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 JUNE 30, 2006

                                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 August 11, 2006, there were 54,234,293 shares of the issuer's Common
Stock outstanding.

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

<PAGE>

                              INDEX


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

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

          Unaudited Consolidated Balance Sheets as of
          June 30, 2006 and 2005............................................3

          Unaudited Consolidated Statements of Operations -
          Three and Six Months Ended June 30, 2006 and 2005.................4

          Unaudited Consolidated Statements of Cash Flows -
          Three and Six Months Ended June 30, 2006 and 2005.................5

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

  Item 2. Management's Discussion and Analysis of Plan of Operation .......44

  Item 3. Controls and Procedures..........................................70

PART II.  OTHER INFORMATION................................................72

  Item 1. Legal Proceedings................................................72
  Item 2. Changes in Securities............................................72
  Item 3. Defaults upon Senior Securities..................................73
  Item 4. Submission of Matters to a Vote of Security Holders..............73
  Item 5. Other Information................................................73
  Item 6. Exhibits.........................................................73


SIGNATURES.................................................................74





                                2

<PAGE>




                  PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
             CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                             JUNE 30


                                                        2006         2005
                                                                  (Restated)
                                                   ------------- ------------
                              ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                        $    545,409  $   424,625
  Accounts receivable, net of allowance
   for doubtful accounts of $7,117 and
   $115,312, respectively                             2,537,638    1,645,958
  Marketable securities available for sale                3,522        7,500
  Inventories                                           249,600      455,964
  Prepaid expenses and other current assets             284,966      307,381
                                                   ------------- ------------
    Total current assets                              3,621,135    2,841,428

RESTRICTED CASH                                               -      972,095

NOTES RECEIVABLE                                        430,000            -
PROPERTY AND EQUIPMENT, net                             117,336      154,331

OTHER ASSETS:
  Software development costs and licenses, net          377,083       10,927
  Loan origination costs, net                                 -      207,332
  Client lists, net                                     600,650            -
  Goodwill                                              288,000            -
  Deposits                                               17,662        9,111
                                                   ------------- ------------
                                                   $  5,451,866  $ 4,195,224
                                                   ============= ============

              LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable and accrued expenses            $  1,193,406  $ 1,263,710
  Accrued payroll and related taxes                     727,126      606,769
  Current portion of deferred revenue                   366,843      602,801
  Notes payable - officers                                    -       55,624
  Current portion of notes payable                    1,873,188      255,000
  Current portion of convertible debt                         -      769,692
                                                   ------------- ------------
    Total current liabilities                         4,160,563    3,553,596
                                                   ------------- ------------
LONG-TERM LIABILITIES:
  Notes payable, net of current portion               1,083,332            -
  Convertible debt, net of current portion and
    discount of $1,066,848 as of June 30, 2005                -      587,745
  Derivative and warrant liabilities                    339,750      499,489
  Deferred tax liability                                288,000            -
  Deferred revenue, net of current portion               22,972            -
                                                   ------------- ------------
    Total long-term liabilities                       1,734,054    1,087,234
                                                   ------------- ------------
    Total liabilities                                 5,894,617    4,640,830
                                                   ------------- ------------
STOCKHOLDERS' DEFICIT:
  Common stock, $0.001 par value; 100,000,000
    shares authorized; 53,902,959 and 39,434,092
    shares issued and outstanding at June 30,
    2006 and 2005, respectively                          53,904       39,434
  Additional paid-in capital                          6,272,081    2,641,156
  Shares to be issued, 361,334 and 307,219 shares
    at June 30, 2006 and 2005, respectively              70,800      225,290
  Unamortized consulting fees                            (6,374)     (23,804)
  Accumulated other comprehensive loss                   (3,678)           -
  Accumulated deficit                                (6,829,484)  (3,327,682)
                                                   ------------- ------------
    Total stockholders' deficit                        (442,751)    (445,606)
                                                   ------------- ------------
                                                   $  5,451,866  $ 4,195,224
                                                   ============= ============




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

                                3



<PAGE>
<TABLE>
<CAPTION


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




                                               For the three months         For the six months
                                                    ended June 30,             ended June 30,
                                                  2006         2005          2006          2005
                                            ------------- ------------- ------------- -------------
                                                            (Restated)                  (Restated)
<S>                                         <c>           <c>           <c>           <c>
Net revenue                                 $  5,072,279  $  4,484,178  $  9,296,581  $  7,852,446

Cost of revenue                                4,520,061     3,958,087     8,305,374     6,891,587
                                            ------------- ------------- ------------- -------------
Gross profit                                     552,218       526,091       991,207       960,859

Operating expenses                             1,020,334       696,917     2,700,475     1,371,478
                                            ------------- ------------- ------------- -------------

   Total operating expenses                    1,020,334       696,917     2,700,475     1,371,478
                                            ------------- ------------- ------------- -------------

Loss from operations                            (468,116)     (170,826)   (1,709,268)     (410,619)
                                            ------------- ------------- ------------- -------------
Non-operating income (expense):

  Interest expense, net                          (89,136)     (207,852)     (176,606)     (443,216)
  Loss from debt extinguishment                        -             -    (1,337,859)            -
  Change in fair value of derivative
    and warrant liabilities                      416,955       451,974       198,087     1,132,950
  Other-than-temporary write-down of
    marketable securities available for sale           -      (196,000)            -      (196,000)
  Gain from sale of property and equipment        14,868             -        24,829             -
                                            ------------- ------------- ------------- -------------
   Total non-operating income (expense)          342,687        48,122    (1,291,548)      493,734
                                            ------------- ------------- ------------- -------------
Income (loss) before provision for income tax   (125,429)     (122,704)   (3,000,816)       83,115

Provision for income tax                               -             -           800         3,200
                                            ------------- ------------- ------------- -------------
Net income (loss)                               (125,429)     (122,704)   (3,001,616)       79,915

Other comprehensive (loss):
  Temporary (decrease) in fair value of
   marketable securities available for sale       (8,938)            -        (3,678)            -
                                            ------------- ------------- ------------- -------------

Net comprehensive (loss)                    $   (134,367) $   (122,704) $ (3,005,295) $     79,915
                                            ============= ============= ============= =============

Income (loss) per share - basic             $      (0.00) $      (0.00) $      (0.06) $       0.00
                                            ============= ============= ============= =============

Basic weighted average shares outstanding*    49,196,515    39,434,092    47,400,526    39,382,631
                                            ============= ============= ============= =============

Income (loss) per share - diluted           $      (0.00) $      (0.00) $      (0.06) $       0.00
                                            ============= ============= ============= =============

Diluted weighted average shares outstanding*  49,196,515    39,434,092    47,400,526    39,842,412
                                            ============= ============= ============= =============


*  Weighted average number of shares used to compute basic and diluted loss
   per share is the same since the effect of dilutive securities is
   anti-dilutive for the quarters ended June 30, 2006 and 2005 and the
   six months ended June 30, 2006.



             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 SIX MONTHS ENDED JUNE 30


                                                                                  2006        2005
                                                                            ------------ -------------
                                                                                           (Restated)

                                                                         <c>          <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                         $(3,001,616) $     79,915
  Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
    Loss on extinguishment of debt                                            1,337,859             -
    Depreciation and amortization                                               289,470        61,497
    Amortization of discount and loan origination costs on convertible debt      39,801       334,919
    Change in fair value of derivative and warrant liabilities                 (198,087)   (1,132,950)
    Issuance of or commitment to issue shares and options for compensation      397,491       170,379
    Shares issued for interest                                                    9,200        19,987
    Other than temporary write-down of marketable securities available for sale       -       196,000
    Gain on sale of property and equipment                                      (24,829)            -
    (Increase) decrease in operating assets, net of acquisitions
     and dispositions:
        Accounts receivable                                                    (651,133)      (15,388)
        Inventories                                                             542,744      (402,438)
        Prepaid expenses and other current assets                              (173,876)     (179,079)
        Deposits                                                                  8,773             -
    Increase (decrease) in operating liabilities, net of acquisitions
     and dispositions:
        Accounts payable and accrued expenses                                  (271,653)      423,126
        Deferred revenue                                                         (9,690)      602,801
                                                                            ------------ -------------
  Total adjustments                                                           1,296,070        78,854
                                                                            ------------ -------------
        Net cash provided by (used in) operating activities                  (1,705,546)      158,769
                                                                            ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Advances on notes receivable                                                  (50,000)            -
  Proceeds from sale of property and equipment                                   24,663             -
  Acquisition of property and equipment and costs incurred for
    software development                                                        (39,412)      (91,282)
                                                                            ------------ -------------
       Net cash used in investing activities                                    (64,749)      (91,282)
                                                                            ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                                                 3,300,000             -
  Proceeds from issuance of common stock                                      1,423,820             -
  Decrease in restricted cash                                                         -       286,594
  Payment of convertible debt                                                (2,108,546)     (241,557)
  Fees paid in connection with extinguishment of debt                          (163,278)            -
  Payment of notes payable                                                     (593,072)     (334,746)
  Proceeds from stock options                                                         -         3,000
                                                                            ------------ -------------
        Net cash provided by (used in) financing activities                   1,858,924      (286,709)
                                                                            ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             88,629      (219,222)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  456,780       643,847
                                                                            ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $   545,409  $    424,625
                                                                            ============ =============









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

                                       5

</TABLE>
<PAGE>



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
         FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005


                                                      2006           2005
                                                 -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid during the period                  $     110,173  $      42,251
Income taxes paid during the period              $         800  $       1,600


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

2006

On June 30, 2006, the Company committed to issue 40,000 shares for the
exercise of stock options with an exercise price of $0.15 per share and 20,000
shares for the exercise of stock options with an exercise price of $0.24 per
share for a total value of $10,800 against notes payable - officers.
The Company purchased equipment valued at $11,100 in exchange for a note
payable.

On June 30, 2006, the Company sold inventory for a note receivable of
$250,000.

2005

During the six months ended June 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 convertible debt.  The Company issued 20,000
shares for the exercise of stock options with an exercise price of $0.15 per
share.

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


                                6

<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 1 - DESCRIPTION OF BUSINESS

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

DataLogic International, Inc. ("DataLogic" or the "Company") provides
communication solutions including network design and project management,
mobile asset tracking and secured mobile 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 GPS and communications markets.

On June 2, 2003, we acquired 51% of IPN Communications, Inc. ("IPN"). On
November 5, 2004, we acquired the remaining 49% of IPN.

On January 13, 2004, the Company acquired the Machine-to-Machine ("M2M")
GPS-based technology and entered into the GPS mobile asset tracking business.
The Company derives its GPS-based revenues from the sale of mobile tracking
units, software and hardware licenses.

On September 15, 2005, the Company acquired the assets of CBSi, Inc. ("CBSi")
and their GPS-based mobile asset tracking solution (see Note 18).

On November 21, 2005, the Company acquired BluBat, Inc., ("BluBat") a provider
of network design, security, management and software engineering services to
further increase its communications capabilities.

On June 30, 2006, the Company entered into an Asset Purchase Agreement with
Huron Holdings, Inc. ("Huron")  whereby the Company sold certain inventory and
assets related to the Company's small fleet/sub-prime lending market
operations including its BounceGPS  trademark and existing customer
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.  DCI also provides short and long-term staffing solutions to
IT clients, healthcare providers and other businesses.

IPN provides VoIP telephony products and services.  IPN derives its VoIP
revenues from phone sets and residual airtime sales.

