89 to our condensed consolidated financial statements.

· Derivative Financial Instruments. We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks and we evaluates all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on the term of the underlying derivative instrument. See Note 910 to our condensed consolidated financial statements.

FINANCIAL CONDITION

During the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010, total current assets decreased approximately 847% to $~~191~~86,~~650~~271 from $193,~~235,841~~049 at December 31, ~~2008~~ 2009. The decrease in assets was primarily due to the ~~approximate~~ approximately $197,~~424,~~000 of cash used to fund operations during the period.

Total ~~current~~ liabilities increased $~~566~~1,~~474 or 204%~~636,848 ~~due~~during ~~primarily to~~ the ~~issuance~~three ~~of convertible~~months ~~notes~~ended ~~payable~~March ~~on May 29~~31, ~~2009~~2010 due inprimarily ato ~~financing~~the ~~transaction~~classification asof ~~well~~investor ~~as increases~~warrants inissued ~~accounts~~during ~~payable~~the quarter ~~and~~as ~~accrued~~long-term ~~expenses~~derivative ~~during the period~~liabilities.

See Note 2 to the unaudited condensed consolidated financial statements regarding the Company’s going concern uncertainty. The Company needs to raise additional working capital during the fourth quarter 2009 or early in 2010 to fund ongoing operations and growth and has commenced efforts to raise additional capital through a private placement of debt securities and warrants and issued $562,250 of convertible notes on May 29, 2009. The Company can raise up to $1.5 million in the private placement under the current terms if market conditions allow. No assurance can be given that the Company will be successful in raising this capital and, in order to reduce cash used from operations, the Company has terminated and furloughed employees as well as reducing salaries of all personnel by 50% effective August 14, 2009.

The Company does not have any material off-balance sheet arrangements.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2009 and 2008

Revenues

Revenues were $~~106~~92,~~940~~219 and $~~120~~251,~~575~~287 for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008,~~ 2009, respectively. The ~~decreased~~63% ~~revenues~~decrease offor ~~$13,635 during~~ the ~~current~~ ~~year~~three ~~were~~months ~~due~~ended ~~primarily~~March to31, ~~decreased~~2010 ~~software~~was ~~license revenues of~~due ~~$41,854,~~primarily asto wetwo ~~recognized~~large ~~our~~sales ~~first~~of ~~license~~Curiax ~~revenues~~Arraigner ~~from~~and ~~our~~Curiax ~~video~~Court ~~visitation~~Recording software ~~during~~and ~~the~~hardware ~~three~~revenues ~~months~~in ~~ended~~conjunction ~~September~~with ~~30,~~a ~~2008. The increased~~sale ~~service~~at ~~revenue~~one ofcounty ~~$28~~last year,~~219~~ inas ~~the~~well ~~current~~as ~~period~~two ~~was~~larger ~~due~~installations ~~primarily~~in ~~to programming~~the ~~service~~education ~~revenue~~market. ~~from~~Both ~~three customers for which the Company provided~~sales ~~outsourced~~involved ~~software~~significant ~~development~~amounts ~~services,~~of inlower ~~order~~margin ~~to reduce the Company’s cash used from operations~~hardware. The effects of inflation and changing prices on revenues and loss from operations during the periods presented have been de minimus. Due to our small customer base, we face the risk of fluctuating revenues should any of our customers discontinue using our products.

Cost of Revenues and Gross Profit

Cost of revenues ~~increased~~decreased $991,~~249~~731, or 4085%, for the three months ended ~~September~~March 3031, ~~2009~~2010 compared to the three months ended ~~September~~March 3031, ~~2008~~2009 due primarily to ~~the~~hardware ~~increased~~costs ~~service~~associated ~~revenues~~with ~~during~~ the ~~current~~Curiax ~~period,~~Arraigner asand Court Recording sales above as these sales involved a high mix of hardware revenues. We ~~have~~anticipate ~~lower~~that gross ~~margins~~profit ~~than~~as a percentage of revenues will increase in the future as our mix of software ~~license~~licenses versus hardware and service revenues increases. Higher current year margins were due to a greater mix of software sales and increased service revenues.

