UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

                      ---------------------

                           FORM 10-QSB

(Mark One)

[X]   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the period ended September 30, 2005

                                OR

[ ]   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                Commission file number: 000-30382

                  DataLogic International, Inc.
-----------------------------------------------------------------------
      (Exact name of registrant as specified in its charter)



          Delaware                              33-0755473
          --------                              ---------
(State or other jurisdiction of    (I.R.S. Employer Identification No.)
incorporation or organization)


    18301 Von Karman Ave, Suite 250, Irvine, California 92612
-----------------------------------------------------------------
             (Address of principal executive offices)

                          (949) 260-0120
                  -----------------------------
                 (Registrant'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 is a shell company (as defined
in Rule 12b-2 of the Exchange Act).   Yes [ ]  No [X]

As of October 31, 2005, there were 40,343,585 shares of the issuer's Common
Stock outstanding.

Transitional Small Business Disclosure Format (Check One): Yes [X]  No [ ]

=============================================================================


                                1

<PAGE>



                              INDEX


PART I.  FINANCIAL INFORMATION..............................................3

  Item 1. Consolidated Financial Statements.................................3

          Unaudited Consolidated Balance Sheet as of September 30, 2005.....3

          Unaudited Consolidated Statements of Operations -
          Three and Nine Months Ended September 30, 2005 and 2004 ..........4

          Unaudited Consolidated Statements of Cash Flows -
          Nine Months Ended September 30, 2005 and 2004.....................5

          Notes to Unaudited Consolidated Financial
          Statements........................................................7

  Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................28

  Item 3. Controls and Procedures..........................................41

PART II.  OTHER INFORMATION................................................42

  Item 1. Legal Proceedings................................................42
  Item 2. Changes in Securities............................................42
  Item 3. Defaults upon Senior Securities..................................42
  Item 4. Submission of Matters to a Vote of Security Holders..............42
  Item 5. Other Information................................................42
  Item 6. Exhibits.........................................................42


SIGNATURES.................................................................44


                                2




<PAGE>




                  PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
              CONSOLIDATED BALANCE SHEET (UNAUDITED)
                        SEPTEMBER 30, 2005

                              ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                     $   850,706
  Accounts receivable, net of allowance
   for doubtful accounts of $131,585                              1,698,947
  Marketable securities available for sale                            4,210
  Inventories                                                     1,202,997
  Prepaid expenses                                                  358,912
                                                                ------------
    Total current assets                                          4,115,772

Note receivable                                                     130,000
Property and equipment, net                                         213,874
Software development costs and licenses, net                        394,967
Loan origination costs, net                                         181,415
Goodwill                                                             13,528
Deposits                                                             26,435
                                                                ------------
                                                                $ 5,075,991
                                                                ============

               LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                         $ 2,140,885
  Deferred revenue                                                  372,229
  Notes payable - officers                                           31,624
  Current portion of notes payable                                  216,027
  Current portion of convertible debt                               965,909
                                                                ------------
    Total current liabilities                                     3,726,674

Notes payable, net of current portion                                36,224
Convertible debt, net of current portion                            730,517
                                                                ------------
    Total liabilities                                             4,493,415
                                                                ------------
Commitments and contingencies                                             -

STOCKHOLDERS' EQUITY:
  Common stock, $0.001 par value; 100,000,000 shares
    authorized, 40,010,192 shares issued and outstanding             40,010
  Additional paid-in-capital                                      3,715,769
  Shares to be issued, 3,496,927 shares                           1,008,216
  Unamortized consulting fees                                        (6,374)
  Accumulated deficit                                            (4,175,045)
                                                                ------------
    Total stockholders' equity                                      582,576
                                                                ------------
                                                                $ 5,075,991
                                                                ============

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

                                3
<PAGE>
<TABLE>
<CAPTION>

                 DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)


                                      For the three months         For the nine months
                                       ended September 30,         ended September 30,
                                        2005         2004           2005        2004
                                  ------------- ------------- ------------- -------------
<S>                               <c>           <c>           <c>           <c>
Net revenue                       $  4,930,315  $  3,050,110  $ 12,782,761  $ 11,058,853

Cost of revenue                      4,385,691     2,634,388    11,469,278     8,414,665
                                  ------------- ------------- ------------- -------------

Gross profit                           544,624       415,722     1,313,483     2,644,188

Operating expenses                     370,223       631,292     1,549,700     1,600,193
                                  ------------- ------------- ------------- -------------

Income (loss) from operations          174,401      (215,570)     (236,217)    1,043,995

Non-operating expense:
  Interest expense, net               (146,504)     (106,306)     (407,359)     (130,555)
  Other than temporary write-down
    of marketable securities
    available for sale                  (3,290)            -      (199,290)            -
  Factoring expense                          -             -             -       (99,926)
                                  ------------- ------------- ------------- -------------
    Total non-operating expense       (149,794)     (106,306)     (606,649)     (230,481)
                                  ------------- ------------- ------------- -------------
Income (loss) before income
  taxes and minority interest           24,607      (321,876)     (842,866)      813,514

Income taxes                                 -             -         3,200         1,600

Minority interest                            -       (16,516)            -      (190,966)
                                  ------------- ------------- ------------- -------------

Net income (loss)                 $     24,607  $   (338,392) $   (846,066) $    620,948
                                  ============= ============= ============= =============

Basic earnings (loss) per share   $      0.001  $     (0.009) $     (0.021) $      0.017
                                  ============= ============= ============= =============
Basic weighted average
 shares outstanding                 39,950,396    37,237,391    39,826,766    36,970,059
                                  ============= ============= ============= =============
Diluted earnings (loss)
 per share                        $      0.001  $     (0.009)  $    (0.021) $      0.015
                                  ============= ============= ============= =============
Diluted weighted average
  shares outstanding                40,979,895    37,237,391    39,826,766    42,802,872
                                  ============= ============= ============= =============


Weighted average number of shares used to compute basic and diluted loss per share in 2004
and 2005 is the same since the effect of dilutive securities is anti-dilutive for the nine
months ended September 30, 2005 and the three months ended September 30, 2004.


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

                                      4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                 DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)
                                                                 For the nine months
                                                                 ended September 30,
                                                                  2005           2004
                                                            -------------- --------------

                                                         <c>            <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                         $    (846,066) $     620,948
  Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
     Depreciation and amortization                                145,595         69,923
     Amortization of discount on convertible debt                 156,930         52,310
     Bad debt expense                                              18,956              -
     Issuance of or commitment to issue shares for services       244,580        260,647
     Options granted for consulting services                           -           1,205
     Issuance of shares for interest                               19,987              -
     Net realized and unrealized losses on marketable securities  199,290              -
     Minority interest                                                  -        170,417
     (Increase) decrease in operating assets, net of
       acquisitions:
        Accounts receivable                                       (77,935)    (1,585,089)
        Prepaid expenses                                           (8,907)       (78,349)
        Inventories                                              (273,816)        28,329
        Deposits                                                    1,263         (2,499)
     Increase (decrease) in operating liabilities:
        Accounts payable and accrued expenses                     (10,908)       446,276
        Deferred revenue                                          352,104              -
                                                            -------------- --------------
  Total adjustments                                               767,139       (636,830)
                                                            -------------- --------------
        Net cash used in operating activities                     (78,927)       (15,882)
                                                            -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale of treasury stock                                                -        150,904
  Cash received in asset acquisition                              200,426              -
  Advances on notes receivable                                    (30,000)             -
  Cash paid for asset acquisition                                 (50,000)             -
  Acquisition of property and equipment                          (182,352)       (14,351)
                                                            -------------- --------------
        Net cash provided by (used in) investing activities       (61,926)       136,553
                                                            -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from convertible debt                                        -      3,000,000
  Decrease (increase) in restricted cash                        1,258,689     (1,253,780)
  Payment of debt issuance costs                                        -       (311,000)
  Payments to factor                                                    -       (854,301)
  Proceeds from loan                                                    -        225,000
  Payments of loans                                              (913,977)      (160,000)
  Payments on line of credit                                            -       (429,406)
  Proceeds from line of credit                                          -        182,631
  Proceeds from exercise of stock options                           3,000              -
                                                            -------------- --------------

        Net cash provided by financing activities                 347,712        399,144
                                                            -------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                         206,859        519,815

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                    643,847        253,517
                                                            -------------- --------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                    $     850,706  $     773,332
                                                            ============== ==============

                                      5


</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                 DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                 (UNAUDITED)

                                                                For the nine months
                                                                ended September 30,
                                                                 2005           2004
                                                           -------------- --------------

                                                        <c>            <c>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid during the period                            $      80,696  $      38,611
Income taxes paid during the period                        $       1,600  $       2,157


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the nine months ended September 30, 2005, the Company issued 252,525
and 47,588 shares of common stock in payment of principal and interest of
$106,061 and $19,987, respectively, on the notes payable.  On September 15,
2005, the Company acquired the assets of CBSi Holdings, Inc. ("CBSi") in
exchange for a commitment to issue 3,003,534 shares of common stock valued at
$850,000 (see Note 16). On February 24, 2005, the Company issued 117,564
shares amounting to $50,000 for the acquisition of I.S. Solutions, LLC
("ISS").  On September 30, 2005, the Company committed to convert 160,000
stock options with a strike price of $0.15 per share for a total exercise
value of $24,000 against notes payable to officers.

The Company issued 612,469 shares of common stock for management and
consulting services amounting to $234,150 during the nine months ended
September 30, 2004.  The Company issued 672,500 for prepaid legal, consulting
and directors fees amounting to $261,288, of which $25,722 was expensed during
the nine months ended September 30, 2004.


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


                                6

</TABLE>
<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business
-----------------------

DataLogic International, Inc. ("DataLogic" or the "Company"), through its
wholly owned subsidiaries, provides communication solutions including
GPS-based ("Global Positioning System") mobile asset tracking, secured mobile
communications and VoIP ("Voice over Internet Protocol") communications.  The
Company provides these solutions and Information Technology ("IT") outsourcing
and consulting services to a wide range of U.S. and international governmental
agencies and commercial enterprises.   The Company leverages its technology
expertise, customer relationships and supplier channels to develop solutions
addressing the rapidly growing communications markets.   The Company's
services capitalize on the ongoing trend toward strategic IT outsourcing and
address growing markets such as public safety and homeland security.