DNM was formed in the first quarter of 2005 as a result of the acquisition of
the assets of IS Solutions, LLC ("ISS").  DNM is an IT solutions 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 SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 1 - DESCRIPTION OF BUSINESS, 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
six months ended June 30, 2006 are not necessarily indicative of the results
that may be achieved for the year ending December 31, 2006 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, 2005.

Restatement of Financial Statements
-----------------------------------

After reviewing the provisions of the Laurus notes, management determined that
the notes included certain features that are considered embedded derivative
financial instruments, such as the conversion feature, a variable interest
rate feature, events of default and a liquidated damages clause, which
required recording at their fair value.  This adjustment has been reflected in
the period ended June 30, 2005. The Company also made certain
reclassifications.

The effect of the adjustments and reclassifications on the financial
statements as of and for the three and six months ended June 30, 2005 is as
follows:



                                8


<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 1 - DESCRIPTION OF BUSINESS, continued

The effect of the adjustments on the consolidated balance sheet is as follows:

    Long-term portion of convertible debt, net of discount, decreased by
    $479,103.

    Derivative and warrant liabilities increased by $499,489.

    Additional paid-in capital decreased by $892,356.

    Accumulated deficit decreased by $871,970.

Consolidated Statement of Operations for the three and six months ended June
30, 2005:

    Operating expenses increased by $772 and $0, respectively.

    Interest expense increased by $93,910 and $182,361, respectively.

    Change in fair value of derivative and warrant liabilities increased by
    $416,955 and $198,087, respectively.

    Net loss decreased by $355,339 and $950,589, respectively, resulting in
    net income of $79,915 for the six months ended June 30, 2005.

Consolidated Statement of Cash Flows for the six months ended June 30, 2005:

    Net loss decreased by $950,589, resulting in net income of $79,915.

    Depreciation and amortization decreased by $26,538.

    Amortization of discount on convertible debt and debt issuance costs
    increased by $334,919.

    Change in fair value of derivative and warrant liabilities decreased by
    $1,132,950.

    Issuance of or commitment to issue shares and options for compensation
    Increased by $51,289.

    Accounts payable and accrued expenses decreased by $132,832.

    Acquisition of property and equipment increased by $31,065.

    Payments on notes payable and convertible debt decreased by $101,444.

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

The Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally
accepted in the United States of America ("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 $6,829,484 at June 30, 2006 and a history of
operating losses over the last several years.  Management has taken various
steps to revise its operating and financial requirements, which




                                9


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 1 - DESCRIPTION OF BUSINESS, continued

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 six months ended June 30, 2006 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 consolidated 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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

The preparation of financial statements in conformity with GAAP 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 valuation allowance of the
deferred tax asset.  Actual results could differ from those estimates.

Cash Equivalents
----------------

For purposes of the statements of cash flows, the Company considers highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.



                                10


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

Accounts receivable consists of amounts billed to customers upon performance
of service or delivery of goods and expenses incurred by the Company but not
yet billed to customers for consulting services ($256,204 as of June 30, 2006
and $194,358 as of June 30, 2005).  The Company performs ongoing credit
evaluations of customers and adjusts credit limits based upon payment history
and the customers' 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 marketable equity securities that 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 as other comprehensive income or loss, net
of tax, as a separate component of stockholders' equity.

In accordance with the guidance of Emerging Issues Task Force ("EITF") Issue
No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments," the Company assesses any decline in value of
available-for-sale securities below cost as to whether such decline is "other
than temporary".  If a decline is determined to be "other than temporary" the
decline is recorded as a reduction of the cost basis of the security and is
included in the statement of operations as an impairment write down of the
investment (see Note 3).

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 cost of inventories to their market value, if lower. Finished



                                11



<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

goods inventories are 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.

Other Assets
------------

Other assets consist of software development costs, website development costs,
software licenses, loan origination costs, client lists and goodwill, and are
recorded at cost.

Software development costs incurred in the development of certain products are
capitalized upon reaching technological feasibility 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 life of each
product commencing upon the initial sale of the product or the ratio of
current revenues to the total of current and anticipated future revenues for
the related product.

Website development costs and software licenses are recorded at cost and
amortized using the straight-line method over their estimated useful lives of
2-5 years.




                                12

<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Loan origination costs are capitalized and amortized using the straight-line
method (which approximates the effective interest method) over the term of the
related debt instrument.

Client lists are recorded at their allocated fair values in purchase
accounting (see Note 18) and are being amortized over their estimated useful
lives of three years.

Goodwill
--------

Goodwill represents the excess of acquisition cost over the net assets
acquired in a business combination and is not amortized in accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets."  The provisions of SFAS
No. 142 require that the Company allocate its goodwill to its various
reporting units, determine the carrying value of those businesses, and
estimate the fair value of the reporting units so that a two-step goodwill
impairment test can be performed.  In the first step of the goodwill
impairment test, the fair value of each reporting unit is compared to its
carrying value.  Management reviews, on an annual basis, the carrying value of
goodwill in order to determine whether impairment has occurred.  Impairment is
based on several factors including the Company's projection of future
discounted operating cash flows.  If an impairment of the carrying value were
to be indicated by this review, the Company would perform the second step of
the goodwill impairment test in order to determine the amount of goodwill
impairment, if any.

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

The Company accounts for its long-lived assets in accordance with 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 June 30, 2006, the




                                13


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

Convertible Debt
----------------

The Company records its convertible debt net of the debt discount.  From time
to time, the Company has debt with conversion options that provide 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 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."

If a BCF exists, the Company records it as a debt discount.  Debt discounts
are amortized to interest expense over the life of the debt on a straight-line
basis, which approximates the effective interest method.

Derivative Financial Instruments
--------------------------------

The Company's derivative financial instruments consist of embedded derivatives
related to the Laurus notes entered into on June 25, 2004, since the notes are
either not conventional convertible debt or the warrants require registration
(see Note 13). The embedded derivatives include the conversion feature,
monthly payment options, variable interest features, liquidated damages
clauses in the registration rights agreement and certain default provisions.
The accounting treatment of derivative financial instruments requires that the
Company record the derivatives and related warrants at their fair values as of
the inception date of the agreement and at fair value as of each subsequent
balance sheet date.

In addition, under the provisions of EITF Issue No. 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock," as a result of entering into the convertible debt, the
Company is required to classify all other non-employee stock options and
warrants as derivative liabilities and mark them to market at each reporting
date (see Note 13).



                                14


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Conversion-related derivatives were valued using the Binomial Option Pricing
Model, which also considered probability analysis related to trading volume
restrictions.  The interest rate adjustment provision was valued using
discounted cash flows and probability analysis.  Options and warrants were
valued using the Black-Sholes model, with the following assumptions:

                                       2006                 2005
                             ---------------------- ---------------------
  Risk-free interest rate          4.53 - 5.15%          4.01 - 4.22%
  Volatility                        291 -  303%           282 -  287%
  Expected dividend yield                    0%                    0%


Any change in fair value of these instruments will be recorded as
non-operating, non-cash income or expense at each reporting date. If the fair
value of the derivatives is higher at the subsequent balance sheet date, the
Company will record a non-operating, non-cash charge. If the fair value of the
derivatives is lower at the subsequent balance sheet date, the Company will
record non-operating, non-cash income. The derivative and warrant liabilities
are recorded as long-term liabilities in the consolidated balance sheets.

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 the 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 considers
the carrying values of its financial instruments in the financial statements
to approximate their fair values.

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 communication products, the Company's revenue recognition
policies are in compliance with Staff Accounting Bulletin ("SAB") 104.
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 of the Company 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 sheets.  Revenues
and costs of revenues from consulting contracts are recognized during the
period in which the service is performed.

                                15


<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

Income Taxes
------------

The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes."  Under SFAS No. 109, deferred tax assets and
liabilities are recognized for future tax benefits or consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be realized through future operations.

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 stockholders 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 49,196,515 and
39,434,092 for the three months ended June 30, 2006 and 2005, respectively and
47,400,526 and 39,842,412 for the six months ended June 30, 2006 and 2005,
respectively.

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

The Company accounts for the issuance of equity instruments to acquire goods



                                16



<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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.

The Company's accounting policy for equity instruments issued to consultants
and vendors in exchange for goods and services follows the provisions of EITF
Issue No. 96-18, "Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" and EITF Issue No. 00-18, "Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees."
The measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for
performance by the consultant or vendor is reached or (ii) the date at which
the consultant or vendor's performance is complete.  In the case of equity
instruments issued to consultants, the fair value of the equity instrument is
recognized over the term of the consulting agreement. In accordance with EITF
Issue No. 00-18, an asset acquired in exchange for the issuance of fully
vested, nonforfeitable equity instruments should not be presented or
classified as an offset to equity on the grantor's balance sheet once the
equity instrument is granted for accounting purposes.

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123(R)") which establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services, primarily focusing on accounting for
transactions where an entity obtains employee services in share-based payment
transactions.  SFAS No. 123(R) requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments,
including stock options, based on the grant-date fair value of the award and
to recognize it as compensation expense over the period the employee is
required to provide service in exchange for the award, usually the vesting
period.  SFAS 123(R) supersedes Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" for periods beginning in
fiscal 2006.  In March 2005, the Securities and Exchange Commission issued SAB
No. 107 relating to SFAS 123(R). The Company has applied the provisions of SAB
107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of
January 1, 2006, the first day of the Company's fiscal year 2006. The
Company's consolidated financial statements as of and for the three and six
months ended June 30, 2006 reflect the impact of SFAS 123(R). In accordance




                                17

<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

with the modified prospective transition method, the Company's consolidated
financial statements for prior periods have not been restated to reflect, and
do not include, the impact of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based
payment awards on the date of grant using an option-pricing model.  The value
of the portion of the award that is ultimately expected to vest is recognized
as expense over the requisite service periods in the Company's consolidated
statement of operations.  Prior to the adoption of SFAS 123(R), the Company
accounted for stock-based awards to employees and directors using the
intrinsic value method in accordance with APB Opinion No. 25 as allowed under
SFAS No. 123, "Accounting for Stock-Based Compensation."  Under the intrinsic
value method, no stock-based compensation expense had been recognized in the
Company's consolidated statements of operations, other than as related to
option grants to employees and consultants below the fair market value of the
underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on the
value of the portion of share-based payment awards that is ultimately expected
to vest during the period.  Stock-based compensation expense recognized in the
Company's consolidated statement of operations for the three and six months
ended June 30, 2006 included compensation expense for share-based payment
awards granted prior to, but not yet vested as of December 31, 2005 based on
the grant date fair value estimated in accordance with the pro forma
provisions of SFAS No. 123 and compensation expense for the share-based
payment awards granted subsequent to December 31, 2005 based on the grant date
fair value estimated in accordance with the provisions of SFAS 123(R). As
stock-based compensation expense recognized in the consolidated statement of
operations for the three and six months ended June 30, 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures.
SFAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.  The estimated average forfeiture rates for the three and six
months ended June 30, 2006, of approximately 5% was based on historical
forfeiture experience.  The estimated pricing term of option grants for the
first six months of 2006 was 5.0 years.  In the Company's pro forma
information required under SFAS 123(R) for the periods prior to fiscal 2006,
the Company accounted for forfeitures as they occurred.

SFAS 123(R) requires the cash flows resulting from the tax benefits resulting
from tax deductions in excess of the compensation cost recognized for those
options to be classified as financing cash flows.  Due to the Company's loss
position, there were no such tax benefits during the three or six months



                                18

<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

ended June 30, 2006.  Prior to the adoption of SFAS 123(R), those benefits
would have been reported as operating cash flows had the Company received any
tax benefits related to stock option exercises.