Gross margins were approximately 7082% and 8157% for ~~each of~~ the three months ended ~~September~~ 30March 31, ~~2009~~ 2010 and ~~2008, respectively~~2009. The ~~lower margins during the~~ current period margins are ~~due~~more toindicative ~~the~~of ~~higher~~our expected mix of ~~lower~~software ~~margin~~and service revenues versus the higher hardware sales ~~during~~experienced in the ~~current~~prior ~~period~~year.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were $~~351~~337,~~904~~844 and $~~659~~778,~~741~~651 for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively. The 57% decrease in the expenses for three-month period ended ~~September~~March 3031, ~~2009~~2010 resulted primarily from a ~~decreased~~decrease in headcount aswhich occurred during the ~~Company~~second ~~reduced~~half ~~headcount~~of 2009 and continued during the ~~quarter~~three ~~and~~months ~~also reduced~~ended ~~the~~March ~~salaries~~31, of2010, ~~personnel~~as ~~50%~~well onas ~~August~~reduced salaries ~~14,~~for ~~2009~~certain personnel in order to reduce cash used from operations. These ~~Additionally,~~ongoing ~~professional~~efforts ~~fees related~~ to ~~the~~reduce ~~payments made~~cash toused ~~Triton~~from ~~Value~~operations have ~~Partners~~reduced in cash ~~and~~usage ~~common~~significantly, ~~stock~~but inhave ~~the~~not ~~prior~~resulted ~~year~~in ~~(see~~positive cash ~~Note~~flow 5from tooperations, ~~the~~and ~~unaudited~~we ~~condensed~~require ~~consolidated~~additional ~~financial~~fundraising ~~statements)~~to ~~were not~~fund ~~incurred during the three months ended September 30, 2009~~operations. ~~Total expense~~Decreased ~~recorded~~stock-based ~~during~~compensation ~~the~~of ~~three~~approximately $69,000 ~~months~~was ~~ended~~due ~~September~~to ~~30,~~lower ~~2009~~stock ~~and~~option ~~2008~~fair values for ~~common~~ ~~stock~~grants ~~payments~~ made to ~~Triton~~employees during ~~per~~ the ~~terms~~current ~~of the consulting agreement were $0 and $34~~period,~~977,~~ ~~respectively,~~as ~~and~~well ~~cash~~as ~~expenses~~decreases ~~were~~in ~~$0 and $30,000 for~~ the ~~corresponding~~ ~~periods,~~number asof ~~Triton’s~~options ~~24-month agreement expired in January~~that ~~2009. The~~vested ~~decrease~~during ~~was~~the period due to ~~the~~full ~~Company’s~~vesting ~~lower~~of ~~stock~~prior ~~price during the current year~~grants.

During the three months ended September 30, 2009 and 2008, respectively, stock-based compensation of $111,542 and $163,600 was included in selling, general, and administrative expense to record the amortization of the estimated fair value of the portion of previously granted stock options that vested during the current period. The lower current period amortization is due primarily to the lower number of options vesting during the current period compared to the prior period.

Research and Development Expenses

Research and development costs were $~~186~~102,~~330~~101 and $~~263~~311,~~818~~685 for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively. ~~The~~During ~~decrease~~the inthree ~~expense~~months ended ~~during~~March ~~the~~31, ~~current~~2010 ~~year~~and ~~was~~2009, ~~due~~we ~~primarily~~did tonot ~~50%~~capitalize ~~reduction~~any insoftware ~~salaries~~development costs ~~implemented~~related ~~during~~to ~~the~~new ~~current~~products ~~period~~under asdevelopment ~~well~~ as ~~lower~~our ~~stock-based~~research ~~compensation~~ and ~~outsourced~~ development efforts ~~costs~~during as2009 ~~the~~and ~~Company~~2010 ~~has~~primarily ~~attempted~~involved toproduct ~~reduce~~improvements ~~cash~~to our ~~used~~Device ~~from~~ManagerTM ~~operations. During~~and Video ~~the~~Visitation ~~three~~products ~~months~~to ~~ended~~improve ~~September~~their ~~30, 2009~~functionality and ~~2008,~~ease weof ~~did~~use ~~not~~for ~~capitalize any software development costs related to~~end ~~new products under development~~users.

18The 67% decrease in expense during the current period resulted primarily from lower salary costs due to the personnel reductions, as well as lower stock-based compensation of approximately $31,000 due to the lower number of options that vested during the period and the lower fair value of grants made during the three months ended March 31, 2010. Also, in order to reduce cash used from operations, we have discontinued the use of outsourced software development services, for which we incurred approximately $17,000 in the three months ended March 31, 2009.