On January 13, 2004, the Company acquired the Machine-to-Machine ("M2M")
technology from two technologists and entered into the mobile asset tracking
business.  Panther Trak(TM) is the Company's first product in the M2M mobile
asset tracking vertical market.  This GPS based mobile asset tracking device
was designed to focus largely on theft, recovery and tracking services.  The
Company derives its M2M revenues from the sale of mobile tracking units,
software and hardware licenses and residual income from monthly user
subscription fees.

On September 15, 2005, the Company acquired the assets of CBSi to complete its
GPS based mobile asset tracking solution and further increase its distribution
and client relationships.

The Company's wholly owned subsidiaries include DataLogic Consulting, Inc.
("DCI"), IPN Communications, Inc. ("IPN") and DataLogic New Mexico, Inc.
("DNM").

DCI provides complete IT consulting services that include, but are not limited
to, project management and systems analysis, design, implementation, testing
and maintenance.  The services can be provided at the clients' locations or
off-site at the Company's U.S. or affiliated offshore facilities.  DCI also
provides short and long-term staffing solutions to IT clients, healthcare
providers and other businesses.

IPN provides VoIP telephony products and services worldwide.  IPN derives its
VoIP revenues from phone sets, communication servers, software and hardware
licenses and residual global long distance airtime sales.  The Company
increased its ownership of IPN from 51% to 100% on November 5, 2004.

DNM was formed in the first quarter of 2005 as a result of the acquisition of
the assets of ISS (see Note 16).  DNM is a technical solution provider for
public safety and homeland security agencies.

                                7


<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION, continued

Basis of Presentation
---------------------

The accompanying consolidated interim financial statements have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") for the presentation of interim financial information.
These interim consolidated financial statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the consolidated balance
sheet, consolidated operating results and consolidated cash flows for the
periods presented in accordance with accounting principles generally accepted
in the United States of America ("GAAP").  Operating results for the three and
nine months ended September 30, 2005 are not necessarily indicative of the
results that may be achieved for the year ending December 31, 2005 or for any
other interim period during such year.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been omitted in accordance with the rules and regulations of
the SEC.  These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Form 10-KSB for the year ended December 31,
2004.

Going Concern
-------------

The Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with GAAP, and have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of business.  The Company has
an accumulated deficit of $4,175,045 at September 30, 2005.  Management has
taken various steps to revise its operating and financial requirements, which
it believes will be sufficient to provide the Company with the ability to
continue its operations for the next twelve months.  Management has also
devoted considerable effort during the nine months ended September 30, 2005
towards management of liabilities and improvement of the Company's operations.
Further, the Company has secured a material contract to provide its
PantherTrak TM product.  This contract can provide the Company with an
increased level of revenues that should support the Company's current overhead
expenses and provide for increasing cash flows to allow the Company to
continue its operations through the next twelve months.

In view of the matters described above, recoverability of a major portion of
the recorded asset amounts shown in the accompanying consolidated balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations.  The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.




                                8
<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
---------------------------

The accompanying financial statements include the accounts and transactions of
DataLogic International, Inc. and its subsidiaries.  Intercompany transactions
and balances have been eliminated in consolidation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Significant estimates include the
collectibility of accounts receivable, the realizability of inventories, the
recoverability of long-lived assets and the fair value of marketable
securities available for sale.  Actual results could differ from those
estimates.

Accounts Receivable
-------------------

The Company performs ongoing credit evaluations of customers and adjusts
credit limits based upon payment history and the customer current
creditworthiness, as determined by its review of their current credit
information.  The Company continuously monitors collections and payments from
its customers and maintains a provision for estimated credit losses based upon
its historical experience and any customer-specific collection issues that it
has identified.

Marketable Securities Available for Sale
----------------------------------------

The Company's securities are classified as available for sale and, as such,
are initially recorded at cost and adjusted to their fair value at each
balance sheet date.  Securities classified as available for sale may be sold
in response to changes in interest rates, liquidity needs and for other
purposes and accordingly, are classified as current assets in the accompanying
consolidated balance sheet.

Unrealized holding gains and losses on available for sale securities are
excluded from earnings and reported, net of tax, as other comprehensive
income, a separate component of stockholder's equity.  Any decline in value of
available for sale securities below cost that is considered to be "other than
temporary" is recorded as a reduction of the cost basis of the securities and
is included in the statement of operations as a realized loss.


                                9
<PAGE>



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Inventories
-----------

Inventories consist of finished goods and are valued at the lower of cost
(determined on a weighted average basis) or market.  Management compares the
cost of inventories with their market value and an allowance is recorded to
write down the inventories to their market value, if lower. Finished goods
inventories at September 30, 2005 were comprised of phone, GPS and video
communications products.

Property and Equipment
----------------------

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets.  The
useful lives for the related assets range from five to seven years.

Maintenance and repairs are charged to expense as incurred.  Renewals and
improvements of a major nature are capitalized.  At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses
are reflected in the consolidated statement of operations.

Loan Origination Costs
----------------------

Loan origination costs are capitalized and amortized using the straight-line
method over the term of the related debt instrument.

Software Development Costs and Licenses
---------------------------------------

Intangible assets consist of software development costs, website development
costs, software licenses and client lists and are recorded at cost.

Software development costs incurred in the development of certain products
upon reaching technological feasibility are being capitalized in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Licensed, or Otherwise
Marketed."  All other software research, development and maintenance costs are
expensed in the period incurred.  The Company evaluates the carrying value of
such costs, on a periodic basis, by comparing such amounts to their net
realizable value.  Amounts in excess of net realizable value are charged to
operations.

Amortization of such costs are provided over the greater of the amount
computed using the straight-line method over the estimated economic life of
each product commencing upon the initial sale of the related product or the
ratio of current gross revenues to the total of current and anticipated future
gross revenues for the related product.  No amortization was recorded for the
three and nine months ended September 30, 2005 or 2004.

Website development costs, software licenses and client lists are recorded at
cost and amortized using the straight-line method over their estimated useful
lives of 3-5 years.


                                10
<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Long-Lived Assets
-----------------

The Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."  SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the historical cost carrying value of an asset may
no longer be appropriate.  The Company assesses recoverability of the carrying
value of an asset by estimating the future net cash flows expected to result
from the asset, including eventual disposition.  If the future net cash flows
are less than the carrying value of the asset, an impairment loss is recorded
equal to the difference between the asset's carrying value and fair value or
disposable value. As of September 30, 2005, the Company does not believe there
has been any impairment of its long-lived assets.  There can be no assurances,
however, that demand for the Company's products and services will continue,
which could result in an impairment of long-lived assets in the future.

Beneficial Conversion Feature
-----------------------------

The convertible feature of the debt provides for a rate of conversion that is
below market value.  This feature is normally characterized as a beneficial
conversion feature ("BCF"), which is recorded by the Company pursuant to
Emerging Issues Task Force ("EITF") Issue No. 98-5 ("EITF 98-05"), "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," and EITF Issue No. 00-27, "Application of EITF
Issue No. 98-5 to Certain Convertible Instruments."

The Company's convertible debt is recorded net of the debt discount related to
the BCF.  The Company records the debt discount in proportion to principal
advances and amortizes the discount to interest expense over the life of the
debt on a straight-line basis, which approximates the effective interest
method.

Fair Value of Financial Instruments
-----------------------------------

The Company's financial instruments consist of cash and cash equivalents,
marketable securities available for sale, accounts receivable, note
receivable, accounts payable and accrued expenses, notes payable and
convertible debt.  Pursuant to SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments," the Company is required to estimate the fair value of
all financial instruments at the balance sheet date.  The Company cannot
determine the estimated fair value of notes payable to officers as the
transaction originated with related parties nor the fair value of convertible
debt since instruments similar to the convertible debt could not be found.
Other than these items, the Company considers the carrying values of its
financial instruments in the financial statements to approximate their fair
values.

                                11

<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Revenue Recognition
-------------------

Revenue is recognized when earned.  The Company recognizes revenue on its
software products in accordance with all applicable accounting regulations,
including the American Institute of Certified Public Accountants' ("AICPA")
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", and SOP
98-9, "Modification of SOP 97-2, With Respect to Certain Transactions."
Expenses are recognized in the period in which the corresponding liability is
incurred.

For sales of phone products, our revenue recognition policies are in
compliance with Staff Accounting Bulletin ("SAB") 104.  Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no
other significant obligations by us exist and collectibility is reasonably
assured.  Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as deferred revenue in the accompanying
consolidated balance sheet.

Revenues and costs of revenues from consulting contracts are recognized during
the period in which the service is performed.

The Company has contracts with various governments and governmental agencies.
Government contracts are subject to audit by the applicable governmental
agency.  Such audits could lead to inquiries from the government regarding the
allowability of costs under applicable government regulations and potential
adjustments of contract revenues.  To date, the Company has not been involved
in any such audits.

Earnings per Share
------------------

The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
("EPS").  SFAS No. 128 provides for the calculation of basic and diluted
earnings per share.   Basic EPS includes no dilution and is computed by
dividing income or loss available to common shareholders by the weighted
average number of common shares outstanding for the period.  Diluted EPS
reflects the potential dilution of securities that could share in the earnings
or losses of the entity.  Such amounts include shares potentially issuable
pursuant to shares to be issued, convertible debentures and outstanding
options and warrants.  Had such shares been included in diluted EPS, they
would have resulted in weighted-average common shares of 40,856,266.


                                12

<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Issuance of Shares for Non-Cash Consideration
---------------------------------------------

The Company accounts for the issuance of equity instruments to acquire goods
and/or services based on the fair value of the goods and services or the fair
value of the equity instrument at the time of issuance, whichever is more
reliably determinable.  The majority of equity instruments have been valued at
the market value of the shares on the date issued.

Stock-Based Compensation
------------------------

The Company accounts for employee stock-based compensation under the
"intrinsic value" method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," as opposed to the
fair value method prescribed by SFAS No. 123, "Share-Based Payment."  Pursuant
to the provisions of APB Opinion No. 25, the Company generally does not record
an expense for the value of stock-based awards granted to employees.  The
Company has adopted the disclosure only provisions of SFAS No. 123 (see Note
13).

Concentrations of Credit Risk
-----------------------------

The Company maintains its cash balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000.
As of September 30, 2005 and at various times through the nine months ended
September 30, 2005, the Company's cash balances exceed the amount insured by
the FDIC.  Management believes the risk of loss of cash balances in excess of
the insured limit to be low.