The fair value of stock-based awards to employees and directors is calculated
using the Black-Scholes option pricing model, even though this model was
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which differ significantly from the
Company's stock options.  The Black-Scholes model also requires subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values.  The expected term of
options granted is derived from historical data on employee exercises and
post-vesting employment termination behavior.  The risk-free rate selected to
value any particular grant is based on the U.S Treasury rate that corresponds
to the pricing term of the grant effective as of the date of the grant.  The
expected volatility is based on the historical volatility of the Company's
stock price.  These factors could change in the future, affecting the
determination of stock-based compensation expense in future periods.

Valuation and Expense Information under SFAS 123(R)
---------------------------------------------------

The weighted-average fair value of stock-based compensation is based on the
single option valuation approach.  Forfeitures are estimated and it is assumed
no dividends will be declared.  The estimated fair value of stock-based
compensation awards to employees is amortized using the straight-line method
over the vesting period of the options.

The fair value calculations are based on the following assumptions:

                                                 2006                2005
                                                 ----                ----
Risk-free interest rate                   4.86% - 5.15%       4.00% - 4.50%
Expected life of the options                   5.00 yrs            5.00 yrs
Expected volatility                         297% - 303%         276% - 282%
Expected dividend yield                              0                   0



                                19



<PAGE>



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The following table summarizes stock-based compensation expense related to
stock options and employee stock purchase plan purchases under SFAS 123(R) for
the three and six months ended June 30, 2006 which was allocated as follows:

                  Three Months Ended June 30,   Six Months Ended June 30,
                              2006                        2006
                  ---------------------------- ----------------------------
                                   APB Opinion                  APB Opinion
                  SFAS No. 123(R)     No. 25    SFAS No. 123(R)    No. 25
                  --------------- ------------- --------------- -------------

Net loss          $     (125,429) $    (59,209) $   (3,001,616) $ (2,694,634)

                  =============== ============= =============== =============
Loss per share,
basic and diluted $        (0.00) $      (0.00) $        (0.06) $      (0.06)
                  =============== ============= =============== =============


A summary of option activity under the Company's stock equity plans during the
six months ended June 30, 2006 is as follows:


                                                      Weighted
                                                      Average
                                            Weighted  Remaining   Aggregate
                                 Number of  Average   Contractual Intrinsic
                                 Shares (in Exercise  Term (in    Value (in
                                 Thousands) Price     Years)      Thousands)
                                 ---------- --------- ----------- ----------
 Outstanding at January 1,2006      9,184     $0.33
    Granted                         1,575     $0.16
    Forfeited                        (892)    $0.28
    Exercised                         (60)    $0.18
                                 ---------- --------- -----------
 Outstanding at June, 2006          9,807     $0.32      4.70      $ 2,636
                                 ========== ========= ===========  ========
 Vested and expected to vest at
 June 30, 2006                      3,485     $0.32      3.33      $ 1,868
                                 ========== ========= ============ ========
 Exercisable at June 30, 2006         113     $0.05      1.50      $   841
                                 ========== ========= ============ ========




                                20


<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The following table summarizes significant ranges of outstanding and
exercisable options as of June 30, 2006:

                         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     4.41       $  0.13      390,000     $  0.13
$ 0.23-$0.76     9,254,973     4.75       $  0.32    7,079,223     $  0.32
-----------------------------------------------------------------------------

The per share weighted average fair value of options granted during the three
months ended June 30, 2006 and June 30, 2005 was $0.15 and $0.21,
respectively.

The total intrinsic value of options exercised during the three months ended
June 30, 2006 and June 30, 2005 was approximately $6,600 and $3,000,
respectively.  As of June 30, 2006, total unrecognized forfeiture adjusted
compensation costs related to nonvested stock options was $788,579, which is
expected to be recognized as an expense over a weighted average period of
approximately 2.0 years.

Prior to fiscal 2006, the weighted-average fair value of stock-based
compensation to employees was based on the single option valuation approach.
Forfeitures were recognized as they occurred and it was assumed no dividends
would be declared.

The estimated fair value of stock-based compensation awards to employees was
amortized using the straight-line method over the vesting period of the
options.

Pro forma results are as follows:

                                    For the three months  For the six months
                                    ended June 30, 2005   ended June 30, 2005
                                        (restated)           (restated)
                                    --------------------  --------------------
Net income (loss) - as reported     $             (123)   $             80
  Stock-Based employee compensation
  expense included in reported net
  income (loss), net of tax                          -                   -




                                21

<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued


Total stock-based employee
  compensation expense determined
  under fair-value-based method for
  all rewards, net of tax                        (41)           (309)
                                       --------------  --------------
Pro forma net loss                     $        (164)  $        (229)
                                       ==============  ==============
Income (loss) per share:
  Basic and diluted, as reported       $      (0.003)  $       0.002
  Basic and diluted, pro forma         $      (0.004)  $      (0.006)


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 June 30, 2006 and at various times throughout the three and six months
ended June 30, 2006, the Company's cash balances exceeded the amount insured
by the FDIC.  Management believes the risk of loss of cash balances in excess
of the insured limit to be low.

Three major customers accounted for 66% and 82% of the net revenue for the six
months ended June 30, 2006 and 2005, respectively.  Accounts receivable from
these major customers amounted to $1,879,662 and $1,058,000 as of June 30,
2006 and 2005, respectively.

A significant portion of the Company's business is located in Rhode Island,
California 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 GPS device
components.  The Company has alternate sources to supply its products should
the need arise.



                                22


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 3 - MARKETABLE SECURITIES AVAILABLE FOR SALE

The following is a summary of marketable securities available for sale as of
June 30, 2006 and 2005:

                                           Adjusted
                                           Cost        Fair      Unrealized
                                           Basis       Value     Gain (Loss)
                                           ----------  --------- -----------
June 30, 2006                              $   7,200   $  3,522  $   (3,678)

June 30, 2005                              $   7,500   $  7,500  $        -

The decrease in the value of marketable securities available for sale for the
three and six months ended June 30, 2006 was $8,938 and $3,678, respectively.
Unrealized holding gains and losses for the three and six months ended June
30, 2005 were zero.  Realized losses on the other-than-temporary write-down of
marketable securities available for sale were $196,000 for the three and six
months ended June 30, 2005.

NOTE 4 - RESTRICTED CASH

In connection with the Company's private placement of a convertible term note
with Laurus Master Fund, Ltd. ("Purchaser"), (see Note 13) as of June 30,
2005, $972,095 of the principal amount of the convertible term note was held
in a restricted account by the Company but under the sole dominion and control
of the Purchaser as security for the Company's and its subsidiaries'
obligations under the Securities Purchase Agreement and related agreements.
The restricted cash account earned interest at the rate of 3.25% per annum and
the Company earned $1,721 and $7,576 in interest income from the restricted
cash account for the three and six months ended June 30, 2005.  All cash in
the restricted account was released to the Company during the third quarter of
2005.


                                23



<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 5 - NOTES RECEIVABLE

On June 30, 2006, the Company entered into an agreement with Huron.   Pursuant
to the agreement, the Company sold to Huron 700 units of its Panther Trak
asset tracking device, related inventory and certain other assets including
its BounceGPS  trademark.

In the transaction, the Company received from Huron a $250,000 promissory
note.  The promissory note has a term of two years (with quarterly
amortization and payments of principal of $31,250, plus accrued interest) and
bears interest at 9% per annum.  There was no interest paid or accrued during
the three or six months ended June 30, 2006.

As part of the purchase of certain assets of CBSi (see Note 18) the Company
assumed an agreement with MBSi Capital Corp., ("MBSi") an entity majority
owned by a director and shareholder of the Company.  Under the terms of the
agreement, MBSi will provide customer and technical support for GPS clients of
the Company on a per unit basis.  This agreement was terminated on March 31,
2006.  During the six months ended June 30, 2006, no payments were made under
this agreement.

Note receivable represents a $100,000 note receivable purchased by the Company
in the CBSi acquisition (see Note 18) and an additional advance of $30,000
during the year ended December 31, 2005 and $50,000 during the six months
ended June 30, 2006.  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.  The Company recorded interest income of $3,107 and
$6,214 related to the note during the three and six months ended June 30,
2006.

NOTE 6 - PROPERTY AND EQUIPMENT


Property and equipment consists of the following:

                                                      June 30,     June 30,
                                                        2006         2005
                                                   ------------  ------------
Office equipment and furniture                     $   150,798   $   104,730
Computer equipment and software                        111,537       122,566
                                                   ------------  ------------
                                                       262,335       227,296
Less accumulated depreciation                         (144,999)      (72,965)
                                                   ------------  ------------
                                                   $   117,336   $   154,331
                                                   ============  ============

Depreciation expense was $24,648 and $14,761 for the three months ended June
30, 2006 and 2005, respectively.  Depreciation expense was $37,796 and $23,116
for the six months ended June 30, 2006 and 2005, respectively.


NOTE 7 - SOFTWARE DEVELOPMENT COSTS AND LICENSES

Software development costs and licenses consist of the following:

                                                      June 30,     June 30,
                                                        2006         2005
                                                   ------------  ------------

Software development costs and licenses            $   604,000   $    39,000
Website development costs                                4,900         4,900
                                                   ------------  ------------

                                24



<PAGE>



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 7 - SOFTWARE DEVELOPMENT COSTS AND LICENSES, continued

                                                       608,900        43,900

Less accumulated amortization                         (231,817)      (32,973)
                                                   ------------  ------------
                                                   $   377,083   $    10,927
                                                   ============  ============

Amortization expense was $62,709 and $3,657 for the three months ended June
30, 2006 and 2005, respectively.  Amortization expense was $131,545 and $7,316
for the six months ended June 30, 2006 and 2005, respectively.

Future aggregate amortization of the software development costs and licenses
is as follows for the years ending December 31:

      2006 (6 months)                              $   187,500
      2007                                             189,583
                                                   ------------
      Total                                        $   377,083


NOTE 8 - LOAN ORIGINATION COSTS

Loan origination costs were as follows:

                                                     June 30,      June 30,
                                                       2006          2005
                                                   ------------  ------------
     Loan origination costs                        $         -   $   311,000
     Less accumulated amortization                           -      (103,668)
                                                   ------------  ------------
                                                   $         -    $   207,332
                                                   ============  ============

Amortization of the loan origination costs was $0 and $25,917 for the three
months ended June 30, 2006 and 2005, respectively.  Amortization of the loan
origination costs was $8,521 and $51,834 for the six months ended June 30,
2006 and 2005, respectively.  Amortization of the loan origination costs is
included in interest expense in the accompanying consolidated statements of
operations.  The net unamortized balance of loan origination costs was written
off in the first quarter of 2006 in connection with the debt modification (see
Note 13) and is reflected as a component of the loss on extinguishment of debt
in the accompanying consolidated statement of operations for the six months
ended June 30, 2006.



                                25

<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 9 - CLIENT LISTS

Client lists resulted from the acquisition of Blubat (see Note 18) and consist
of the following:


                                                     June 30,      June 30,
                                                       2006          2005
                                                   ------------  ------------

     Client lists                                  $   720,779   $         -
     Less accumulated amortization                    (120,129)            -
                                                   ------------  ------------
                                                   $   600,650   $         -
                                                   ============  ============

Amortization of client lists was $60,066 and $120,130, for the three and six
months ended June 30, 2006, respectively.  The client list that resulted from
the acquisition of CBSi, with a net book value of $13,528 were written off
during the three months ended June 30, 2006 and the resulting loss of $13,528
is included as a component of gain from sale of property and equipment in the
consolidated statements of operations for the three and six months ended June
30, 2006.