~~During~~Other the three months ended September 30, 2009 and 2008, respectively, stock-based compensation of $26,158 and $41,801was included in research and development expense to record the amortization of the estimated fair value of the portion of previously granted stock options that vested during the current period.(Income)/Expense

Other ~~Income/(Expense)~~expense of $1,419,002 for the three months ended March 31, 2010 consisted primarily of $956,960 to record the finance expense associated with the issuance of certain warrants in conjunction with the February 2010 financing as well as the excess of the fair value of the warrants and the conversion feature of the notes payable versus the actual proceeds received from the offering. Additionally, we recorded $135,691 expense to record amortization of the fair value of the warrants granted to noteholders as part of the convertible notes we issued in February 2010, and $303,426 to record the loss on derivative liabilities during the current period for the increase in estimated fair value of warrants and the conversion feature of our notes payable. The value of the derivative liabilities increased significantly during the quarter due to the issuance of approximately 19 million additional warrants to holders of warrants issued in 2009 that contained both quantity and price re-set provisions, as well as approximately 14 million warrants issued to noteholders in the 2010 note financing. See notes 6 and 10 to our condensed consolidated financial statements.

Other income~~/(expense)~~ of $1164,~~446~~766 during the three months ended ~~September~~March 3031, 2009 consisted ~~primarily~~ of a $~~282~~59,~~571~~200 gain on our derivative liabilities during the period, ~~offset~~as ~~primarily~~well byas $~~224~~5,~~167 to record amortization of the fair value of~~566 ~~warrants~~interest ~~issued~~earned toon ~~noteholders in~~ our ~~May~~cash ~~29,~~balances ~~2009~~during ~~private~~the ~~placement~~current ~~of convertible notes payable and warrants~~period. The ~~gain on derivative~~ derivative liabilities decreased during ~~the~~that period ~~was~~ due primarily to ~~the decrease in our stock~~expirations ~~price~~of ~~from~~warrants ~~$0.28 at June 30, 2009 to $0.20 at September 30, 2009~~ as well as ~~the expiration~~decreases ofin the remaining ~~2004~~term ~~Placement~~of ~~Agent~~the ~~Warrants~~warrants, ~~during~~a ~~the~~lower Company ~~period~~stock price, ~~as well~~and aslower ~~the~~interest ~~shorter~~rates ~~remaining~~at ~~outstanding~~March ~~term~~31, ~~for~~2009 ~~the~~compared ~~2005~~to January ~~and~~1, 2009 ~~Warrants~~.

Net Loss and Net Loss Attributable to Common Stockholders

Net loss for the three months ended ~~September~~March 3031, ~~2009~~2010 was $~~452~~1,~~456~~783,267 compared to a net ~~loss~~ loss of $~~821~~882,~~740~~733 for the three months ended ~~September~~March 3031, ~~2008~~2009. The ~~decrease~~ inloss ~~net~~during ~~loss~~the current period was due primarily to ~~lower~~derivative ~~operating~~liability ~~expenses~~and ~~due~~financing tocosts ~~aggressive~~noted ~~efforts~~above toassociated ~~reduce~~with ~~cash~~our ~~used~~February ~~from~~2010 ~~operating~~financing, ~~activities~~as ~~during~~we ~~the~~decreased our ~~current~~loss ~~year. Net~~from ~~loss~~operations ~~attributable~~by to62%, ~~common~~or ~~stockholders~~approximately of $1583,~~497~~000,~~500~~ ~~for~~due ~~the~~to ~~three~~our ~~months~~reductions ~~ended~~in expenses ~~September~~to ~~30,~~reduce ~~2008~~cash used from operations. Net loss attributable to common shareholders included a charge of $~~675~~592,~~760~~863 to record the ~~deemed~~increased fair ~~preferred~~value ~~dividend~~of onthe conversion feature of the ~~Series~~preferred Cstock ~~Convertible~~resulting ~~Preferred~~from ~~Stock~~the ~~issued~~change onin ~~September~~the ~~30,~~conversion ~~2008. See~~rate ~~note~~of 6our toconvertible ~~the~~preferred ~~condensed~~stock as a result of ~~consolidated~~our ~~financial~~February ~~statements~~2010 financing.