Two major customers accounted for 72% of the net revenue for the nine months
ended September 30, 2005.  Accounts receivable from these major customers
amounted to approximately $532,761 as of September 30, 2005.

Two major customers accounted for 80% of the net revenue for the nine months
ended September 30, 2004.

A significant portion of the Company's business is located in Rhode Island and
New Mexico and is subject to economic conditions and regulations in those
areas.

The Company extends credit to its customers based upon its assessment of their
credit worthiness and generally does not require collateral.

The Company utilizes a limited number of suppliers for the VoIP phones and GPS
device components.  The Company has alternate sources to supply its products
should the need arise.

                                13

<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Reclassifications
-----------------

Certain amounts in the September 30, 2004 consolidated financial statements
have been reclassified to conform to the September 30, 2005 presentation.
Such reclassifications had no effect on net income (loss) as previously
reported.

Recent Accounting Pronouncements
--------------------------------

The Financial Accounting Standards Board ("FASB") has issued SFAS No. 123R,
"Share-Based Payment."  The new rule requires that the compensation cost
relating to share-based payment transactions be recognized in the financial
statements.  That cost will be measured based on the fair value of the equity
or liability instruments issued.  This statement precludes the recognition of
compensation expense under APB Opinion No. 25's intrinsic value method.  Small
business issuers will be required to apply Statement 123R in the first annual
reporting period that begins after December 15, 2005.  The Company has not yet
determined the effect the adoption of SFAS No. 123R will have on its
consolidated financial statements.

In November 2004, The FASB issued SFAS No. 151, "Inventory Costs," an
amendment of ARB No. 43, Chapter 4 to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs and spoilage.  SFAS
No. 151 requires that these costs be expensed as incurred and not included in
overhead.  SFAS No. 151 also requires that allocation of fixed production
overhead to conversion costs be based on normal capacity of the production
facilities.  This standard is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005.  The Company does not believe the
adoption of this statement will result in a significant impact to the
Company's consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary
Assets," an amendment of APB Opinion No. 29, "Accounting for Non-Monetary
Assets."  The amendments made by SFAS No. 153 are based on the principle that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged.  Further, the amendments eliminate the narrow exception
for non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
"commercial substance."  The provisions in SFAS No. 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005.  Early application is permitted and companies must apply the
standard prospectively.  The Company does not believe the adoption of this
statement will result in a significant impact to the Company's consolidated
financial statements.


                                14

<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 3 - MARKETABLE SECURITIES AVAILABLE FOR SALE

The following is a summary of marketable securities available for sale as of
September 30, 2005:

                                            Adjusted
                                            Cost        Fair      Unrealized
                                            Basis       Value     Loss
                                            --------    -------   ---------
Marketable securities available for sale    $ 4,210     $ 4,210   $ 0


Unrealized holding gains and losses for the nine months ended September 30,
2005 and 2004 were zero and $47,000, respectively.  Realized losses on the
"other-than-temporary" write-down of marketable securities available for sale
were $3,290 and zero for the three months ended September 30, 2005 and 2004,
respectively. Realized losses on the "other-than-temporary" write-down of
marketable securities available for sale were $199,290 and zero for the nine
months ended September 30, 2005 and 2004, respectively.


NOTE 4 - RESTRICTED CASH

During the quarter ended September 30, 2005 the Company renegotiated the terms
of its convertible term note with Laurus Master Fund, Ltd. ("Purchaser") (see
Note 11).  All of the $1,258,689 of the principal amount of the convertible
term note that was previously held in a restricted account was released to the
Company during the nine months ended September 30, 2005.  The restricted cash
account earned interest at the rate of 3.25% per annum.  Interest income was
$4,397 and $6,186 for the quarters ended September 30, 2005 and 2004,
respectively.


NOTE 5 - LOAN ORIGINATION COSTS

Loan origination costs as of September 30, 2005 were as follows:

      Loan origination costs            $   311,000

      Less accumulated amortization        (129,585)
                                        ------------

                                        $   181,415
                                        ============

Amortization of the loan origination costs was $77,751 and $25,917 for the
nine months ended September 30, 2005 and 2004, respectively and $25,917 for
each of the quarters ended September 30, 2005 and 2004.



                                15

<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 6 - SOFTWARE DEVELOPMENT COSTS AND LICENSES

Software development costs and licenses consist of the following at September
30, 2005:

      Software development costs and licenses       $ 443,131
      Website development costs                         4,900
      Client lists                                     33,086
                                                  ------------
                                                      481,117
      Less accumulated amortization                   (86,150)
                                                  ------------
                                                  $   394,967
                                                  ============

Amortization expense was $60,273 and $3,658 for the nine months ended
September 30, 2005 and 2004, respectively and $20,091 and $1,219 for the three
months ended September 30, 2005 and 2004, respectively.

Future aggregate amortization of the software development costs and licenses
is as follows:

      2005                                        $    52,159
      2006                                            200,821
      2007                                            141,987
                                                  ------------
      Total                                       $   394,967
                                                  ============


NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at September 30, 2005 consist of the
following:

      Accounts payable                            $ 1,302,760
      Accrued payroll and payroll taxes               425,884
      Accrued sales taxes                             173,357
      Accrued interest expense                         74,589
      Accrued expenses- other                         164,295
                                                  ------------
                                                  $ 2,140,885
                                                  ============


                                16


<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 8 - DUE TO FACTOR

On August 23, 2002, the Company entered into a factoring and security
agreement to sell certain accounts receivable at a discount of 1.75% of the
face value.  The Company discontinued the services of the factor as of June
30, 2004 and all the outstanding balances due to the factor have been paid in
full.  The outstanding balances were secured by all of the Company's accounts
receivable, inventories and computer hardware.  In connection with the
factoring agreement, the Company incurred fees of $99,926 during the nine
months ended September 30, 2004.


NOTE 9 - NOTES PAYABLE - OFFICERS

Notes payable to officers are unsecured, past due, payable on demand and bear
interest at an annual rate of 6 percent on the unpaid principal balance.  The
Company repaid $24,000 and $100,000 of the notes payable to officers during
the three and nine month periods ended September 30, 2005, respectively.  The
balance on the notes payable to the officers amounted to $31,624 as of
September 30, 2005.  Interest expense on these notes for the nine months ended
September 30, 2005 and 2004 amounted to $3,191 and $11,900, respectively.


NOTE 10 - NOTES PAYABLE

Notes payable consisted of the following as of September 30, 2005:

                                                     Current    Long-term
                                                    ---------   ----------
Unsecured note, interest rate 6%, interest
 payable at the end of the term or on demand,
 past due and immediately payable                      50,000           -
Unsecured note, interest rate 6%, interest
 payable at the end of the term or on demand,
 past due and immediately payable                     100,000           -
Note secured by computer equipment, interest
 rate 10% payable in  monthly installments of
 principal and interest of $1,953 over 20 months       19,263      12,842
Note secured by computer equipment, interest
 rate 10% payable in monthly installments of
 Principal and interest of $4,273 over 18 months       46,764      23,382
                                                    ----------  ----------
                                                    $ 216,027   $  36,224
                                                    ==========  ==========

Interest expense on these notes for the nine months ended September 30, 2005
and 2004 was $11,817 and $11,805, respectively.





                                17

<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 11 - CONVERTIBLE DEBT

On June 25, 2004, the Company entered into a Securities Purchase Agreement
with Laurus Master Fund, Ltd. ("Purchaser" or "Laurus") in connection with the
private placement of a convertible term note issued by the Company in the
principal amount of $3,000,000, due June 25, 2007.   The note (as amended) is
convertible into shares of the Company's common stock at conversion prices of
$0.32 for the first $950,000 of aggregate principal converted and $0.60
thereafter and bears an interest at the prime rate plus 2%.  Additionally, the
note provisions include cashless warrants that provide for the purchase of up
to 705,000 shares of common stock at exercise prices ranging from $0.73 to
$0.79, until June 25, 2011.  The note is secured by all the Company's assets.

On January 28, 2005, the Purchaser made available $300,000 of the principal
amount held in the restricted account and the note was amended.  The Company
recorded a BCF associated with the amendment of $1,948.  Amortization of the
BCF associated with the amendment for the nine months ended September 30, 2005
and 2004 was $1,091 and zero, respectively.

On August 17, 2005, the Purchaser made available $950,000 of the principal
amount held in the restricted account and the note was amended.  There was no
BCF associated with this amendment.

The Company recorded a discount associated with the BCF $431,818 and a
discount associated with the warrants of $430,050.  These amounts are shown as
a reduction of the long-term portion of the convertible debt in the
accompanying consolidated balance sheet and are being amortized over term of
the note.  Amortization expense related to the discounts amounted $155,295 and
$54,577 for the nine months ended September 30, 2005 and 2004, respectively
and $51,765 and $51,765 for the three months ended September 30, 2005 and
2004, respectively.  In February 2005, 300,113 shares were issued as payment
of principal and interest of $106,061 and $19,987, respectively.

The balance of the convertible debt (net of unamortized discounts of $600,544)
as of September 30, 2005 was $965,909 for the current portion and $730,517 for
the long-term portion.


NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company leases office space under operating lease agreements expiring at
various dates through August 31, 2008.  Rent expense related to these leases
was $93,760 and $82,060 for the nine months ended September 30, 2005 and 2004,
respectively.  Minimum future rental payments under the leases are as follows:

       Years Ending:

       December 31, 2005      $  39,466
       December 31, 2006      $ 121,120
       December 31, 2007      $  61,728
       December 31, 2008      $  41,152


                                18
<PAGE>



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 12 - COMMITMENTS AND CONTINGENCIES, continued

As part of the purchase of certain assets of CBSi (see Note 16) the Company
assumed an agreement for wireless air-time services that requires minimum
future payments as follows:

 Years Ending:

       December 31, 2005      $       0
       December 31, 2006      $ 400,000
       December 31, 2007      $ 400,000

Indemnities and Guarantees
--------------------------

During the normal course of business, the Company has made certain indemnities
and guarantees under which it may be required to make payments in relation to
certain transactions.  These indemnities include certain agreements with the
Company's officers under which the Company may be required to indemnify such
persons for liabilities arising out of their employment relationship, lease
agreements where the Company may be required to indemnify landlords and the
Laurus agreement where the Company may be required to indemnify Laurus.  The
duration of these indemnities and guarantees varies, and in certain cases, is
indefinite.  The majority of these indemnities and guarantees do not provide
for any limitation of the maximum potential future payments the Company would
be obligated to make.  Historically, the Company has not been obligated to
make significant payments for these obligations and no liability has been
recorded for these indemnities and guarantees in the accompanying consolidated
balance sheet.