Future aggregate amortization of the client lists is as follows for the years
ending December 31:

      2006 (6 months)                              $   111,112
      2007                                             244,769
      2008                                             244,769
                                                   ------------
      Total                                        $   600,650
                                                   ============


NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                                  June 30,      June 30,
                                                    2006          2005
                                               -------------  ------------

      Accounts payable                         $     934,978  $    818,202
      Accrued sales taxes                            218,584       169,680
      Accrued interest expense                             -       134,368
      Accrued expenses - other                        39,844       141,460
                                               -------------  ------------
                                               $   1,193,406  $  1,263,710
                                               =============  ============




                                26


<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 11 - NOTES PAYABLE - OFFICERS

Notes payable to officers are unsecured, payable on demand and bear interest
at an annual rate of 6 percent on the unpaid principal balance.  The Company
repaid $50,000 of the notes payable to officers during the three months ended
June 30, 2006.  The balance on the notes payable to the officers amounted to $
0 and $55,624 as of June 30, 2006 and 2005, respectively.  Interest expense on
these notes for the three months ended June 30, 2006 and 2005 amounted to $888
and $834, respectively.  Interest expense on these notes for the six months
ended June 30, 2006 and 2005 amounted to $1,388 and $2,357, respectively.

NOTE 12 - NOTES PAYABLE

Notes payable consisted of the following as of June 30, 2006:

                                                       Current     Long-term
                                                      ----------- -----------
Note secured by all assets, interest rate of
  prime plus 2% (totaling 10.25% as of June 30,
  2006) payable in monthly principal installments
  of $154,762, plus interest, due December 2007
  (see Note 13)                                       $ 1,857,144 $ 1,083,332

Other                                                      10,038           -
                                                       ----------- ----------
                                                      $ 1,873,188 $ 1,083,332
                                                      =========== ===========


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

                                                       Current     Long-term
                                                      ----------- -----------
Unsecured notes, interest rate 10%, interest payable
  at maturity, past due and immediately payable           25,000           -
Unsecured notes, interest rate 6%, interest payable
  at maturity, past due and immediately payable           80,000           -
Unsecured notes, interest rate 6%, interest payable
  at maturity, past due and immediately payable          150,000           -
                                                      ----------- -----------
                                                      $  255,000  $        -
                                                      =========== ===========

Interest expense on these notes for the three months ended June, 2006 and 2005
was $74,148 and $ 3,825, respectively. Interest expense on these notes for the
six months ended June 30, 2006 and 2005 was $121,317 and $ 8,316,
respectively.

                                27



<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005



NOTE 13 - CONVERTIBLE DEBT

On January 20, 2006, the Company entered into a Securities Purchase Agreement
(the "Agreement") with Laurus Master Fund, Ltd. ("Laurus"). Pursuant to the
Agreement, the Company issued to Laurus a Secured Term Note (the "New Note")
in the principal amount of $3,250,000 and redeemed the $3,000,000 original
principal amount under the Secured Convertible Term Note which had an original
maturity date of June 25, 2007 (the "Old Note") held by Laurus.  The New Note,
which is not convertible, bears interest at the coupon rate of prime plus
2.00% (or 10.25% as of June 30, 2006) and is subject to a floor interest rate
of 8.00%.  The New Note matures on December 31, 2007.  The initial monthly
principal payment of $154,762 was due on April 1, 2006.  On March 31, 2006,
the New Note was amended to defer the date of initial monthly principal
payment thereunder from April 1, 2006 to May 1, 2006.  The amount of the April
installment will be added to the principal of the New Note to be repaid by the
Company at maturity.  On April 29, 2006, the Company issued 40,000 shares of
common stock to Laurus as consideration for the amendment, valued at $9,200.

In connection with the sale of the New Note to Laurus, the Company issued to
Laurus an option to purchase 1,560,000 shares of the Company's common stock
for $0.001 per share in a private placement exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.  The value of these options was
$390,000 on January 20, 2006 and was recorded as a component of the loss on
extinguishment of debt in the accompanying consolidated statement of
operations for the six months ended June 30, 2006.  The options are marked to
market at each reporting date as a result of the warrants registration rights.


The redemption price of the Old Note was $2,153,091, comprising 105% of
outstanding principal and accrued interest, plus fees paid to Laurus of




                                28

<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005



NOTE 13 - CONVERTIBLE DEBT, continued

$48,750 in connection with the New Note and $12,000 of expenses paid to third
parties related to the redemption.

The net proceeds from the New Note were used for the repayment in full of the
Old Note and general corporate purposes.  The Company has the option of
prepaying the New Note, upon seven days' written notice, by paying an amount
equal to 103% of the principal amount outstanding, plus accrued but unpaid
interest and any and all other sums due, accrued or payable to the holder of
the New Note.

The New Note is collateralized by a security interest in substantially all of
the Company's assets and the assets of the Company's subsidiaries pursuant to
a Master Security Agreement by and among Laurus, the Company and its
subsidiaries entered into concurrently with the Agreement (the "New Master
Security Agreement") and other related security agreements.   The Company's
obligations under the New Note are guaranteed by each of its subsidiaries.

The Company was obligated to file a registration statement for the shares of
common stock issuable upon exercise of the warrants granted to Laurus under
both the Old Note and the New Note, pursuant to a Registration Rights
Agreement by and between Laurus and the Company entered into concurrently with
the Agreement (the "New Registration Rights Agreement").  The registration
statement was filed by the required date and is required to be declared
effective by August 15, 2006 (August 30, 2006 with the 15-day grace period).

If the Company were to default on the New Note, the amount of the principal
balance would increase to 130% of the then-outstanding principal and be
subject to acceleration.

Since the modification of the New Note results in terms that, pursuant to EITF
Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt
Instruments" are substantially different from the terms of the Old Note, the
modification was recorded as an extinguishment of debt.  A charge of
$1,337,859 was recorded in the consolidated statement of operations during the
six months ended June 30, 2006, representing the amount of fees paid to Laurus
($151,278) and third parties ($12,000) to cancel the Old Note and issue the
New Note, the amount of unamortized debt discount ($818,848), the amount of
unamortized debt issuance costs ($146,977) and the amount associated with the
options issued to Laurus in connection with the sale of the New Note
($390,000), less the fair value of the derivative and warrant liabilities
associated with the conversion feature of the Old Note ($181,244).




                                29


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 13 - CONVERTIBLE DEBT, continued

The Old Note was entered into on June 25, 2004 with Laurus in connection with
a private placement of a convertible term note issued by the Company in the
principal amount of $3,000,000, due June 25, 2007.  The Old Note (as amended)
was 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 bore interest at the prime rate plus 2%.  Additionally, the Old
Note provisions included 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 Old Note was 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 Old Note was amended. In
addition, on August 17, 2005, the Purchaser made available $950,000 of the
principal amount held in the restricted account and the Old Note was further
amended.  Pursuant to EITF Issue No. 96-19, neither of the modifications were
considered substantial and thus the Company did not record any gain or loss
related to the amendments.

The Old Notes included certain features that were considered embedded
derivative financial instruments, such as the conversion feature, a variable
interest rate feature, events of default and a liquidated damages clause,
which were recorded at their fair value. These features are described below,
as follows:

     .  The notes' conversion feature;
     .  Interest on the notes was subject to downward adjustment based on the
        Company's common stock price;
     .  The registration rights agreement included a penalty provision based
        on any failure to meet and/or maintain registration requirements for
        shares issuable under the conversion of the notes or exercise of the
        warrants; and
     .  The notes contained certain events of default, wherein the Company
        may be required to pay a default interest rate above the normal rate.

Because the Old Notes were not conventional convertible debt, the Company was
also required to record the related warrants at their fair values.  The total
of the Laurus-related derivative and warrant liabilities at June 25, 2004
totaled $1,712,588, which was recorded to debt discount, and was being
amortized to interest expense through the redemption date of the Old Note.
The debt discount was offset against the long-term portion of the Old Note on
the consolidated balance sheet.  The balance of the unamortized debt discount
of $818,848 was written off in January 2006 in connection with the redemption


                                30


<PAGE>



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 13 - CONVERTIBLE DEBT, continued

of the Old Note and is included in the loss on extinguishment of debt in the
consolidated statement of operations for the six months ended June 30, 2006.
The Company has recorded amortization expense of $ 0 and $142,324 for the
three months ended June 30, 2006 and 2005, respectively.  The Company has
recorded amortization expense of $31,280 and $283,085 for the six months ended
June 30, 2006 and 2005, respectively.

During the three months ended June 30, 2006 and 2005, the value of the warrant
and derivative liabilities decreased by $416,955 and $451,974, respectively.
During the six months ended June 30, 2006 and 2005, the value of the warrant
and derivative liabilities decreased by $198,087 and $1,132,950, respectively.
The change in warrant and derivative liabilities is reflected as a component
of other income (expense) in the accompanying consolidated statements of
operations.

In February 2005, 300,113 shares were issued as payment of principal and
interest on the Old Note of $106,061 and $19,987, respectively.

The balance of the New Note as of June 30, 2006 was $1,857,144 and $1,083,332
for the current and long-term portions, respectively.  The balance of the Old
Note (net of the unamortized debt discount of $1,066,848) as of June 30, 2005
was $769,692 for the current portion and $587,745 for the long-term portion.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

Operating Leases
----------------

The Company leases office space under operating lease agreements expiring at
various dates through December 31, 2008.  Rent expense related to these leases
was $61,393 and $39,459 for the three months ended June 30, 2006 and 2005,
respectively, and $114,728 and $62,301 for the six months ended June 30, 2006
and 2005, respectively.  Minimum future rental payments under the leases are
as follows for the years ending December 31:

       2006 (6 months)      $  49,276
       2007                    24,636
       2008                    25,368
                            ----------
                            $  99,280
                            ==========




                                31

<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 14 - COMMITMENTS AND CONTINGENCIES, continued

As part of the purchase of certain assets of CBSi (see Note 18) the Company
assumed an agreement for wireless air-time services that requires minimum
future payments as follows for the years ending December 31:

       2006                 $ 400,000
       2007                   400,000
                            ----------
                            $ 800,000
                            ==========

The Company has used air-time valued at $52,000 for the six months ended June
30, 2006, resulting in a minimum payment of $348,000 for the remainder of
2006.

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, contracts
where the Company may be required to indemnify the other party from
liabilities resulting from claimed infringements of the proprietary rights of
third parties, asset and stock purchase agreements where the Company may be
required to indemnify the sellers for breach of representations or warranties
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 in the accompanying consolidated balance sheets.

                                32


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 15 - STOCKHOLDERS' EQUITY

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

During the six months ended June 30, 2006 and 2005, the Company issued shares
of its common stock as follows:

2006
----

On May 23, 2006, the Company closed on $1,625,000 in gross proceeds from a
private placement of shares of common stock and common stock purchase
warrants.

In the private placement, the Company offered and sold the shares of common
stock and common stock purchase warrants together as a unit, at a purchase
price of $0.20 per unit.  For each share of common stock in the unit, each
purchaser will also receive warrants to purchase the number of Class A
warrants equal to forty percent of the number of common shares purchased and
Class B warrants equal to twenty-five percent of the number of common shares
purchased.  Class A warrants have an exercise price of $0.35 per share and
Class B warrants have an exercise price of $0.45 per share.  Both classes of
warrants are exercisable beginning November 23, 2006 and have a 5-1/2 year
term, expiring November 23, 2011.  The gross proceeds of $1,625,000 raised in
the private placement resulted in the sale and issuance to the investors a
total of 8,125,000 shares of common stock, Class A warrants to purchase
3,250,000 shares of common stock and Class B warrants to purchase an
additional 2,031,250 shares of common stock. The private placement shares and
warrants were offered and sold solely to accredited investors in reliance on
the exemption from registration provided by Rule 506 of Regulation D under the
Securities Act.