~~Nine Months Ended September 30, 2009 and 2008~~16

Revenues

Revenues were $378,329 and $211,355 for the nine months ended September 30, 2009 and 2008, respectively. The 79% increase in revenues earned during the nine months ended September 30, 2009 were primarily due to increased programming service revenues to multiple customers and hardware revenues in conjunction with a sale of our judicial software at one county. The effects of inflation and changing prices on revenues and loss from operations during the periods presented have been de minimus. Due to our small customer base, we face the risk of fluctuating revenues should any of our customers discontinue using our products.

Cost of Revenues and Gross Profit

Cost of revenues increased $96,253, or 190%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 due primarily to hardware costs associated with the Curiax Arraigner and Court Recording sales above as these sales involved a higher mix of hardware revenues.

Gross margins were approximately 61% and 76% for the nine months ended September 30, 2009 and 2008, respectively. Lower margins during the current period resulted primarily from a higher mix of lower margin hardware and programming service sales during the current year. We began earning revenue during the current year from outsourced software development that we provided for new customers, in order to reduce our cash used from operations, and these revenues carry lower margins than software license revenues.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were $1,726,183 and $2,282,208 for the nine months ended September 30, 2009 and 2008, respectively. The decrease in the nine-month period ended September 30, 2009 compared to the similar period in 2008 resulted primarily from lower headcount, lower salary expense due to salary reductions, and lower overhead during the current year as well as separation costs of approximately $53,000 accrued in conjunction with the termination of our former Chief Executive Officer in 2008. Lower stock payments of approximately $116,000 resulted from the expiration of the 24-month consulting agreement with Triton Value Partners in January 2009.

During the nine months ended September 30, 2009 and 2008, respectively, stock-based compensation of $446,636 and $519,442 was included in selling, general, and administrative expenses to record the amortization of the estimated fair value of the portion of previously granted stock options that vested during the current period.

Research and Development Expenses

Research and development expenses were $787,203 in the nine months ended September 30, 2009 and $907,280 in the nine months ended September 30, 2008. The decrease in expense was due mainly to the higher use of third-party development personnel during 2008, reductions in salaries during the current year, as well as lower stock-based compensation.

During the nine months ended September 30, 2009 and 2008, respectively, stock-based compensation of $116,751 and $129,527 was included in research and development expense to record the amortization of the estimated fair value of the portion of previously granted stock options that vested during the current period.

Other Income/(Expense)

Other expense during the nine months ended September 30, 2009 of $179,032 consisted primarily $304,575 recorded to amortize the fair value of warrants issued to convertible noteholders in a financing transaction on May 29, 2009, partially offset by a gain of $181,245 recorded on our derivative liabilities.

Other expense during the Nine months ended September 30, 2008 of $619,379 consisted primarily of $532,076 to amortize debt discount and the value of warrants granted to the convertible note holders in January 2008, $78,894 to record the interest accrued on the convertible notes prior to their exchange into the Series C convertible stock offering, and debt offering costs of $21,579 amortized over the term of the notes.

Net Loss and Net Loss Attributable to Common Stockholders

Net loss for the nine months ended September 30, 2009 was $2,461,112 compared to a net loss of $3,648,282 for the nine months ended September 30, 2008. The lower loss during the current period was due primarily to lower operating expenses during the current year due to attempts to lower our cash used from operations as well as greater financing costs incurred during the nine months ended September 30, 2008 in conjunction with our notes payable financing in January 2008. Additionally, we recorded gains on derivative liabilities totaling $181,245 during the current year due primarily to the expiration of certain warrants classified as derivatives as well as due to lower remaining terms of our derivative liabilities. Net loss attributable to common stockholders of $2,820,450 included $359,338 to record the value of common stock dividends paid to Series A, B, and C Convertible Preferred Stock holders on June 30, 2009. Net loss attributable to common stockholders of $5,898,248 included $274,368 to record the value of common stock dividends paid on June 30, 2008 to Series A and Series B Convertible Preferred Stock holders and $1,975,598 to record the deemed preferred dividend on the Series C Convertible Preferred Stock issued on June 30 and September 26, 2008. See note 6 to the condensed consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