NOTE 13 - STOCKHOLDERS' EQUITY

Common Stock
------------

All issuances of the Company's stock for non-cash consideration have been
assigned a per share amount equaling either the market value of the shares
issued or the value of consideration received, whichever is more readily
determinable. The majority of the non-cash consideration received pertains to
services rendered by consultants and others and has been valued at the market
value of the shares on the dates issued.

During the nine months ended September 30, 2005, the Company issued 300,113
shares of its common stock as payment of principal and interest valued at
$106,061 and $ 19,987, respectively.  In addition, the Company issued 20,000
shares in connection with the exercise of stock options totaling $3,000.

Additionally, the Company issued 117,664 shares of restricted common stock
related to the purchase of certain assets of ISS (see Note 16).

Additionally, the Company issued 376,104 shares of common stock for officer
compensation amounting to $107,333.

The Company issued 82,332 shares of common stock for consulting services
amounting $25,500.

                                19
<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 13 - STOCKHOLDERS' EQUITY, continued

As of September 30, 2005, the balance in shares to be issued consisted of
$850,000 related to the purchase of certain assets of CBSi for 3,003,534
shares (see Note 16), $24,000 related to the exercise of 160,000 options,
officer compensation of $67,758 and consulting services of $66,460.  The
shares for options, officer compensation and consulting services, totaling
593,393 shares, were issued in October 2005.

During the nine months ended September 30, 2004, the Company issued the
following shares:

The Company issued 370,370 shares of common stock for management fees
amounting to $100,000.  The shares were issued as part of the management
agreement between the Company and IPN management for services to be provided
in 2004, as specified in the agreement.  $75,000 was expensed during the nine
months ended September 30, 2004.

The Company entered into a consulting agreement on February 27, 2004 under
which it will issue 180,000 shares as consideration for the consulting
services to be provided under the agreement. The Company had issued 137,099
shares as of September 30, 2004 and recorded the cost of the services provided
based on the 20-day average of the Company's stock price at the date of
agreement amounting to $160,200.  The cost is being amortized over the one
year term of the agreement.  The Company expensed $26,700 and $93,450 for the
nine months ended September 30, 2005 and 2004, respectively.

Additionally, the Company issued 30,000 shares of common stock for consulting
services amounting $22,200.

The Company issued 75,000 shares of common stock for salary expenses amounting
to $ 43,500.

The Company issued 497,500 shares of common stock for prepaid consulting
expenses amounting $188,413. The cost is being amortized over the one year
term of the agreements.  The Company expensed $53,141 and $24,026 for the nine
months ended September 30, 2005 and 2004, respectively.

The Company issued 150,000 shares of common stock for prepaid legal fees
amounting to $62,700. The cost will be amortized over the period of service.
The Company expensed $40,981 and zero for the nine months ended September 30,
2005 and 2004, respectively.

The Company issued 25,000 shares of common stock for prepaid directors
compensation amounting $10,175. The cost will be amortized over the period of
service.  The Company expensed $2,544 and $1,696 for the nine months ended
September 30, 2005 and 2004, respectively.

Treasury stock
--------------

The Company sold its treasury stock during the nine months ended September 30,
2004 for $150,904.


                                20



<PAGE>
           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

NOTE 13 - STOCKHOLDERS' EQUITY, continued

Stock Options
-------------

The Company has three stock option plans:  The 2003 Stock Compensation Plan
(the "2003 Plan"), the 2004 Non-Qualified Stock and Stock Option Plan (the
"2004 Plan") and the 2005 Non-Qualified Stock and Stock Option Plan (the "2005
Plan").Under the 2003 Plan, ten million shares of the Company's stock are
reserved for grant to directors, key employees and certain independent
contractors.  The option prices are at least equal to the fair market value of
the stock on the date of grant and carry terms of ten years or less.  The 2003
Plan is administered by the Board of Directors and all grants are determined
at the sole discretion of the Board.

Under the 2004 Plan, two million shares of the Company's common stock are
reserved for grant to officers, directors, employees, consultants and others.
Under the 2005 Plan, five million shares of the Company's common stock are
reserved for grant to officers, directors, employees, consultants and others.
Both the 2004 and 2005 Plans are administered by the Compensation Committee of
the Board of Directors.  All options must be granted within ten years of the
adoption of the plan.  Additionally, any options granted to a shareholder who
owns at least a ten percent interest in the Company have a maximum term of ten
years.  All expenses of administering the 2003, 2004 and 2005 Plans are borne
by the Company.

Following is a summary of the stock option activity:

            Outstanding at December 31, 2002                   600,000
                Granted                                      1,150,000
                Forfeited                                            -
                Exercised                                            -
                                                            -----------
            Outstanding at December 31, 2003                 1,750,000
                Granted                                      2,905,000
                Forfeited                                            -
                Exercised                                     (987,500)
                                                            -----------
            Outstanding at December 31, 2004                 3,667,500
                Granted                                      8,660,000
                Forfeited                                   (2,460,000)
                Exercised                                     (180,000)
                                                            -----------
            Outstanding at September 30, 2005                9,687,500
                                                            ===========

Following is a summary of the status of options outstanding at September 30,
2005:

                         Outstanding Options        Exercisable Options
                  -------------------------------  --------------------------
                            Weighted
                            Average      Weighted                  Weighted
                           Remaining     Average                   Average
                           Contractual   Exercise                  Exercise
Exercise Price    Number     Life        Price       Number        Price
--------------   --------- -----------  ----------- ------------  -----------
$ 0.06-$0.24       552,500     4.91       $  0.13      390,000     $  0.13
$ 0.23-$0.76     9,135,000     5.00       $  0.34    3,563,000     $  0.34



                                21
<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 13 - STOCKHOLDERS' EQUITY, continued

No compensation cost was recognized for the three and nine months ended
September 30, 2005 and 2004 as all options granted during the periods were to
employees and were above fair market value of the stock on the date of grant.

The assumptions used in calculating the fair value of options granted using
the Black-Scholes option-pricing model are as follows:

                                                     2005          2004
                                                     ----          -----
Risk-free interest rate                               4.19%         4.73%
Expected life of the options                          5.00 years    5.00 years
Expected volatility                                   287%          100%
Expected dividend yield                                 0             0

Had the Company determined employee stock based compensation cost based on a
fair value model at the grant date for its stock options under SFAS 123, the
Company's net income(loss) and income (loss) per share would have been
adjusted to the pro forma amounts for the three and nine months ended
September 30, 2005 and 2004 as follows ($ in thousands, except per share
amounts):

                                                       For the nine months
                                                       Ended September 30,
                                                         2005        2004
                                                  ------------- -----------
           Net income (loss) - as reported        $       (846) $      621
           Stock-Based employee compensation
             expense included in reported net
             income (loss), net of tax                       -           -
           Total stock-based employee
             compensation expense determined
             under fair-value-based method for
             all rewards, net of tax                      (840)       (228)
                                                    ----------- -----------
           Pro forma net income (loss)              $   (1,646) $      393
                                                    =========== ===========
           Income (loss) per share:
           Basic, as reported                       $    (0.02) $     0.02
           Diluted, as reported                     $    (0.02) $     0.02
           Basic, pro forma                         $    (0.04) $     0.01
           Diluted, pro forma                       $    (0.04) $     0.01




                                22


<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 13 - STOCKHOLDERS' EQUITY, continued

                                                       For the three months
                                                        ended September 30,
                                                            2005    2004
                                                    ------------ ------------
           Net income (loss) - as reported          $        25  $      (338)
           Stock-Based employee compensation
             expense included in reported net
             income (loss), net of tax                        -             -
           Total stock-based employee
             compensation expense determined
             under fair-value-based method for
             all rewards, net of tax                       (260)         (39)
                                                    ------------ ------------
           Pro forma net income (loss)              $      (235) $      (377)
                                                    ============ ============
           Income (loss) per share:
           Basic, as reported                       $     0.001  $     (0.009)
           Diluted, as reported                     $     0.001  $     (0.009)
           Basic, pro forma                         $    (0.005) $     (0.012)
           Diluted, pro forma                       $    (0.005) $     (0.012)


NOTE 14 - SEGMENT REPORTING

The Company has two reportable segments consisting of consulting services and
communications.  The Company evaluates performance based on sales, gross
profit margins and operating profit before income taxes.  The following is
information for the Company's reportable segments for the three and nine
months ended September 30, 2005 and 2004 (in thousands):

Three months ended September 30, 2005:

                           Consulting  Communications
                             Segment      Segment     Unallocated    Total
                          ------------ -------------- ----------- -----------
Net revenue               $     3,349  $       1,581  $        -  $    4,930

Gross profit                      250            295           -         545

Depreciation and
  amortization                    (38)           (25)          -         (63)

Interest expense                 (142)            (5)          -        (147)

Income (loss) from
 operations  before income
 taxes and minority interest       39            (14)          -          25

Identifiable assets             2,828          2,248           -       5,076

Capital expenditures                -            172           -         375


                                23


<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 14 - SEGMENT REPORTING, continued

Three months ended September 30, 2004:

                           Consulting  Communications
                             Segment      Segment     Unallocated    Total
                          ------------- ------------- ----------- -----------
Net revenue               $      2,793  $        257  $        -  $     3,050

Gross profit                       360            56           -          416

Depreciation and
 amortization                      (81)           (8)          -          (89)

Interest expense                  (101)           (5)          -         (106)

Income (loss) from
 operations
 before income taxes and
 minority interest                (380)           17          25         (338)

Identifiable assets              4,730           926           -        5,656

Capital expenditures                 -             -           -            -


Nine months ended September 30, 2005:


                           Consulting  Communications
                             Segment      Segment     Unallocated    Total
                          ------------- ------------ ----------- ------------
Net revenue              $      10,948  $      2,835  $       -   $   12,783