In connection with the private placement, the Company paid to the placement
agent consideration consisting of (a) a cash sales commission (including a
non-accountable expense allowance) of $130,000 (representing 8% of the gross
proceeds raised in the private placement), (b) warrants to purchase 650,000
shares of common stock (representing 8% of the aggregate number of shares of
common stock sold in the private placement), with each warrant having an
exercise price of $0.20 per share, (c) warrants to purchase 260,000 shares of
common stock (representing 8% of the aggregate number of shares of common
stock underlying the Class A common stock purchase warrants sold in the
private placement), with each warrant having an exercise price of $0.35 per
share, and (d) warrants to purchase 162,500 shares of common stock
(representing 8% of the aggregate number of shares of common stock underlying
the Class B common stock purchase warrants sold in the private placement),
with each warrant having an exercise price of $0.45 per



                                33

<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
      NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 15 - STOCKHOLDERS' EQUITY, continued

share.  Each of the warrants issued to the placement agent is exercisable
beginning November 23, 2006 and expiring on November 23, 2011.  The Company
also agreed to pay legal fees in the amount of $10,000 to legal counsel for
the investors in the private placement.

The Company agreed to prepare and file a resale registration statement with
the Securities and Exchange Commission (the "SEC")  for the shares sold in the
private financing and the shares underlying the warrants. Specifically,
DataLogic (a) filed a registration statement with the SEC, and (b) is required
to use its best efforts to have the registration statement declared effective
not later than August 21, 2006 (or by September 20, 2006 if the registration
statement receives a full review by the SEC). If the registration statement is
not filed or declared effective within these time frames, the investors will
be entitled to monetary liquidated damages equal to 1.0% of the total amount
invested by such investor in the private placement, plus an additional 1.0%
liquidated damages for each 30-day period thereafter, up to a maximum
liquidated damages amount of not more than 9% of the amount invested by each
investor. DataLogic is obligated to maintain the effectiveness of the
registration statement for up to two years.

The Company granted the investors in the private placement "most favored
nations" rights. Specifically, during the 12-month period after the closing of
the private placement, if the Company or a subsidiary consummates another
financing of common stock, common stock equivalents or debt securities, the
investors will have the right to exchange any remaining shares that they
purchased in the private placement for the securities offered in the new
financing.

During the six months ended June 30, 2006, the Company issued 40,000 shares of
common stock in payment of interest of $9,200 (see Note 13).  The Company
issued 213,200 shares of common stock for management and consulting services
amounting to $25,108 during the six months ended June 30, 2006.

During the six months ended June 30, 2006, the Company issued 80,000 shares of
its common stock that were committed to be issued as of December 31, 2005 for
the exercise of stock options with an exercise price of $0.24 per share for
cash proceeds of $19,200 in 2005 and the Company issued 20,000 shares of its
common stock that were committed to be issued as of December 31, 2005 for the
exercise of stock options with an exercise price of $0.15 per share for cash
proceeds of $3,000 in 2005.


                                34

<PAGE>






           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 15 - STOCKHOLDERS' EQUITY, continued

During the six months ended June 30, 2006, the Company issued 8,696 shares
that were committed to be issued as of December 31, 2005 for accounts payable
amounting to $2,000.

On June 30, 2006, the Company committed to issue 301,334, valued at $60,000,
shares for management and consulting services, 40,000 shares for the exercise
of stock options with an exercise price of $0.15 per share and 20,000 shares
for the exercise of stock options with an exercise price of $0.24 per share
for a total value of $10,800.

2005
----

During the six months ended June 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
from the exercise of stock options totaling $3,000.

The Company entered into a consulting agreement in 2004 under which it was
required to issue 180,000 shares as consideration for the consulting services
provided under the agreement. The Company had issued 131,424 shares as of June
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 for the six months ended June 30,
2005.

As of June 30, 2005, the balance in shares to be issued consisted of $50,000
related to the purchase of certain assets of ISS (see Note 18), officer
compensation of $107,333 and consulting services of $67,957.  All of these
shares to be issued, totaling 307,219 shares, were issued in July, 2005.

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



                                35



<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 15 - STOCKHOLDERS' EQUITY, continued

"2005 Plan").

The 2003 Plan was adopted on April 1, 2003 and reserved ten million shares of
the Company's common stock for grant under the plan to directors, key
employees and independent contractors who provide services to the Company.
The 2003 Plan is administered by the Board of Directors.  All options must be
exercised within ten years of the date granted and may not be less than 100%
of the fair market value of the Company's common shares on the date of grant.

Under the 2004 and 2005 Plans, two and twenty million shares, respectively, 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.

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

                                                        2006        2005
                                                        -----       -----
Risk-free interest rate                                 5,15%       4.00%
Expected life of the options                            5.00 yrs    5.00 yrs
Expected volatility                                      303%        282%
Expected dividend yield                                    0           0


NOTE 16 - 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 as of and for the three and
six months ended June 30, 2006 and 2005 (in thousands):



                                36


<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 16 - SEGMENT REPORTING, continued


<TABLE>
<CAPTION>

Three months ended June 30, 2006:  Consulting  Communications
                                   Segment     Segment        Unallocated   Total
---------------------------------- ----------- -------------- ----------- ------------

                                <c>         <c>            <c>         <c>
Net Revenue                        $    3,390  $      1,683            -  $     5,073

Gross Profit                              327           225            -          552

Depreciation                               (3)          (22)           -          (25)

Amortization                              (55)          (67)           -         (122)

Interest expense, net                     (36)          (53)           -          (89)

Loss before provision for income tax      109            16            -          125

Identifiable assets                     2,723         2,729            -        5,452

Capital expenditures                         -           31            -           31



Three months ended June 30, 2005:  Consulting  Communications
                                   Segment     Segment        Unallocated  Total
---------------------------------- ----------- -------------- ----------- ------------
Net Revenue                        $    3,313  $      1,171            -  $     4,484

Gross Profit                              344           182            -          526

Depreciation                               (4)          (11)           -          (15)

Amortization                              (31)           (3)           -          (34)

Interest expense, net                    (204)           (4)           -         (208)

Loss before provision for income tax      100            22            -          122

Identifiable assets                     3,720           475            -        4,195

Capital expenditures                        4             -            -            4



                                    37

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


               DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
          NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 16 - SEGMENT REPORTING, continued


Six months ended June 30, 2006:    Consulting  Communications
                                   Segment     Segment        Unallocated  Total
---------------------------------- ----------- -------------- ----------- ------------

                                <c>         <c>            <c>         <c>
Net Revenue                        $    6,518  $      2,779            -  $     9,297

Gross Profit                              581           410            -          991

Depreciation                               (7)          (31)           -          (38)

Amortization                             (106)         (145)           -         (251)

Interest expense, net                    (118)          (58)           -         (176)

Loss before provision for income tax    2,285           716            -        3,001

Identifiable assets                     2,723         2,729            -        5,452

Capital expenditures                        -            39            -           39


Six months ended June 30, 2005:    Consulting  Communications
                                   Segment     Segment        Unallocated  Total
---------------------------------- ----------- -------------- ----------- ------------
Net Revenue                        $    6,598  $      1,254            -  $     7,852

Gross Profit                              747           214            -          961

Depreciation                               (7)          (16)           -          (23)

Amortization                              (31)           (7)           -          (38)

Interest expense, net                    (437)           (6)           -         (443)

Profit (loss) before provision
  for income tax                          185          (102)           -           83

Identifiable assets                     3,720           475            -        4,195

Capital expenditures                       91             -            -           91





                                    38

</TABLE>
<PAGE>








           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 17 - RELATED PARTY TRANSACTIONS

In 2004 the Company 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.

In November 2004, the Company issued 491,804 shares of its common stock to
acquire the remaining 49% of IPN.  In December 2004, the Company and the three
former shareholders of IPN who received the Company shares reached an
agreement to rescind the issuance of the 491,804 shares.  As part of the
agreement, the Company paid $10 as full consideration for the remaining 49% of
IPN.  The 491,804 shares have not been included in the issued and outstanding
shares of the Company.  In April 2005 these shares were cancelled.

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
300,000 and 200,000 options to these employees during the three months ended
June 30, 2006 and 2005, respectively and 600,000 and 400,000 options during
the six months ended June 30, 2006 and 2005, respectively.

On March 21, 2006, the Company entered into two agreements with Monarch Bay
Management Company, L.L.C. ("MBMC"):  (a) an agreement for corporate
development strategy and execution services and (b) an agreement for chief
financial officer services.  Keith Moore, our Chief Executive Officer, is a
member of MBMC.

Corporate Development Services Agreement.  Under the corporate development
services agreement with MBMC, the Company will pay to MBMC a monthly fee of
$7,000 (or $14,000 in the case of the initial payment).  The monthly fee is
payable $3,000 in cash and $4,000 in shares of common stock ($6,000 in cash
and $8,000 in shares of common stock in the case of the initial payment).  The
number of shares of common stock to be issued will calculated based on the
average closing price of the Company's common stock for the last ten days of
each month in which the monthly fee is earned.  The Company will also
reimburse MBMC for certain expenses in connection with providing services.  In
addition, the Company will grant to MBMC on a quarterly basis commencing April
1, 2006, an option to purchase 75,000 shares (or 50,000 shares in the case of
the initial grant) of common stock at an exercise price equal to 120% of the
average closing price of the Company's common stock for the last ten days of
the quarter for which the option is granted; provided that if certain
milestones specified in the agreement are achieved the exercise price of the
options will be reduced to 100% of the average closing price of the Company's
common stock for the last ten days of the quarter for which the option is
granted.  The options will be exercisable for a period of five years following
the date of grant. The initial term of the agreement expires on December 31,
2006 and continues thereafter on a month-to-month basis unless terminated by
either party.

Chief Financial Officer Services Agreement.  Under the chief financial officer
services agreement with MBMC, the Company will pay to MBMC a monthly fee of
$6,250 in cash.  The Company will also reimburse MBMC for certain expenses in
connection with providing services to it.  The initial term of the agreement
expires on March 31, 2007 and renews thereafter on an annual basis unless
terminated by either party.  The agreement was terminated on April 27, 2006.

During the six months ended June 30, 2006, the Company incurred $30,083 in
connection with the above agreements.


                                39



<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 18 - ACQUISITIONS

ISS
---

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 twelve months following the closing.  The earn out expires three
years following the closing.  No earn outs were payable during the three and
six months ended June 30, 2006 or 2005.  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                                  $  100,000
                                                -----------
                                                $  100,000
                                                ===========

         Consideration paid                         Amount
         ------------------                    ------------
     Restricted common stock  (117,664 shares)  $   50,000
     Cash                                           50,000
                                                -----------
                                                $  100,000
                                                ===========

CBSi
-----

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




                                40


<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 18 - ACQUISITIONS, continued

pay an earn out of up to 20 million shares 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 achieved during the three (3) years following the closing of
the asset acquisition. No earn outs were payable during the three and six
months ended June 30, 2006.