General

Due to a ~~continuing~~net ~~losses~~loss during the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 of $21,~~461~~783,~~112~~267, cash used in operating activities amounted to $197,~~423,573~~476 during the ~~nine~~three months ended ~~September 30~~March 31, ~~2009~~2010, and an accumulated deficit of $8083.41 million at ~~September~~ 30March 31, ~~2009~~2010, and our inability to date to obtain sufficient financing to support current and anticipated levels of operations, there is a substantial doubt about ~~our~~the Company’s ability to continue as a going concern. Our revenues since ~~inception~~ inception have not provided sufficient cash to fund our operations. Historically, we have relied on private placement issuances of equity and debt. We need to raise additional working capital during the fourth quarter of 2009 or early 2010 to fund our ongoing operations and growth. We have commenced efforts to raise additional capital through a private placement of debt securities and warrants and issued $562,250 of convertible notes on May 29, 2009. We can raise up to $1.5 million in the private placement under the current terms if market conditions allow. No assurance can be given that we will be successful in raising this capital and we have significantly reduced our cash used from operating activities by reducing salaries of all employees by 50% effective August 14, 2009. Additionally, we began performing outsourced software development activities during the three months ended September 30, 2009 in order to further reduce our cash used from operations. If we successfully raise additional capital through the issuance of debt, this will increase our interest expense and the warrants will dilute our existing shareholders. If we are not successful in raising this capital, we may not be able to continue as a going concern. In that event, we may be forced to cease operations and our stockholders could lose their entire investment in our company.

20Our cash used from operations decreased during 2010 primarily due to measures we undertook to reduce our cash used from operations, including terminating employees and reducing the salaries of all employees by 50% effective August 14, 2009. Certain personnel have had their salaries returned to their original levels, but until we significantly increase revenues, we anticipate that we will continue to operate with minimal headcount and reduced salaries for certain employees.

~~As of~~Historically, ~~September~~we ~~30,~~have ~~2009,~~relied weon ~~had~~private ~~cash~~placement ~~and~~issuances ~~cash~~of ~~equivalents~~equity ofand ~~$92,537~~debt. We ~~currently~~need ~~require~~to ~~substantial~~raise ~~amounts~~additional ofworking capital during second quarter 2010 to fund ~~current~~our ongoing operations and growth. We have commenced efforts to raise additional ~~the~~capital ~~continued~~through ~~development~~a ~~and~~private ~~deployment~~placement of ~~our~~debt ~~Device~~securities ~~ManagerTM~~ and ~~CuriaxTM product lines~~warrants. ~~This~~No ~~additional~~assurance ~~funding~~can ~~could~~ be ingiven ~~the~~that ~~form~~we ofwill ~~the~~be ~~sale~~successful ofin ~~assets,~~raising ~~debt,~~this ~~equity,~~capital. If orwe asuccessfully ~~combination~~raise ofadditional ~~these~~capital through ~~financing~~the ~~methods.~~issuance ~~However~~of debt, ~~there~~ ~~can~~this bewill noincrease ~~assurance~~our ~~that~~interest weexpense ~~will~~and bethe warrants ~~able~~will todilute ~~obtain~~our ~~such~~existing ~~financing~~shareholders. If ifwe ~~and~~are not ~~when~~successful ~~needed,~~in orraising ~~that~~this ~~if obtained~~capital, ~~such~~we ~~financing~~may ~~will~~not be ~~sufficient~~able orto oncontinue ~~terms and~~as ~~conditions~~a ~~acceptable to us~~going concern. In Ifthat event, we ~~are~~may ~~unable~~be forced to ~~obtain~~cease ~~this~~operations ~~additional funding,~~and our stockholders ~~business,~~could ~~financial~~lose ~~condition~~their ~~and~~entire ~~results~~investment ofin ~~operations~~our ~~would be adversely affected~~company.