Gross profit                       612           701          -        1,313

Depreciation and
  amortization                    (145)          (37)         -         (182)

Interest expense                  (396)          (11)         -         (407)

Loss from
 operations before
 income taxes and
 minority interest                (506)          (337)        -         (843)

Identifiable assets              2,848          2,248         -        5,076

Capital expenditures                60            172         -          232



                                24


<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


NOTE 14 - SEGMENT REPORTING, continued

Nine months ended September 30, 2004:


                            Consulting  Communications
                              Segment      Segment     Unallocated    Total
                           ------------- ------------- ----------- ----------
Net revenue                $      8,990  $      2,069  $        -  $   11,059

Gross profit                      1,757           887           -       2,644

Depreciation and
  amortization                      (96)          (20)         (8)       (124)

Interest expense                   (121)          (10)          -        (131)

Income (loss) from
 operations
 before income taxes and
 minority interest                  436           199         (14)        621

Identifiable assets               4,730           926           -       5,656

Capital expenditures                  3            11           -          14


NOTE 15 - RELATED PARTY TRANSACTIONS

In 2004, the Company issued 370,370 shares of common stock for management fees
amounting $100,000.  These shares have been issued to the management of IPN as
part of the management agreement between the Company and IPN for services that
were provided in 2004.  Zero and $75,000 has been expensed for the nine months
ended September 30, 2005 and 2004, respectively.  The Company also entered
into a service agreement with IPN principals (current Company employees) in
which the Company granted 1,500,000 options to IPN management to be vested
over a period of two years. On October 1, 2005, the management agreement was
terminated and 825,000 options were cancelled.  Additionally, on October 1,
2005, the Company entered into a commission only sales consulting agreement
with one of the IPN principals.

The Company entered into written employment agreements with its two principal
shareholders as officers of the Company on August 18, 2005 to be effective as
of January 19, 2005.  Under the terms of the agreements, the principals will
earn an annual salary of $140,000 in 2005 and $160,000 in 2006, payable in a
combination of cash and common stock over the term of the agreements.
Further, they shall receive stock option grants of no less than 100,000 shares
per quarter vesting over two years with an exercise price equal to the average
closing price for the Company's common stock for the five trading days
immediately preceding and following the grant date.  The Company granted
400,000 and 1,600,000 options during the three and nine months ended September
30, 2005, respectively.


                                25
<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

NOTE 15 - RELATED PARTY TRANSACTIONS, continued

As part of the purchase of certain assets of CBSi (see Note 16) the Company
assumed an agreement with MBSi Capital Corp., ("MBSi") a company majority
owned by a director and shareholder of the Company.  Under the terms of the
agreement, MBSi will provide customer and technical support for BounceGPS
clients of the Company on a per unit basis.  During the period ended September
30, 2005 no payments were made under this agreement.

Notes Receivable represents a note receivable purchased by the Company in the
CBSi acquisition (see Note 16).  The note is due from MBSi and is unsecured,
bears interest at 7% payable annually on September 15 of each year and the
principal is due September 15, 2010.


NOTE 16 - ACQUISITION OF ASSETS

On March 1, 2005, the Company completed the purchase of certain assets of ISS.
The Company agreed to pay $50,000 in cash and $50,000 in restricted common
stock of the Company for all of ISS's contracts with existing customers,
customer lists and certain equipment used in ISS's information technology
business.  Moreover, under the agreement, the Company may pay an earn out up
to $400,000, payable in the Company's restricted common stock if certain
levels of revenues and net income before taxes are achieved during any
consecutive 12 months following the closing.  The earn out expires three years
following the closing.  The acquired assets are held in DNM.  DNM is an IT
consultancy and solutions provider for government, public safety and homeland
security agencies.

The purchase price was determined in arms-length negotiations between the
parties.  A summary of the assets acquired and consideration is as follows:

                                             Allocated Amount

     Equipment and Customer Lists               $  100,000
                                                -----------
                                                $  100,000
                                                -----------

         Consideration paid                         Amount

     117,664 shares of restricted common stock  $   50,000
     Cash                                           50,000
                                                -----------
                                                $  100,000
                                                -----------

On September 15, 2005, the Company completed the purchase of the assets of
CBSi.  The Company agreed to pay $850,000 in restricted common stock of the
Company for all of CBSi's net assets, contracts with existing customers,
customer lists, software, intangibles and equipment used in CBSi's asset and
vehicle tracking business.  Moreover, under the agreement, the Company may pay
an earn out that is payable in restricted common stock of the Company.  Under
the earn out plan, the CBSi shareholders may earn shares of restricted common
stock of the Company based upon certain gross profit dollars during the three
(3) years following the closing of the asset acquisition.  The earn out
expires three years following the closing.


                                26
<PAGE>

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

NOTE 16 - ACQUISITION OF ASSETS, continued

The purchase price was determined in arms-length negotiations between the
parties.  A summary of the net assets acquired and consideration is as
follows:
                                            Allocated Amount
                                            ----------------

Cash                                         $   200,426
Notes and accounts receivable                $   310,684
Inventory                                    $   875,655
Other assets                                 $    21,573
Equipment                                    $   154,729
Software                                     $   154,132
Goodwill                                     $    13,528
Due to DataLogic                             $  (668,225)
Capital leases                               $  (106,149)
Other liabilities                            $  ( 70,000)
Accounts payable                             $  ( 16,228)
Deferred revenue                             $  ( 20,125)
                                             ------------
Total                                        $   850,000
                                             ============

Goodwill originating from the CBSi acquisition will not be amortized.  As part
of the transaction, the Purchaser assumed approximately $212,502 in
liabilities and various agreements.

         Consideration paid                      Amount
         ------------------                  ------------
   3,003,534 restricted common stock
   shares to be issued                       $   850,000
                                             ------------
                                             $   850,000
                                             ============

The following unaudited pro forma combined results of operations indicate the
historical results that would have been shown had CBSi  operating results been
included with the Company  for the period January 31, 2005 (date of CBSi
inception) through September 30, 2005.  The pro forma information is provided
for informational purposes only.  It is based on historical information and
does not necessarily reflect the actual results that would have occurred and
is not necessarily indicative of future results of operations of the combined
companies.
                                    For the three          For the nine
                                    months ended           months ended
                                    September 30, 2005     September 30, 2005
                                    ------------------     ------------------
Total revenues                      $     4,949,017        $   12,801,463
                                    ==================     =================
Net loss                                    (23,273)           (1,161,178)
                                    ==================     =================
Pro forma net loss per share
 basic and diluted                  $        (0.001)       $       (0.027)
                                    ==================     =================


                                27

<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and notes to the consolidated financial
statements included elsewhere in this report.  This report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act.  We intend
that the forward-looking statements be subject to the safe harbors created by
those sections.

The forward-looking statements generally include management's plans and
objectives for future operations, including plans, objectives and expectations
relating to our future economic performance, business prospects, revenues,
working capital, liquidity, ability to obtain financing, generation of income
and actions of secured parties not to foreclose on our assets.  The
forward-looking statements may also relate to our current beliefs regarding
revenues we might earn if we are successful in implementing our business
strategies.  The forward-looking statements generally can be identified by the
use of the words "believe," "intend," "plan," "expect," "forecast," "project,"
"may," "should," "could," "seek," "pro forma," "estimates," "continues,"
"anticipate" and similar words.  The forward-looking statements and associated
risks may include, relate to, or be qualified by other important factors,
including, without limitation:

     .   anticipated trends in our financial condition and results of
         operations (including expected changes in our gross margin and
         general, administrative and selling expenses);

     .   our ability to finance our working capital and other cash
         requirements;

     .   our business strategy for expanding our presence in the information
         security products and services markets; and

     .   our ability to distinguish ourselves from our current and future
         competitors.

We do not undertake to update, revise or correct any forward-looking
statements.  The forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties.  Actual
results could differ materially from these forward-looking statements.
Important factors to consider in evaluating forward-looking statements
include:

     .   changes in external competitive market factors or in our internal
         budgeting process that might impact trends in our results of
         operations;

     .   changes in our business strategy or an inability to execute our
         strategy due to unanticipated changes in the markets; and

     .   various other factors that may prevent us from competing
         successfully in the marketplace.

The information contained in this report is not a complete description of our
business or the risks associated with our common stock.  Before making
investment decisions about our common stock, you should carefully review and
consider this entire report and the other materials filed with the Securities
and Exchange Commission that discuss our business in greater detail and the
risks, uncertainties and other factors that affect our business results of
operations and/or financial condition.

                                28


<PAGE>

RISKS THAT ARE UNIQUE OUR BUSINESS

We have purposefully omitted risk factors the average investor would consider
too broad and/or generic, i.e. those risks that describe circumstances or
factual situations that are equally applicable to other similarly situated
businesses.  If any of the following risks occur, our business, financial
condition and results of operations will suffer. Any of these risk factors can
harm our business and future results of operations.
We provide Information Technology outsourcing and consulting services to a
wide range of U.S. and international governmental agencies and commercial
enterprises.  However, we depend on a few major customers for the majority of
our revenues.  This creates a significant financial risk to the Company
because if a major customer were to terminate or materially reduce, for any
reason, its business relationship with us, we would suffer an immediate and
substantial decline in revenue.

Some of our government agency customers are subject to unique political and
budgetary constraints.  This constraint imposed upon our customers makes it
difficult to predict the timing and amount of revenue to expect from these
customers in future periods.  In addition, our government agency customers
have special contracting requirements that affect our ability to obtain new
government customers.

OUR STOCK PRICE IS VOLATILE

The price of our shares and the trading volume of our shares have been
volatile historically and may continue to be volatile.  Volatility may be
caused by a number of factors including but not limited to:

    .  Actual or anticipated quarterly variations in operating results;

    .  Rumors about our performance or merger and acquisition activity;

    .  Changes in expectations of future financial performance or changes in
       estimates of securities analysts;

    .  Governmental regulatory action;

    .  Client relationship developments;

    .  Purchases or sales of Company stock;

    .  Changes occurring in the markets in general; and

    .  Other factors, many of which are beyond our control.

ABILITY OF DEREK NGUYEN AND KHANH NGUYEN TO EXERCISE CONTROL

Two of our directors and principal shareholders beneficially owned
approximately 35% of the outstanding shares of our common stock at September
30, 2005, which makes it possible for them to have significant influence over
the outcome of all matters submitted to our shareholders for approval,
including the election of our directors and other corporate actions, which
influence may be alleged to conflict with our interests and the interests of
our other shareholders.