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
Inventories                                      875,655
Other assets                                      21,573
Equipment                                        154,729
Software development costs                       154,132
Client lists                                      13,528
Due to DataLogic                                (668,225)
Notes payable                                   (176,149)
Accounts payable                                 (16,228)
Deferred revenue                                 (20,125)
                                             ------------
Total                                        $   850,000
                                             ============

         Consideration paid                      Amount
         ------------------                  ------------
   Restricted common stock (3,003,534 shares)$   850,000
                                             ============

Blubat
------

On November 21, 2005, the Company completed the purchase of BluBat, Inc.  The
Company agreed to pay $400,000 in a combination of cash, notes payable and
restricted common stock of the Company to the former shareholders of BluBat,
Inc. in exchange for all of the outstanding and issued stock of BluBat, Inc.
Moreover, under the agreement, the Company may pay an earn out of up to
$450,000, payable in the Company's restricted common stock if certain levels




                                41


<PAGE>




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 18 - ACQUISITIONS, continued

of revenues and net income before taxes are achieved during any consecutive
twelve months following the closing.  The earn out expires two years following
the closing.  No earn outs were payable during the three and six months ended
June 30, 2006.

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                                             $   115,945
Accounts receivable                                  196,166
Client lists                                         720,779
Goodwill                                             288,000
Accounts payable                                    (260,762)
Deferred revenue                                    (372,128)
Deferred tax liability                              (288,000)
                                                ------------

                                                $    400,000
                                                ============

         Consideration paid                         Amount
         ------------------                     ------------
      Cash                                      $     50,000
      Notes payable                                   50,000
      Restricted common stock (1,038,062 shares)     300,000
                                                ------------
                                                $    400,000
                                                ============

As part of the purchase the Company recorded deferred income taxes related to
the book basis of acquired amortizable intangibles in the amount of $288,000.



                                42

<PAGE>





           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


NOTE 19 - SUBSEQUENT EVENTS

On July 6, 2006, the Company and Walt Camping terminated the employment
agreement between them. Mr. Camping had served as an Executive Vice President
of the Company since September 2005 with responsibility for sales of asset
management solutions to the small fleet and sub-prime lending markets.    In
consideration of the termination of the employment agreement and mutual
release of any claims, the Company transferred to Mr. Camping $110,000 of the
principal amount of a note receivable from MBSi Capital Corp., Inc. ("MBSi"),
of which Mr. Camping is a majority owner.  The Company also agreed to accept a
$50,000 payment from MBSi in satisfaction of MBSi  remaining obligations to
the Company.

Concurrently with the termination of his employment agreement, Mr. Camping
resigned as a director of the Company.  Mr. Camping  resignation was not
because of a disagreement with the Company, on any matter relating to its
operations, policies, or practices,

In July 2006, the Company issued 331,334 shares that were committed to be
issued at June 30, 2006 (see Note 15).

                                43


<PAGE>



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

The discussion should be read in conjunction with our consolidated financial
statements and related notes and the other financial information included
elsewhere in this report.

Information Regarding Forward-Looking Statements

Except for the historical information and discussions contained herein,
statements contained in this Form 10-QSB may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995.

The forward-looking statements generally include our 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," "estimate," "continue,"
"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;


                                44


<PAGE>



      .  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.

General

We are a communications and IT solutions company.  We leverage our technology
expertise, customer relationships and supplier channels to develop solutions
addressing markets with attractive growth characteristics, such as network
design and project management, mobile asset tracking and secured mobile
communications and strategic IT outsourcing.

We operate and manage two strategic business segments.  Our segments and their
principal activities are:

Communications
--------------
Our communications segment addresses the network, mobile asset tracking and
secured mobile communications.  Our Panther Trak mobile asset tracking device
utilizes digital cellular networks and the GPS to enable a broad range of
customer-defined options in keeping track of valuable vehicular assets.

Consulting
----------
Our consulting segment provides IT outsourcing and consulting services to a
broad range of U.S. and international governmental agencies and commercial
enterprises.  Our consulting segment services include project management and
systems analysis, design, implementation, testing and maintenance.  We also
provide short and long-term staffing solutions.

Company Strategy

Our objective is to grow the core businesses in each of our segments through a
combination of organic and acquired growth.  The key elements to our strategy
are:

      .  Further penetrate vertical markets in which we have or are developing
         reference customers.  We have developed relationships with customers
         in selected vertical markets, such as public safety and fleet
         services.  We are leveraging our relationships with these customers
         and our knowledge of their needs to attract other potential customers
         in these markets.  In other vertical markets, we intend to replicate
         the model of deploying our solutions with a leading reference
         customer and leveraging this relationship and our market expertise to
         attract other customers in those markets.

      .  Exploit cross-selling opportunities to our existing customers.  We
         plan to focus our sales efforts toward our existing customers to
         expand the scope of the solutions we provide to them.



                                45


<PAGE>



      .  Enhance our product development, sales and customer support
         infrastructure.  We intend to continue making investments in our
         corporate infrastructure, including product development, sales,
         implementation, and customer support.

      .  Create new value-added products and services for our customers.  We
         will continue to add new features and functionality to our solutions
         and develop new product and service platforms that take advantage of
         improvements that are being made in wireless communications, IT and
         other technologies.

      .  Acquire complementary businesses and technologies.  We intend to
         build our revenue base and solutions by selectively acquiring
         complementary businesses and technologies.  We target companies with
         the following characteristics:  (1) an established market presence in
         their respective fields, (2) a loyal customer base that can be used
         to cross-sell other products and services, and (3) products and
         services that provide recurring, predictable service and maintenance
         revenue streams.

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.

Company History

We were originally incorporated as Galveston Oil & Gas, Inc. on October 3,
1996. Our initial business was in the development of oil and gas properties.
After the consummation of a series of corporate acquisitions, the nature of
our business changed from development of oil and gas properties to the
business of facilitating the consumption of information, products and services
via the Internet.  We changed our name to TopClick International, Inc. on
February 5, 1999 and then, to DataLogic International, Inc. on July 23, 2001.

On July 20, 2001, we completed the acquisition of DCI, a Texas corporation,
formed on August 20, 1993, in a business combination with DCI being the
surviving entity for accounting purposes.

On June 2, 2003, we acquired 51% of IPN. On November 5 2004, we acquired the
remaining 49% of IPN.

On January 13, 2004, we acquired certain GPS-based technology assets and
entered the GPS mobile asset tracking business.

On March 1, 2005, we acquired the assets of ISS, a provider of technology
solutions for public safety and homeland security agencies.





                                46


<PAGE>



On September 15, 2005, we acquired the assets of CBSi to enhance our GPS-based
mobile asset tracking solution and further increase our distribution and
client relationships.

On November 21, 2005, we acquired BluBat, a provider of network design,
systems and software engineering services to further expand our communications
solutions capabilities.

On June 30, 2006, we sold certain assets related to the our small
fleet/sub-prime lending market operations including the BounceGPS  trademark.

Our primary Internet address is www.dlgi.com. We make our periodic reports
(Forms 10-QSB and Forms 10-KSB) and current reports (Forms 8-K) available free
of charge through our website as soon as reasonably practicable after they are
filed electronically with the Securities and Exchange Commission ("SEC"). We
may from time to time provide important disclosures to investors by posting
them in the investor relations section of our website, as allowed by SEC
rules.


Operations

Communications Segment

Our communications segment addresses the network, mobile asset tracking and
secured mobile communications markets.  Our November 2005 acquisition of
Blubat expanded the range of solutions offered by, and the customer base of,
our communications segment.  Our March 2005 acquisition of the assets of ISS
by our wholly owned subsidiary, DataLogic New Mexico, Inc. ("DNM") expanded
our technology solutions for and customer base in the public safety and
homeland security agency market.

Mobile Asset Tracking.  Our current mobile asset tracking product consists of
our Panther Trak asset tracking device.

Our Panther Trak asset tracking device utilizes digital cellular networks and
the GPS to enable a broad range of customer-defined options in keeping track
of valuable vehicular assets.  The device sends and receives a variety of
information from time to time and on demand. Such data includes location,
velocity, and time. These data are transmitted to our data center using
wireless networks and the Internet. If a wireless connection to a device is
not available, then the device will store the captured data and seek to
transmit the data when a wireless connection is available.

Secured Mobile Communications.  We offer an encryption and two-factor
authentication product, EncrypTAC. 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.


                                47

<PAGE>




Consulting Services

Our consulting segment provides IT consulting services to a broad range of
U.S. and international governmental agencies and commercial enterprises.  Our
consulting segment is led by our wholly owned subsidiary, DataLogic
Consulting, Inc. ("DCI").  DCI provides complete IT consulting services that
include project management and systems analysis, design, implementation,
testing and maintenance.  DCI also provides short and long-term staffing
solutions.

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.

We have historically provided a majority of our consulting services at client
facilities. Such consulting services have been provided under both
professional staff supplementation and project engagements. Staff
supplementation engagements are distinguishable from project engagements,
commonly referred to as outsourcing services, in that with staff engagements
the client generally maintains responsibility for the overall task, whereas
with outsourcing services, we typically assume major responsibility for the
management of the project and/or the design and implementation of specific
deliverables based upon client defined requirements. Our objective in
providing professional staffing engagements includes developing a clear
understanding of the client's needs and positioning ourselves to provide
quality consulting and outsourcing services if the need arises.

Staff Augmentation/Consulting Services. We seek to provide quality consulting
services to our existing and prospective Fortune 1000 clients and governmental
agencies. We expect to create value by deploying qualified professionals to
work with clients in the Telecommunications, Energy, Financial, Governmental,
Healthcare, Manufacturing, Retail and Transportation industries.  We believe
future prospects of contract renewals from existing clients are good since
DataLogic has received favorable reviews and has been extended for multiple
terms on most of the projects; however, there can be no assurance that we will
be able to renew most of these contracts, if at all.



                                48




<PAGE>


Results of Operations
---------------------

Comparison of the three months ended June 30, 2006 to three months ended June
30, 2005

Net Revenue

Consulting Segment

The net revenues for the three months ended June 30, 2006 increased $77,000 or
2.3% to $3,390,000 as compared to net revenues of $3,313,000 for the three
months ended June 30, 2005.  The increase in revenues was due to an increase
in staff placed in the second quarter of 2006 vs. 2005.

Communications Segment

The net revenues for the three months ended June 30, 2006 increased $512,000
to $1,683,000 as compared to net revenues of $1,171,000 for the three months
ended June 30, 2005.  The increase in revenues was primarily due to one large
order received in the second quarter of 2006 vs. 2005.

Gross Profit

Consulting Segment

The gross profit for the three months ended June 30, 2006 decreased $17,000 or
4.9% to $327,000 as compared to the gross profit of $344,000 for the three
months ended June 30, 2005.  The decrease was due to an increase in workers
compensation and unemployment taxes.

Communications Segment

The gross profit for the three months ended June 30, 2006 increased $43,000 or
23.6% to $225,000 as compared to the gross profit of $182,000 for the three
months ended June 30, 2005.  The increase in gross profit was due to increased
revenue in video communications product and service sales.

Operating Expenses

Consulting Segment

The operating expenses for the three months ended June 30, 2006 were $568,000
as compared to the operating expenses of $470,000 for the three months ended
June 30, 2005.  The increase was due to an increase in compensation costs
associated with the expensing of stock options (per SFAS 123(R)), an increase
in employee benefits, workers compensation, unemployment insurance, and
professional fees.




                                49

<PAGE>




Communications Segment

The operating expenses for the three months ended June 30, 2006 were $452,000
as compared to the operating expenses of $227,000 for the three months ended
June 30, 2005.  The year-over-year increase was due to increases
in operating expenses as a result of our acquisitions and increases in sales
and marketing costs for other communications products and services.