WeAs ~~used~~of $1March 31,~~423,573~~ ~~in cash from operating activities during the nine months ended September 30~~2010, ~~2009~~we ~~due~~had ~~primarily~~cash toand ~~our~~cash ~~net~~equivalents ~~loss during the period~~ of $220,~~461,112~~017. We currently ~~used~~require ~~$2,139,456~~substantial inamounts ~~cash~~of ~~from~~capital ~~operating~~to ~~activities during~~fund ~~the~~current ~~nine~~operations ~~months~~and the ~~ended~~continued ~~September~~development ~~30,~~and ~~2008~~deployment ~~due~~of ~~primarily to~~ our ~~net~~Device ~~loss~~ManagerTM product ~~during~~line. This ~~the~~additional ~~period~~funding ofcould ~~$3,648,282. The~~be ~~decrease~~ in ~~cash~~the ~~used~~form ~~during~~of the ~~current~~ ~~period~~sale ~~was~~of assets, ~~due~~debt, ~~primarily~~equity, toor ~~the~~a ~~higher~~combination ~~revenues~~of ~~and~~these ~~lower~~financing ~~operating~~methods. However, ~~expenses~~there ~~during~~can ~~the~~be ~~current~~no ~~period~~assurance asthat we ~~attempted~~will tobe ~~reduce~~able ~~operating expenses~~ to ~~reduce~~obtain ~~cash~~such ~~use. Cash~~financing ~~used~~if ~~from operations totaled approximately~~and ~~$257~~when needed,~~000~~ inor ~~the~~that ~~three~~if ~~months~~obtained, ~~ended~~such ~~September~~financing ~~30,~~will ~~2009,~~be ~~compared~~sufficient toor ~~approximately $596,000~~on terms and ~~$571,000~~conditions ~~used~~acceptable into ~~the first two quarters of 2009, respectively~~us. ~~Cash~~ ~~received~~If ~~during~~we ~~the~~are ~~nine~~unable ~~months~~to ~~ended~~obtain ~~September~~this additional ~~2009~~funding, ~~included~~our ~~approximately $537~~business,~~000~~ ~~net~~financial ~~proceeds~~condition ~~from~~and ~~the~~results ~~issuance~~ of ~~convertible~~ ~~notes~~operations ~~payable~~would ~~and~~be adversely ~~warrants~~affected. toAs ~~purchase~~with our ~~common stock. Cash~~note ~~received~~issuance ~~from~~for ~~financing~~approximately ~~activities~~$746,000 during ~~the nine months~~ ~~ended~~February ~~September~~2010 ~~30, 2008 included the~~ ($1100,~~500,~~000 ofnew ~~convertible~~ notes ~~payable issued~~issuance ~~less~~and approximately $5646,000 of ~~deferred financing costs incurred during the~~note ~~period~~principal and weinterest ~~raised~~contributed ~~an additional $1,053,153~~ from ~~the~~our ~~equity~~May ~~offering~~2009 onfinancing), ~~June~~such financings ~~30,~~may ~~2008~~trigger ~~and~~certain ~~$1,373,000~~anti-dilution ~~(net~~provisions of ~~offering~~existing ~~costs)~~warrants onand ~~September 26, 2008. During~~our ~~the~~convertible ~~nine~~preferred ~~months~~stock ~~ended September 30, 2009~~ and ~~2008,~~be ~~respectively,~~dilutive weto ~~used~~existing ~~$18,267~~common ~~and~~shareholders. See ~~$28,318~~notes in6 ~~investing~~and ~~activities~~10 ~~primarily~~ to ~~purchase~~our ~~new~~condensed ~~computer~~consolidated ~~equipment~~financial statements.

We used $595,501 in cash from operating activities during the three months ended March 31, 2009 due primarily to our net loss during the period of $882,733. During the three months ended March 31, 2010 and 2009, respectively, we used $1,103 and $12,544 in investing activities primarily to purchase new computer equipment.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed consolidated balance sheet is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financing requirements on a continuing basis and attract additional financing. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence.

The Company expects to spend less than $525,000 for capital expenditures for the remainder of fiscal ~~2009~~2010.

FORWARD-LOOKING STATEMENTS

Certain statements contained herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial results and plans for future sales and business development activities, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions, competition, our ability to complete the development of and market our new Device Manager product line and other uncertainties detailed from time to time in our Securities and Exchange Commission (“the SEC”) filings, including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had no material exposure to market risk from derivatives or other financial instruments as of ~~September~~March 3031, ~~2009~~2010.