                                29



INTERNAL CONTROL ASSESSMENT

We have a very small finance and accounting staff and, due to our limited
resources, it is not always possible to have optimum segregation of accounting
and finance duties.  However, if we are unsuccessful in attracting the capital
and human resources necessary to implement and maintain an effective system of
internal controls, and if as a result we were to fail to disclose timely
material items as required under the Securities Exchange Act, it could give
rise to potential regulatory and/or shareholder actions, which could have a
material adverse effect on our business and financial condition, and on the
market value of our shares. We believe that our current system of internal
controls are generally adequate.

GROWTH BY ACQUISITION

We plan to engage in future acquisitions, which may be expensive and
time-consuming and from which we may not realize anticipated benefits.  We may
acquire additional businesses, technologies, products and services if we
determine that these additional businesses, technologies, products and
services are likely to serve our strategic goals. We currently have no
commitments or agreements with respect to any acquisitions.  The specific
risks we may encounter in these types of transactions include the following:

     .  Potentially dilutive issuances of our securities, the incurrence of
        debt and contingent liabilities and amortization expenses related to
        intangible assets, which could adversely affect our results of
        operations and financial condition;

     .  Difficulty in predicting and responding to issues related to product
        transition such as development, distribution and customer support;

     .  The possible adverse impact of such acquisitions on existing
        relationships with third-party partners and suppliers of technologies
        and services;

     .  The possibility that staff or customers of the acquired company might
        not accept the new ownership and may transition to different
        technologies or attempt to renegotiate contract terms or
        relationships;

     .  The possibility that the due diligence process in any such
        acquisition may not completely identify material issues associated
        with product quality, intellectual property issues, key personnel
        issues or legal and financial contingencies; and

     .  Difficulty in integrating acquired operations due to geographical
        distance and language and cultural differences.

A failure to successfully integrate acquired businesses or technology for any
of these reasons could have a material adverse effect on our results of
operations.

THE COMPANY WILL ISSUE ADDITIONAL SECURITIES, INCLUDING COMMON STOCK

The sale of our common stock by Laurus Master Fund may cause dilution and
could cause the price of our common stock to decline.  We intend to raise
additional funds through the issuance of equity, equity-related or convertible
debt securities.  The issuance of additional common stock dilutes existing
stockholdings.  In connection with our transaction with Laurus, as of


                                30

<PAGE>

September, 2005, we may issue up to 5,241,134 shares of common stock
throughout the three year term, and accordingly, our stockholders may
experience dilution.  Further procurement of additional financing through the
issuance of equity, equity-related or convertible debt securities or preferred
stock may further dilute existing stock.  Further, the perceived risk of
dilution may cause the selling stockholder, as well as other holders, to sell
their shares, which would contribute to downward movement in the price of the
shares.

THE COMPANY PLEDGED ALL ITS ASSETS TO SECURE A CONVERTIBLE NOTE TO LAURUS

On June 25, 2004, we issued a $3,000,000 convertible note to Laurus.  Events
of default under the note include:

     .  failure to pay interest and principal payments when due;
     .  a breach by us of any material covenant or term or condition of the
        note or any agreement made in connection therewith;
     .  a breach by us of any material representation or warranty made in the
        note or in any agreement made in connection therewith;
     .  an assignment for the benefit of our creditors or a receiver
        or trustee is appointed for us;
     .  any form of bankruptcy or insolvency proceeding is instituted by or
        against us;
     .  any money judgment entered or filed against us for more than $50,000;
     .  failure to timely deliver shares of common stock when due upon
        conversions of the note; and
     .  trading of our common stock is suspended for 5 consecutive days or 5
        days during any 10 consecutive days from a principal market.

If we default on the note and the holder demands all payments due and payable,
we will be required to pay 130% of the outstanding principal amount of each
note and any interest accrued thereon.  The cash required to pay such amounts
will most likely come out of working capital.  Since we rely on our working
capital for our day-to-day operations, such a default on the note could
materially adversely effect our business, operating results or financial
condition to such extent that we are forced to restructure, file for
bankruptcy, sell assets or cease operations, any of which could put your
investment dollars at significant risk.  Further, our obligations under the
note are secured by all of our and our subsidiaries' assets.  Failure to
fulfill our obligations under the note and related agreements could lead to
loss of these assets, which would be detrimental to our operations and could
put the Company out of business.

COMPANY OVERVIEW

DataLogic International, Inc. ("DataLogic" or the "Company"), through its
wholly owned subsidiaries, provides communication solutions including
GPS-based ("Global Positioning System") mobile asset tracking, secured mobile
communications and VoIP ("Voice over Internet Protocol") communications.  The
Company provides these solutions and Information Technology ("IT") outsourcing
and consulting services to a wide range of U.S. and international governmental
agencies and commercial enterprises.   The Company leverages its technology
expertise, customer relationships and supplier channels to develop solutions
addressing the rapidly growing communications markets.   The Company's
services capitalize on the ongoing trend toward strategic IT outsourcing and
address growing markets such as public safety and homeland security.

                                31
<PAGE>

On January 13, 2004, the Company acquired the Machine-to-Machine ("M2M")
technology from two technologists and entered into the mobile asset tracking
business.  Panther Trak(TM) is the Company's first product in the M2M mobile
asset tracking vertical market.  This GPS based mobile asset tracking device
was designed to focus largely on theft, recovery and tracking services.  The
Company derives its M2M revenues from the sale of mobile tracking units,
software and hardware licenses and residual income from monthly user
subscription fees.

On September 15, 2005, the Company acquired the assets of CBSi to complete its
GPS based mobile asset tracking solution and further increase its distribution
and client relationships.

The Company's wholly owned subsidiaries include DataLogic Consulting, Inc.
("DCI"), IPN Communications, Inc. ("IPN") and DataLogic New Mexico, Inc.
("DNM").

DCI provides complete IT consulting services that include, but are not limited
to, project management and systems analysis, design, implementation, testing
and maintenance.  The services can be provided at the clients' locations or
off-site at the Company's U.S. or affiliated offshore facilities.  DCI also
provides short and long-term staffing solutions to IT clients, healthcare
providers and other businesses.

IPN provides VoIP telephony products and services worldwide.  IPN derives its
VoIP revenues from phone sets, communication servers, software and hardware
licenses and residual global long distance airtime sales.  The Company
increased its ownership of IPN from 51% to 100% on November 5, 2004.

DNM was formed in the first quarter of 2005 as a result of the acquisition of
the assets of IS Solutions, LLC.  DNM is a technical solution provider for
public safety and homeland security agencies.

The Company now consists of two core businesses: Communications and Consulting
Services.

Company Strategy

Our strategy is the maintenance and growth of our core businesses. Among the
key elements central to this strategy are:

      o   Continued development and enhancement of select products, services
          and solutions for target markets;

      o   Continued investments in the Company's infrastructure including but
          not limited to product development, sales, implementation and
          support;

      o   Continued efforts to make infrastructure investments within an
          overall context of maintaining reasonable expense discipline; and

      o   Addition of new customers through maintaining and expanding sales,
          marketing and service and product development activities.

As a whole, we are pursuing an aggressive growth strategy with a combination
of organic and acquired growth in all our business segments.


                                32

<PAGE>

Organically, our plans include expanding service offerings to existing
clients, revisiting past client relationships to rekindle revenue streams and
generally capturing market share in the growth industries the Company
services.  Our strategy for expanding our market share involves a strong focus
on quality customer service and competitive rates. We plan to achieve this by
leveraging our efficient operation and utilizing the economies of scale to
provide quality and economic products, services and solutions to our clients.

We are also pursuing a growth strategy through acquisitions that can provide
1.) new service offerings that can be marketed to existing clients, 2.) new
clients and contracts and 3.) products and services that support our
communications products and provide recurring, predictable service and
maintenance revenue streams.

For our acquisition strategy, we are targeting companies that have an
established market presence in their respective fields, along with a loyal
customer base that can be used to cross-sell other products and services.  The
success of our acquisition strategy depends not only on our ability to
identify and acquire businesses on a cost-effective basis, but also upon our
ability to integrate the acquired operations into our organization
effectively, to retain clients of the acquired businesses, to retain the
personnel of the acquired companies and to obtain additional financing.

Each of our business units has unique opportunities and strategies as follows:

Communications

Mobile Asset Tracking.  The September 15, 2005 acquisition of the assets of
CBSi brings the Company BounceGPS.  Combined with Panther Trak (TM), the
Company offers complete solutions for real-time vehicle and asset management
services for commercial and government customers.

Our competitively priced Panther Trak device harnesses GSM and CDMA digital
cellular networks and the Global Positioning System (GPS) to allow a complete
range of customer-defined options in keeping track of valuable vehicular
assets.

Panther Trak is a component of our BounceGPS solution.  The BounceGPS system
includes Automated Vehicle Location (AVL) software that interacts with mapping
technology, as well as administration modules for management of mobile assets
all within a simple user interface design.  The BounceGPS system uses a flat
rate communication structure that eliminates recurring monthly airtime charges
for our customers.

BounceGPS allows complete control of the Panther Trak device from a user's PC
including customized functions, such as notification when the vehicle or asset
is moved, disabling the vehicle, notification of cargo door openings, in
vehicle temperature readings, and even remotely unlocking the vehicle doors
from anywhere in the world.  In an emergency situation, a covert microphone
can also be activated to listen to what is happening in the vehicle.

Secured Mobile Communications.  We offer an encryption and two-factor
authentication product, EncrypTAC(TM). EncrypTAC allows law enforcement agents
using mobile communications to efficiently access FBI databases without
compromising security.  EncrypTAC is approved by New Mexico-based police
departments and we are expanding our sales and marketing efforts for EncrypTAC
on a nationwide basis.

                                33

<PAGE>


While these are the key elements of our current strategy, there can be no
guarantees that our strategy will not change, or that we will succeed in
achieving these goals individually or collectively.

VoIP.  We provide low-cost, high-quality VoIP solutions that are marketed to
businesses and consumers worldwide.  We offer complete solutions including:
Turn key communication servers with accounting and billing systems, other
required software and hardware licenses, phone sets, private labeling,
hosting, co-locating, and residual international long distance airtime.