Non-Operating Expenses

Consulting Segment

Interest expense for the three months ended June 30, 2006 was $36,000 as
compared to $204,000 for the three months ended June 30, 2005.  The decrease
in interest expense was primarily due to a decrease in interest expense
associated with the amortization of the debt discount on the convertible term
note issued by the Company to Laurus which was paid in January 2006.  The
change in the fair value of derivative and warrant liabilities was $417,000 in
2006 as compared to $452,000 for the three months ended June 30, 2005.  The
decrease was primarily due to decreases in the Company's stock prices in 2006
versus decreases in the Company's stock price in the comparable period of
2005.  Gain from the sale of property and equipment increased $15,000 as
compared to $ 0 for the three months ended June 30, 2005 due to a sale of
property in 2006 that did not occur in 2005.

Communications Segment

Interest expense for the three months ended June 30, 2006 was $53,000 as
compared to $4,000 for the three months ended June 30, 2005.  The increase in
interest expense was related to the interest on equipment finance contracts
and other notes.

Net Loss

Consulting Segment

As a result of the above, the net loss for the three months ended June 30,
2006 was $109,000 as compared to the net loss of $100,000 for the three months
ended June 30, 2005.

Communications Segment

As a result of the above, the net loss for the three months ended June 30,
2006 was $16,000 as compared to the net loss of $22,000 for the three months
ended June 30, 2005.

The basic and diluted loss per share was $0.00 during the three months ended
June 30, 2006 as compared to the basic and diluted loss per share of $0.00 in
2005.




                                50


<PAGE>


Comparison of the six months ended June 30, 2006 to six months ended June 30,
2005

Net Revenue

Consulting Segment

The net revenues for the six months ended June 30, 2006 decreased $80,000 or
1.2% to $6,518,000 as compared to net revenues of $6,598,000 for the six
months ended June 30, 2005.  The decrease in revenues was due to a decrease in
staff placed in the first quarter of 2006 vs. 2005.

Communications Segment

The net revenues for the six months ended June, 2006 increased $1,525,000 to
$2,779,000 as compared to net revenues of $1,254,000 for the six months ended
June 30, 2005.  The increase in revenues was due to increases in video
communications product and service sales.

Gross Profit

Consulting Segment

The gross profit for the six months ended June 30, 2006 decreased $166,000 or
22.2% to $581,000 as compared to the gross profit of $747,000 for the six
months ended June 30, 2005.  The decrease was due to an increase in workers
compensation and unemployment tax rates.

Communications Segment

The gross profit for the six months ended June 30, 2006 increased $196,000 or
91.6% to $410,000 as compared to the gross profit of $214,000 for the six
months ended June 30, 2005.  The increase in gross profit was due to increased
revenue in video communications product and service sales.

Operating Expenses

Consulting Segment

The operating expenses for the six months ended June 30, 2006 were $1,429,000
as compared to the operating expenses of $1,030,000 for the six months ended
June 30, 2005.  The increase was due to an increase in compensation costs
associated with the expensing of stock options (per SFAS 123(R)), an increase
in employee benefits, workers compensation, unemployment insurance,
professional fees, bad debt and other one-time costs associated with the
restatement of the Company's financial statements.

Communications Segment

The operating expenses for the six months ended June 30, 2006 were $1,271,000




                                51



<PAGE>



as compared to the operating expenses of $341,000 for the six months ended
June 30, 2005.  The year-over-year increase was due to increases in operating
expenses as a result of our acquisition of CBSi, and increases in sales and
marketing costs for the BounceGPS and other communications products and
services.

Non-Operating Expenses

Consulting Segment

Interest expense for the six months ended June 30, 2006 was $118,000 as
compared to $437,000 for the six months ended June 30, 2005.  The decrease in
interest expense was primarily due to a decrease in interest expense
associated with the amortization of the debt discount on the convertible term
note issued by the Company to Laurus which was paid in January 2006.  Loss
from debt extinguishment was a one-time charge of $1,338,000 in 2006 as a
result of the repayment of the Laurus convertible term note.  The change in
the fair value of derivative and warrant liabilities was $198,000 in 2006 as
compared to $1,132,000 for the six months ended June 30, 2005.  The decrease
was primarily due to decreases in the Company's stock prices in 2006 versus
decreases in the Company's stock price in the comparable period of 2005.  Gain
from the sale of property and equipment increased $25,000 as compared to $ 0
for the six months ended June 30, 2005 due to a sale of property in 2006 that
did not occur in 2005.

Communications Segment

Interest expense for the six months ended June 30, 2006 was $58,000 as
compared to $6,000 for the three months ended June 30, 2005.  The increase in
interest expense was related to the interest on equipment finance contracts
and other notes.

Net Loss

Consulting Segment

As a result of the above, the net loss for the six months ended June 30, 2006
was $2,285,000 as compared to the net profit of $185,000 for the six months
ended June 30, 2005.

Communications Segment

As a result of the above, the net loss for the six months ended June 30, 2006
was $716,000 as compared to the net loss of $102,000 for the six months ended
June 30, 2005.

The basic and diluted loss per share was $0.06 during the six months ended
June 30, 2006 was compared to the basic and diluted earnings per share of
$0.01 and $0.00, respectively, in 2005.

                                52


<PAGE>




Liquidity and Capital Resources

As of June 30, 2006, we had $545,409 in cash and $2,537,638 in accounts
receivable.  Our current liabilities consisted of $4,160,563 in accounts
payable, deferred revenue, accrued expenses, and current portion of notes
payable.

For the six months ended June 30, 2006, we had a net increase in cash of
$88,629, resulting from $1,705,546 of cash used in our operating activities,
$64,749 of cash used in our investing activities, and $1,858,924 of cash
provided by our financing activities.

Cash Flows from Operating Activities

Net cash used in our operating activities of $1,705,546 for the six months
ended June, 2006 was primarily attributable to a net loss of $3,001,616,
offset by the loss on extinguishment of debt in the amount of $1,337,859, and
the issuance of or commitment to issue shares and options for services
rendered of $406,691. We used more cash in operations for the six months ended
June 30, 2006 versus the six months ended June 30, 2005 due primarily to an
increase in our net loss in six months ended June 30, 2006 over the same
period in 2005.  The increase in our net loss was primarily attributable to an
increase in compensation costs associated with the expensing of stock options
(per SFAS 123(R)), an increase in employee benefits, workers compensation,
unemployment insurance, professional fees, bad debt and other one-time costs
associated with the restatement of the Company's financial statements.

Cash Flows from Investing Activities

Net cash used in our investing activities of $64,749 for the six months ended
June 30, 2006 was primarily attributable to advances on notes receivable of
$50,000 offset by proceeds from the sale of property and equipment of $24,663.
We used less cash from investing activities for the six months ended June 30,
2006 versus the six months ended June 30, 2005 due primarily to more property
and other acquisitions in 2005 than 2006.

Cash Flows from Financing Activities

Net cash provided by our financing activities of $1,858,924 for the six months
ended June 30, 2006 was comprised of an increase in notes payable proceeds of
$3,300,000, proceeds from common stock sales of $1,423,820, offset by the
payment of our convertible debt and notes and related fees in the amount of
$2,864,896.

The Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally
accepted in the United States of America ("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 $6,829,484 at June 30, 2006 and a history of
operating losses over the last several years.  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




                                53


<PAGE>




devoted considerable effort during the three months ended June 30, 2006
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
sheets 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.  As a result, our independent registered public accounting firms have
included "going concern" modifications in their reports on the consolidated
financial statements for the years ended December 31, 2005 and 2004.

On January 20, 2006, we issued a secured term note to Laurus Master Fund, Ltd.
in the principal amount of $3,250,000 (the "Secured Note").  We used the
proceeds from the issuance of the Secured Note to repay the principal of the
convertible debt we issued in June 2004 and to fund our ongoing operations.

The Secured Note, which is not convertible, bears interest at the coupon rate
of the prime rate plus 2.00% (or 10.25% as of June 30, 2006) and is subject to
a floor interest rate of 8.00%.  The Secured Note is collateralized by a
security interest in substantially all of our assets and the assets of our
subsidiaries.   Our obligations under the Secured Note are guaranteed by each
of our subsidiaries.

We are obligated to repay the principal amount of the Secured Note in monthly
installments of $154,762 (together with any accrued and unpaid interest on the
principal amount repaid) commencing May 1, 2006 through maturity at December
31, 2007.  If we default on the Secured Note, the amount of the principal
balance would increase to 130% of the then-outstanding principal and be
subject to acceleration.

On March 31, 2006, we obtained an amendment to the Secured Note deferring the
date for payment of the initial monthly principal installment from April 1 to
May 1, 2006 in exchange for issuing 40,000 shares of our common stock to the
holder of the Secured Note.  There can be no assurance that we will be able to
obtain subsequent deferrals of our repayment obligations under the Secured
Note on terms that management deems satisfactory or at all.

On May 23, 2006, we closed on a private placement of shares of common stock
and common stock purchase warrants which netted the Company $1,423,820.

We project that our cash on hand and cash flow generated from operations will
not be sufficient to pay monthly principal installments due under the Secured
Note and to fund operational liquidity requirements.  As a result, our ability
to repay the Secured Note as well as to continue our operations and growth
strategy depend on our ability to access the capital markets in the near-term.



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<PAGE>



There can be no assurance that capital from outside sources will be available
on a timely basis, or if such financing is available, that it will be on terms
that management deems sufficiently favorable.  If we are unable to obtain
additional financing in a timely basis and upon terms that management deems
sufficiently favorable, or at all, we could be forced to curtail or abandon
our business plan, making any investment in the Company worthless.

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.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP. As
such, we are required to make certain estimates, judgments and assumptions
that we believe are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. The significant
accounting policies which we believe are the most critical to aid in fully
understanding and evaluating our reported financial results include the
following:

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

Accounts receivable consists of amounts billed to customers upon performance
of service or delivery of goods and expenses incurred by the Company but not
yet billed to customers for consulting services.  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.

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.



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<PAGE>



Other Assets
------------

Other 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.

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.

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

The Company accounts for its long-lived assets in accordance with 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.

Goodwill
--------

Goodwill represents the excess of acquisition cost over the net assets
acquired in a business combination.  Management reviews, on an annual basis,
the carrying value of goodwill in order to determine whether impairment has
occurred.  Impairment is based on several factors including the Company's
projection of future undiscounted operating cash flows.  If an impairment of
the carrying value were to be indicated by this review, the Company would
adjust the carrying value of goodwill to its estimated fair value.



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

From time to time, the Company has debt with conversion options that provide
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 Forces ("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."

If a BCF exists, the Company records it as a debt discount and amortizes it to
interest expense over the life of the debt on a straight-line basis, which
approximates the effective interest method.

Derivative Financial Instruments
--------------------------------

The Company's derivative financial instruments consist of embedded derivatives
related to the Laurus notes and warrants entered into in June 2004 and January
2006, since the notes were not conventional convertible debt or the warrants
require registration (see Note 13). The embedded derivatives included the
conversion feature, monthly payment options, variable interest features,
liquidated damages clauses in the registration rights agreement and certain
default provisions. The accounting treatment of derivative financial
instruments requires that we record the derivatives and related warrants at
their fair values as of the inception date of the agreement and at fair value
as of each subsequent balance sheet date.