ITEM 4T. CONTROLS AND PROCEDURES

~~The~~Our management, including the Company’s ~~maintains~~Chief aExecutive ~~system~~Officer and Chief Financial Officer, evaluated as of ~~internal~~March ~~controls~~31, ~~designed~~2010, tothe ~~provide~~effectiveness ~~reasonable~~of the design and ~~assurance~~operation of our disclosure controls and procedures. Based upon that ~~transactions~~evaluation, the ~~are~~Chief ~~executed~~Executive inOfficer ~~accordance~~and ~~with~~Chief ~~management’s~~Financial ~~general~~Officer has concluded that the orCompany's ~~specific~~disclosure ~~authorization;~~controls ~~transactions~~and ~~are~~procedures ~~recorded~~were effective as ~~necessary~~of tothe ~~(1)~~end ~~permit~~of the ~~preparation~~period ofcovered ~~financial~~by ~~statements~~this inreport ~~accordance~~to ~~with~~provide ~~accounting~~reasonable ~~principles~~assurance that information ~~generally~~required ~~accepting~~to be disclosed by the Company in reports that it files or submits under the ~~United~~Exchange ~~States~~Act ofis ~~America~~recorded, processed, summarized and ~~(2)~~reported ~~maintain~~within ~~accountability~~the ~~for~~time ~~assets. Access~~periods tospecified ~~assets~~in isthe ~~permitted~~Securities ~~only~~and inExchange Commission's rules and ~~accordance~~forms ~~with~~and ~~management’s~~that ~~general~~such orinformation ~~specific~~is ~~authorization. In 2007,~~accumulated and communicated to the Company's management, ~~adopted~~including ~~and~~the ~~implemented~~Company's ~~the~~Chief ~~control~~Executive ~~requirements~~Officer ofand ~~Section~~Chief Financial ~~404~~Officer, ofto ~~the~~allow ~~Sarbanes-Oxley~~timely ~~Act~~decisions ofregarding ~~2002~~required ~~(the “Act”)~~disclosure.

It is the responsibility of the Company’s management to establish and maintain adequate internal control over financial reporting. However, due to its limited financial resources, there is only limited segregation of duties within the accounting function, leaving most significant aspects of financial reporting in the hands of the Chief Financial Officer.

A significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a registrant’s financial reporting.

A material weakness is a significant deficiency (or a combination of significant deficiencies) that result in a more-than-remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company previously disclosed that it had difficulty in evaluating, applying, and documenting complex accounting principles, and in preparing a complete report without major errors, within our accounting function and reported that a material weakness existed within its system of controls.

Our management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated as of September 30, 2009, the effectiveness of the design and operation of our disclosure controls and procedures. In their evaluation, our Chief Executive Officer and Chief Financial Officer identified the changes and enhancements in our control environment, as described below, that we have implemented prior to December 31, 2008, that remedied our previously disclosed material weaknesses. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

The Company implemented additional procedures at December 31, 2008, regarding the review and preparation of the accounting related to complex accounting principles and the Company’s reports. On an as-needed basis, the Company will use outside consultants to assist in the preparation of the Company’s financial accounting records and financial reports. No such assistance was deemed to be required as of September 30, 2009.

The Company’s significant deficiency involves a lack of segregation of duties within its internal control function. Due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties.

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

Changes in Internal Control Over Financial Reporting

There have been no significant changes in internal controls over financial reporting that occurred during the quarter ended ~~September~~March 3031, ~~2009~~2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

ITEM 6. EXHIBITS

The following exhibits are filed with or incorporated by reference into this report. The exhibits which are denominated by an asterisk (*) were previously filed as a part of, and are hereby incorporated by reference from either (i) the Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-18 (File No. 33-27040-D) (referred to as “S-18 No. 1”) or (ii) ) the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 (referred to as “2006 10-KSB”).

Exhibit No.		Description

3.1*		Certificate of Incorporation as amended through March 8, 2007 (2006 10-KSB)

3.2*		Amended Bylaws of the Company as presently in use (S-18 No. 1, Exhibit 3.2)

10.9*		Triton Business Development Services Engagement Agreement dated January 31, 2007 (2006 10-KSB)

31.1		Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

31.2		Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

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

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.

	SIMTROL, INC.
Date: November 10, 2009	/s/ Oliver M. Cooper III
Date: May 17, 2010	/s/ Oliver M. Cooper III
	Chief Executive Officer
	(Principal executive officer)
	/s/ Stephen N. Samp
	Chief Financial Officer
	(Principal financial and accounting officer)

2319

Filing Compare · SIMTROL INC