We target underserved telecommunications markets and are currently working
with various telecommunications companies, ISP, system integrators and
distributors in Asia, the Middle East, South America, Australia, Africa and
Europe to deploy our solutions to the respective local markets.

Our current client base for the mobile asset tracking products is
predominantly located in North America. The Company also has clients in South
America and Europe. The majority of the GPS clients are distributors,
resellers, or system integrators.

Our client base for the Secured Mobile Communications product is primarily
public safety and homeland security agencies.

Our current client base for VoIP products and services is predominantly
located in Asia. The Company also has clients in North America, South America
and Eastern Europe. The majority of VoIP clients are distributors, resellers,
system integrators, telecommunication companies, ISP's, call center operators,
and long distance wholesalers. We also sell our VoIP equipment directly to
general consumers.

Consulting Services

We plan to capitalize on the growth trends in IT outsourcing by large
corporations and public entities that look to economize their operations, move
fixed costs to variable costs, and focus on core competencies.  IT outsourcing
is now a prevalent practice due to the proliferation and increased
sophistication of technology in the workplace.  In addition, thousands of IT
service providers have entered the market, which has created acquisition
opportunities for the Company.

The February 24, 2005 acquisition of the assets of New Mexico-based IS
Solutions, LLC (ISS) brings the Company increased ability to provide new IT
services for public safety and homeland security customers.

Clients

Our client base for consulting services is predominantly located in North
America. It includes small to large commercial businesses as well as all
levels of governmental agencies. Among the industries that the Company serves
includes Communications, Energy, Financial, Government, Education, Public
Safety, Homeland Security, Healthcare, Manufacturing, Retail and
Transportation.




                                34

<PAGE>


Sales and Marketing

We use a direct sales force, online marketing, strategic partnerships and
distributor programs to market our products and services. The direct sales
force consists of in-house business development personnel and account
executives who market the products and services to senior business executives,
information officers, information systems managers and others who make
purchasing decisions. Our strategic partnerships provide us with additional
potential businesses via a split-fee, revenue sharing or commission-based
arrangement.

Our direct sales force typically responds to proposals and makes presentations
to potential clients.  Our sales employees identify prospective clients
through a variety of means, including sourcing of proposals, referrals from
existing clients, industry consultants, and trade shows and seminars.  Our
sales cycle can vary significantly and typically ranges from three to twelve
months from initial contact to contract execution.

We engage in advertising and other traditional marketing techniques such as
client referrals, trade shows, and personal sales calls to targeted clients.
Relationships with our larger clients and key governmental personnel are
maintained and fostered by at least one of our executive officers. We derive a
large part of our business from repeat sales to our clients and look to
continually expand product and service offerings with existing clients.

The Company's principal products and services do not require any special
government approval that is unique to the Company.  The Company is subject to
the same array of federal, state and local laws and regulations that affect
other business in the information technology and service industry.

Research and Development

During the nine months ended September 30, 2005 and 2004, the Company spent a
limited amount on research and development activities.

Intellectual Property

We have registered our key Internet URLs, www.dlgi.com,
www.datalogicconsulting.com, www.ipncom.com, www.iphonecenter.net, and
www.bouncegps.com and review these registrations on a regular basis to ensure
that they remain current and in good standing.  We currently do not hold any
patents but have applied for one to protect our Communications technologies.

While the Company has applied for a patent in an effort to protect its
intellectual property, it cannot be sure of the nature or extent of the
protection afforded, since the patent has not been approved.

While the Company has applied for registration of trademarks, service marks
and registered domain names in an effort to protect them, it cannot be sure of
the nature or extent of the protection afforded, since trademark registration
does not assure any enforceable rights under many circumstances and there
exists significant uncertainty surrounding legal protections of domain names.

Costs and Effects of Compliance with Environmental Laws

The Company has not incurred any separately identifiable costs to comply with
environmental laws.


                                35
<PAGE>


Competition

The markets for the Company's products and services are intensely competitive.
The industry is highly fragmented and includes numerous competitors, none of
which we believe dominates these markets. The markets the Company services are
subject to rapid changes in technology, and we expect that competition in
these market segments will increase as new competitors enter the market. We
believe our principal competitive advantages are the features and capabilities
of our products and services, our high level of customer support, and our
extensive experience in the industry.

Employees

As of September 30, 2005, the Company had 320 employees. There were 248
part-time and 72 full-time employees including 25 employees consisting of
executive, supervisory, administrative, sales and clerical personnel. The
Company considers its relations with its employees to be good. The Company has
no collective bargaining agreements with any of its employees. The Company has
employment agreements with senior management and with each of its billable
employees.

Results of Operations

Comparison of Three Months Ended September 30, 2005 to Three Months Ended
September 30, 2004

Net Revenue.

Consulting Segment

The net revenues for the quarter ended September 30, 2005 increased $556,000
or 19.9% to $3,349,000 as compared to net revenues of $2,793,000 for the same
period in the prior year.  The year-over-year increase in revenues was due to
increases in consulting contracts received in 2005.

Communications Segment

The net revenues for the quarter ended September 30, 2005 increased $1,324,000
or 512.8% to $1,581,000 as compared to net revenues of $257,000 for the same
period in the prior year.  The year-over-year increase in revenues was due to
increases in BounceGPS and video communications product and service sales.

Gross Profit.

Consulting Segment

The gross profit for the quarter ended September 30, 2005 decreased $110,000
or 30.6% to $250,000 as compared to the gross profit of $360,000 for the same
period in the prior year.  From time to time the Company performs an analysis
of overhead costs and the Company performed such an analysis during the
quarter ended September 30, 2005 and as a result certain expenses were
re-classified from operating expenses to cost of goods sold which resulted in
an increase in costs of goods sold and the decrease in gross profit.



                                36
<PAGE>



Communications Segment

The gross profit for the quarter ended September 30, 2005 increased $239,000
or 426.8% to $295,000 as compared to the gross profit of $56,000 for the same
period in the prior year.  The year-over-year increase in gross profit was due
to increases in BounceGPS and video communications product and service sales.

Operating Expenses.

Consulting Segment

The operating expenses for the quarter ended September 30, 2005 were $69,000
as compared to the operating expenses of $639,000 for the same period in the
prior year.  From time to time the Company performs an analysis of overhead
costs and the Company performed such an analysis during the quarter ended
September 30, 2005 and as a result certain expenses were re-classified from
operating expenses to cost of goods sold and to operating expenses of the
Communications segment all of which resulted in the decrease in operating
expenses.

Communications Segment

The operating expenses for the quarter ended September 30, 2005 were $304,000
as compared to the operating expenses of $34,000 for the same period in the
prior year.  The year-over-year increase was due to increases in operating
expenses as a result of our acquisition of CBSi, increases in operations for
the BounceGPS and other communications product and service activities and
re-allocation of consulting segment and overhead expenses.

Non-Operating Expenses.

Consulting Segment

Interest expense for the quarter ended September 30, 2005 was $142,000 as
compared to $101,000 for the same period in the prior year.  The increase in
interest expense was primarily due to the interest expense associated with the
convertible term note issued by the Company to Laurus.  Other than temporary
write-down of marketable securities available for sale was $3,290 for the
quarter ended September 30, 2005 as compared to $ 0 for the same period in the
prior year.  The increase in other than temporary write-down of marketable
securities for sale was attributable to the Company's determination that the
decline in the market value of securities available for sale is
"other-than-temporary."  Accordingly, the cost bases of the securities were
adjusted to their market value as of September 30, 2005.

Communications Segment

Interest expense for the quarter ended September 30, 2005 was $5,000 as
compared to $5,000 for the same period in the prior year.

Net Income (loss).

Consulting Segment

As a result of the above, the net income for the quarter ended September 30,
2005 was $39,000 as compared to the net loss of $380,000 for the same period
in the prior year.  Net income was the result of re-classifying certain
expenses to expenses of the Communications segment.

                                37
<PAGE>


Communications Segment

As a result of the above, the net loss for the quarter ended September 30,
2005 was $14,000 as compared to the net income of $17,000 for the same period
in the prior year.  Net loss was the result of our acquisition of CBSi,
increases in operations for the BounceGPS and other communications product and
service activities and re-allocation of consulting segment and overhead
expenses.

The basic and diluted earnings per share was $0.001 during the three months
ended September 30, 2005 as compared to the basic and diluted loss per share
of $0.009 during the same period last year.

Comparison of Nine Months Ended September 30, 2005 to Nine Months Ended
September 30, 2004

Net Revenue.

Consulting Segment

The net revenues for the nine months ended September 30, 2005 increased
$1,958,000 or 21.8% to $10,948,000 as compared to net revenues of $8,990,000
for the same period in the prior year.  The year-over-year increase in
revenues was due to increases in consulting contracts received in 2005.

Communications Segment

The net revenues for the quarter ended September 30, 2005 increased $766,000
or 37.0% to $2,835,000 as compared to net revenues of $2,069,000 for the same
period in the prior year.  The year-over-year increase in revenues was due to
increases in BounceGPS and video communications product and service sales.

Gross Profit.

Consulting Segment

The gross profit for the nine months ended September 30, 2005 decreased
$1,145,000 or 65.2% to $612,000 as compared to the gross profit of $1,757,000
for the same period in the prior year.  From time to time the Company performs
an analysis of overhead costs and the Company performed such an analysis
during the nine months ended September 30, 2005 and as a result certain
expenses were re-classified from operating expenses to cost of goods sold
which resulted in an increase in costs of goods sold and the decrease in gross
profit.

Communications Segment

The gross profit for the nine months ended September 30, 2005 decreased
$186,000 or 21% to $701,000 as compared to the gross profit of $887,000 for
the same period in the prior year.  The year-over-year decrease in gross
profit was due to decreases in VoIP license revenue.



                                38
<PAGE>


Operating Expenses.

Consulting Segment

The operating expenses for the nine months ended September 30, 2005 were
$722,000 as compared to the operating expenses of $1,200,000 for the same
period in the prior year.  From time to time the Company performs an analysis
of overhead costs and the Company performed such an analysis during the nine
months ended September 30, 2005 and as a result certain expenses were
re-classified from operating expenses to cost of goods sold and to operating
expenses of the Communications segment all of which resulted in the decrease
in operating expenses.

Communications Segment

The operating expenses for the nine months ended September 30, 2005 were
$1,027,000 as compared to the operating expenses of $678,000 for the same
period in the prior year.  The year-over-year increase was due to increases in
operating expenses as a result of our acquisition of CBSi, increases in
operations for the BounceGPS and other communications product and service
activities and re-allocation of consulting segment and overhead expenses.

Non-Operating Expenses.

Consulting Segment

Interest expense for the nine months ended September 30, 2005 was $396,000 as
compared to $121,000 for the same period in the prior year.  The increase in
interest expense was primarily due to the interest expense associated with the
convertible term note issued by the Company to Laurus.  Other than temporary
write-down of marketable securities available for sale was $199,290 for the
nine months ended September 30, 2005 as compared to $ 0 for the same period in
the prior year.  The increase in other than temporary write-down of marketable
securities for sale was attributable to the Company's determination that the
decline in the market value of securities available for sale is
"other-than-temporary."  Accordingly, the cost bases of the securities were
adjusted to their market value as of September 30, 2005.

Communications Segment

Interest expense for the nine months ended September 30, 2005 was $11,000 as
compared to $10,000 for the same period in the prior year.  The increase in
interest expense was related to the interest on the notes assumed with the
CBSi asset purchase.


Net Income (loss).

Consulting Segment

As a result of the above, the net loss for the nine months ended September 30,
2005 was $509,000 as compared to the net income of $436,000 for the same
period in the prior year.  The loss was primarily due to a decrease in license
revenue as compared to the nine months ended September 30, 2004, and the other
than temporary write-down of marketable securities available for sale in the
nine months ended September 30, 2005.


                                39
<PAGE>


Communications Segment

As a result of the above, the net loss for the nine months ended September 30,
2005 was $337,000 as compared to the net income of $199,000 for the same
period in the prior year.  Net loss was the result of our acquisition of CBSi,
increases in operations for the BounceGPS and other communications product and
service activities and re-allocation of consulting segment and overhead
expenses.

The basic and diluted loss per share was $0.021 during the nine months ended
September 30, 2005 as compared to the basic and diluted earnings per share of
$0.017 and $0.015 during the same period last year, respectively.

Liquidity and Capital Resources

On June 29, 2004, we issued $3 million of convertible secured debt (the "$3
Million Financing"), including the issuance of warrants to purchase a total of
705,000 shares of our common stock. The proceeds from the $3 Million Financing
improved our working capital position.  As of September 30, 2005 we have
$850,706 in cash. Given our September 30, 2005 cash balance and the projected
operating cash requirements, we anticipate that existing capital resources
will be adequate to satisfy our cash flow requirements through December 31,
2005. Our cash flow estimates are based upon achieving certain levels of
sales, gross profit and operating expenses.

Our liquidity primarily consists of $850,706 in cash and cash equivalents and
$1,698,947 in accounts receivable.  The Company's current liabilities consist
of $3,726,674 in accounts payable, accrued expenses, and short-term debts.

The Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with GAAP, and have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of business.  The Company has
an accumulated deficit of $4,175,045 at September 30, 2005.  Management has
taken various steps to revise its operating and financial requirements, which
it believes will be sufficient to provide the Company with the ability to
continue its operations for the next twelve months.  Management has also
devoted considerable effort during the nine months ended September 30, 2005
towards management of liabilities and improvement of the Company's operations.

In view of the matters described above, recoverability of a major portion of
the recorded asset amounts shown in the accompanying consolidated balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations.  The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.

We may elect to raise additional capital in the future, from time to time,
through equity or debt financings in order to capitalize on business
opportunities and market conditions and to insure the continued marketing of
current product and service offerings together with development of new
technology, products and services. There can be no assurance that we can raise
additional financing with favorable terms.


                                40
<PAGE>

We believe that our current cash position is sufficient to meet our capital
expenditures and working capital requirements for the near term; however, the
growth and technological change of the market make it difficult for us to
predict future liquidity requirements with certainty and our forecast is based
upon certain assumptions, which may differ from actual future outcomes.  Over
the longer term, we must successfully execute our plans to increase revenue
and income streams that will generate significant positive cash flow if we are
to sustain adequate liquidity without impairing growth or requiring the
infusion of additional funds from external sources.  Additionally, a major
expansion, such as would occur with the acquisition of a major new subsidiary,
might also require external financing that could include additional debt or
capital.  There can be no assurance that additional financing, if required,
will be available on acceptable terms, if at all.


ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.  The Company carried out
an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"), of the effectiveness of the Company's
disclosure controls and procedures. Based upon that evaluation, the CEO and
CFO concluded that as of September 30, 2005 our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to the Company (or the Company's consolidated subsidiaries) required
to be included in the Company's periodic filings with the SEC, subject to the
various limitations on effectiveness set forth below under the heading,
"LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS," such that the
information relating to the Company, required to be disclosed in SEC reports
(i) is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and (ii) is accumulated and communicated to
the Company's management, including our CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There has been no
change in the Company's internal control over financial reporting that
occurred during the three months ended September 30, 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS

The Company's management, including the CEO and CFO, does not expect that our
disclosure controls and procedures or our internal control over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact that
there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, and/or
the degree of compliance with the policies or procedures may deteriorate. See:
RISKS RELATED TO OUR BUSINESS.

                                41
<PAGE>


                   PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.  OTHER INFORMATION

None.


ITEM 6.  EXHIBITS

Exhibit  Description
-------  -----------
(3.1.1)   Certificate of Incorporation (1)
(3.1.2)   Certificate of Amendment to Certificate of Incorporation (1)
(3.1.3)   Certificate of Amendment to Certificate of Incorporation (4)
(3.1.4)   Certificate of Amendment to Certificate of Incorporation (4)
(3.2)     Amended and Restated By-laws (1)
(4.1)     Instruments Defining Rights of Security Holders *
(10.1)    Securities Purchase Agreement dated June 25, 2004, by and
          between DataLogic International Group, Inc. and Laurus Master
          Fund, Ltd. (2)
(10.2)    Secured Convertible Term Note dated June 25, 2004, by and
          between DataLogic International, Inc. and Laurus Master Fund,
          Ltd. (2)
(10.3)    Registration Rights Agreement dated June 25, 2004, by and
          between DataLogic International, Inc. and Laurus Master Fund,
          Ltd. (2)
(10.4)    Common Stock Purchase Warrant (2)
(10.5)    Master Security Agreement dated June 25, 2004, by DataLogic
          International, Inc. and its subsidiaries. (2)
(10.6)    Stock Pledge Agreement dated June 25, 2004, by and among
          Laurus Master Fund, Ltd., DataLogic International, Inc.
          and its subsidiaries. (2)
(10.7)    Subsidiary Guaranty dated June 25, 2004 by the subsidiaries
          of DataLogic International, Inc. (2)
(10.8)    Funds Escrow Agreement dated June 25, 2004 by and among
          DataLogic International, Inc., Laurus Master Fund, Ltd. and
          Loeb & Loeb LLP (2)



                                42
<PAGE>



(10.9)    Restricted Account Agreement dated June 25, 2004 by and among
          North Fork Bank, DataLogic International, Inc. and Laurus
          Master Fund, Ltd. (2)
(10.10)   Subordination Agreement dated June 25, 2004 by and between
          Derek K. Nguyen and Khanh D. Nguyen and Laurus Master Fund,
          Ltd. (2)
(10.11)   Restricted Side Letter between Laurus Master Fund, Ltd. and
          DataLogic International, Inc. (2)
(10.12)   Stock Option Plan (3)
(10.13)   Management Agreement with IPN Communications, Inc. (4)
(10.14)   Warrant Agreement with Biscayne Capital Markets, Inc. (4)
(10.15)   Finder's Fee Agreement with Biscayne Capital Markets, Inc. (4)
(10.16)   Agreement to Acquire 49% of IPN (5)
(10.17)   Amendment No 1. To Secured Convertible Term Note (6)
(10.18)   Asset Purchase Agreement with I.S. Solutions LLC, dated February
          24, 2005 (7)
(10.19)   Agreement for Non Competition and Earn-Out Compensation, dated
          February 24, 2005 (7)
(10.20)   Non-qualified Stock Option Plan (8)*
(10.21)   Amendment No. 2 to Secured Convertible Term Note (the "Ominibus
          Amendment") (9)
(10.22)   Asset Purchase Agreement with CBSI Holdings, Inc., dated September
          15, 2005 (10)
(10.23)   Agreement for non-Competition and Earn-Out Compensation, dated
          September 15, 2005) (10)
(10.24)   Employment Agreement with Derek Nguyen dated August 18, 2005 **
(10.25)   Employment Agreement with Khanh Nguyen dated August 18, 2005 **
(10.26)   Employment Agreement with Keith Moore dated August 18, 2005 **
(21)      Subsidiaries of DataLogic International, Inc. (11)
(31.1)    Certification pursuant Section 302 **
(31.2)    Certification pursuant Section 302 **
(32.1)    Certification pursuant Section 906 **


*   incorporated by reference from the provisions of Exhibits 3.1.1 -3.1.4
**  Filed herewith

(1)  Filed with Form 10-SB on April 23, 1999 (File No. 000-30382)
(2)  Filed with Form 8-K dated June 25, 2004 on July 9, 2004
(3)  Filed with Form S-8 on April 9, 2003
(4)  Filed with Form SB-2 on July 26, 2004
(5)  Filed with Form 8-K dated November 5, 2004 on November 18, 2004
(6)  Filed with Form 8-K dated January 28, 2005 on February 2, 2005
(7)  Filed with Form 8-K dated February 24, 2005 on March 4, 2005
(8)  Filed with Form S-8 on June 24, 2005
(9)  Filed with Form 8K dated August 17, 2005 on August 19, 2005
(10) Filed with Form 8K dated September 21, 2005 on September 21, 2005
(11) Filed with Annual Report on Form 10-KSB for December 31, 2004 on
     May 9, 2005


                                43

<PAGE>


                            SIGNATURES

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

                                    DataLogic International, Inc.
                                   (Registrant)

Date: November 3, 2005              /s/ Keith Moore
                                    ------------------------------------
                                    Title: Chief Executive Officer,
                                    Chief Operating Officer and Director


Date: November 3, 2005              /s/ Khanh Nguyen
                                    ------------------------------------
                                    Title: President, Chief Financial
                                    Officer and Director


                                44