Any change in fair value of these instruments will be recorded as
non-operating, non-cash income or expense at each reporting date. If the fair
value of the derivatives is higher at the subsequent balance sheet date, we
will record a non-operating, non-cash charge. If the fair value of the
derivatives is lower at the subsequent balance sheet date, we will record
non-operating, non-cash income. The derivative and warrant liabilities are
recorded as long-term liabilities in the consolidated balance sheet.

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."
For sales of communication 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





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<PAGE>




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.

Income Taxes
------------

The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes."  Under SFAS No. 109, deferred tax assets and
liabilities are recognized for future tax benefits or consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be realized through future operations.  We currently
have recorded a valuation allowance against all of our deferred tax assets.
We have considered future taxable income and ongoing tax planning strategies
in assessing the amount of the valuation allowance.  If actual results differ
favorably from these estimates, we may be able to realize some or all of the
deferred tax assets, which could favorably impact our operating results.

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.

The Company's accounting policy for equity instruments issued to consultants
and vendors in exchange for goods and services follows the provisions of EITF
96-18, "Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
and EITF 00-18, "Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees." The measurement date for




                                58


<PAGE>




the fair value of the equity instruments issued is determined at the earlier
of (i) the date at which a commitment for performance by the consultant or
vendor is reached or (ii) the date at which the consultant or vendor's
performance is complete.  In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the
term of the consulting agreement. In accordance to EITF 00-18, an asset
acquired in exchange for the issuance of fully vested, nonforfeitable equity
instruments should not be presented or classified as an offset to equity on
the grantor's balance sheet once the equity instrument is granted for
accounting purposes.

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

Prior to January 1, 2006, the Company accounted for options and warrants
issued pursuant to its stock option plans under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, as
permitted by SFAS No. 123, "Accounting for Stock Based Compensation."
Effective January 1, 2006, on the first day of the Company's fiscal year 2006,
the Company adopted the fair value recognition provisions of SFAS No. 123(R),
"Share Based Payments," using the modified-prospective transition method.
Under this transition method, compensation cost recognized in the period of
initial adoption includes: (a) compensation cost for all share-based payments
granted and not yet vested prior to January 1, 2006, based on the grant date
fair value estimated in accordance with the original provisions of SFAS No.
123, and (b) compensation cost for all share-based payments granted subsequent
to December 31, 2005 based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123(R).  Results for prior periods
have not been restated.  Since stock-based compensation expense recognized in
the statements of operations is based on awards ultimately expected to vest,
the compensation expense has been reduced for estimated forfeitures.  SFAS No.
123(R) requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates.

The Company calculates stock-based compensation by estimating the fair value
of each option using the Black-Scholes option pricing model.  The Company's
determination of fair value of share-based payment awards are made as of their
respective dates of grant using that option pricing model and is affected by
the Company's stock price as well as assumptions regarding a number of
subjective variables.  These variables include, but are not limited to the
Company's expected stock price volatility over the term of the awards and
actual and projected employee stock option exercise behavior.  The
Black-Scholes option pricing model was developed for use in estimating the
value of traded options that have no vesting or hedging restrictions and are
fully transferable.  Because the Company's employee stock options have certain
characteristics that are significantly different from traded options, the
existing valuation models may not provide an accurate measure of the fair
value of the Company's employee stock options.  Although the fair value of



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<PAGE>




employee stock options is determined in accordance with SFAS No. 123(R) using
an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.  The calculated
compensation cost is recognized on a straight-line basis over the vesting
period of the option.

Risk Factors

The more prominent risks and uncertainties inherent in our business are
described below. However, additional risks and uncertainties may also impair
our business operations. If any of the following risks actually occur, our
business, financial condition or results of operations will likely suffer. Any
of these or other factors could harm our business and future results of
operations and may cause you to lose all or part of your investment.

WE HAVE A HISTORY OF LOSSES AND MAY NOT ACHIEVE PROFITABILITY IN THE FUTURE

As of June 30, 2006, we had an accumulated deficit of $6,829,484 and net
losses of $3,001,616 for the six months ended June 30, 2006.  To achieve
profitability we will need to generate significant revenues to offset our cost
of revenues and our sales and marketing, research and development and general
and administrative expenses.  We may not achieve or sustain our revenue or
profit goals and may incur losses in the future.  Changes such as increases in
our pricing for solutions or the pricing of competing solutions may harm our
ability to increase sales of our solutions to new and existing customers.  If
we are not able to expand our customer base and increase our revenue from new
and existing customers, we may continue to be unprofitable.

WE DO NOT HAVE SUFFICIENT CASH ON HAND AND CASH FLOW FROM OPERATIONS TO
SERVICE OUR INDEBTEDNESS AND OTHER LIQUIDITY REQUIREMENTS, AND WILL REQUIRE
ADDITIONAL NEAR-TERM FINANCING

On January 20, 2006, we issued the Secured Note to Laurus Master Fund, Ltd. in
the principal amount of $3,250,000.  We have used the proceeds from the
issuance of the Secured Note to repay the principal of a convertible note
issued in July 2004 and to fund our ongoing operations.

We are obligated to repay the principal amount of the Secured Note in monthly
installments of $154,762 (together with any accrued and unpaid interest on the
principal amount repaid) commencing May 1, 2006 through maturity at December
31, 2007.

On May 23, 2006, we closed on a private placement of shares of common stock
and common stock purchase warrants which netted the Company $1,423,820.

We project that our cash on hand and cash flow generated from operations will
not be sufficient to pay monthly principal installments due under the Secured
Note and to fund operational liquidity requirements.  As a result, our ability
to repay the Secured Note as well as to continue our operations and growth
strategy depend on our ability to access the capital markets in the near term.


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<PAGE>




There can be no assurance that capital from outside sources will be available
on a timely basis, or if such financing is available, that it will be on terms
that management deems sufficiently favorable.  If we are unable to obtain
additional financing in a timely basis and upon terms that management deems
sufficiently favorable, or at all, we could be forced to restructure or to
default on our obligations under the Secured Note or to curtail or abandon our
business plan, any of which may devalue or make worthless an investment in the
Company.

On March 31, 2006, we obtained an amendment to the Secured Note deferring the
date for payment of the initial monthly principal installment from April 1 to
May 1, 2006 in exchange for issuing 40,000 shares of our common stock to the
holder of the Secured Note.  There can be no assurance that we will be able to
obtain subsequent deferrals of our repayment obligations under the Secured
Note on terms that management deems satisfactory or at all.

WE HAVE PLEDGED ALL OF OUR ASSETS TO SECURE THE SECURED NOTE

The Secured Note is secured by a lien on substantially all of our assets,
including our equipment, inventory, contract rights, receivables, general
intangibles, and intellectual property. A default by us under the Secured Note
would enable the holder of the Secured Note to take control of substantially
all of our assets.  If this happens, the holder of the Secured Note could
force us to substantially curtail or cease our operations and you could lose
your entire investment in the Company.

In addition, the existence of the security interest of the Secured Note will
make it more difficult for us to obtain additional financing required to repay
monies borrowed by us, continue our business operations and pursue our growth
strategy.

THE SECURED NOTE BECOMES IMMEDIATELY DUE AND PAYABLE UPON DEFAULT AND WE MAY
BE REQUIRED TO PAY AN AMOUNT IN EXCESS OF THE OUTSTANDING AMOUNT DUE UNDER THE
SECURED NOTE, AND WE MAY BE FORCED TO SELL ALL OF OUR ASSETS

The Secured Note becomes immediately due and payable upon an event of default
including:

      .  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;
      .  trading of our common stock is suspended for 5 consecutive days or 5
         days during any 10 consecutive days from a principal market.

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If we default on the Secured 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.  Since we do not have
sufficient cash to repay such an amount, such a default on the Secured Note
could materially adversely affect 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 result in the
loss of your entire investment in the Company.

THE COMPANY INTENDS TO ISSUE ADDITIONAL SECURITIES, INCLUDING COMMON STOCK

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.  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 our stockholders to
sell their shares, which would contribute to downward movement in the price of
the shares.

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS HAVE EXPRESSED OPINIONS
THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN

Our independent registered public accounting firms have expressed opinions
that there is substantial doubt about our ability to continue as a going
concern primarily because we have yet to generate sufficient working capital
to support our operations and our ability to make debt service requirements.
Our most recent financial statements have been prepared assuming that we will
continue as a going concern. The financial statements do not include any
adjustments that might result from our inability to continue as a going
concern. If we are unable to continue as a going concern, you may lose your
entire investment in the Company.

WE DEPEND ON A FEW CUSTOMERS

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.  These constraints imposed upon our customers make 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.



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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 stockholders beneficially owned
approximately 30% of the outstanding shares of our common stock at May 31,
2006, which makes it possible for them to have significant influence over the
outcome of all matters submitted to our shareholders for approval.

WE MAY NOT SUCCESSFULLY EXECUTE OR INTEGRATE OUR ACQUISITIONS

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:

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

      .  Continued investments in our infrastructure, including but not
         limited to, product development, sales, implementation, and support;

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




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

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.

WE OPERATE IN HIGHLY COMPETITIVE MARKETS, AND IF WE FAIL TO COMPETE
EFFECTIVELY, OUR ABILITY TO ACQUIRE NEW CUSTOMERS WOULD DECREASE AND OUR
BUSINESS WOULD SUFFER

We face significant competition. The markets for our products and services are
intensely competitive and we face significant competition from a number of
different sources. Several of our competitors have significantly greater name
recognition as well as substantially greater financial, technical, service
offering, product development and marketing resources than we do. Competitive
pressures and other factors may result in price or market share erosion that
could have a material adverse effect on our business, results of operations
and financial condition.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE, AND OUR STOCK PRICE MAY DECLINE IF
WE DO NOT MEET THE EXPECTATIONS OF ANALYSTS AND INVESTORS

Our quarterly operating results have historically fluctuated and may do so in
the future. Our revenue has fluctuated in the past, and may fluctuate in the
future from quarter to quarter and period to period, as a result of a number
of factors including, without limitation:

      .  the size and timing of orders from clients;

      .  the length of sales cycles;

      .  changes in pricing policies or price reductions by us or our
         competitors;

      .  the timing of new product announcements and product introductions by
         us or our competitors;

      .  changes in revenue recognition or other accounting guidelines
         employed by us and/or established by the Financial Accounting
         Standards Board ("FASB") or other rule-making bodies;

      .  the availability and cost of system components;

      .  the financial stability of clients;

      .  market acceptance of new products, applications and product
         enhancements;

      .  our success in expanding our sales and marketing programs;



                                64
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      .  execution of or changes to Company strategy;

      .  personnel changes; and

      .  general market/economic factors.

Due to all of the foregoing factors, it is possible that our operating results
may be below the expectations of public market analysts and investors. In such
event, the price of our common stock would likely be materially adversely
affected.

WE HAVE A SMALL FINANCE AND ACCOUNTING STAFF AND A FAILURE TO MAINTAIN AN
EFFECTIVE SYSTEM OF INTERNAL CONTROLS COULD EXPOSE US TO POTENTIAL LIABILITIES

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 is generally adequate.

WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, WHICH COULD
MAKE OUR PRODUCTS AND SERVICES OBSOLETE

There can be no assurance that we will be successful in our product
development efforts, that the market will continue to accept our existing
products, or that new products or product enhancements will be developed and
implemented in a timely manner, or achieve market acceptance. If new products
or product enhancements do not achieve market acceptance, our business,
results of operations and financial condition could be materially adversely
affected.

If we fail to develop and introduce in a timely manner new products and
services compatible with emerging technologies, we may not be able to compete
effectively and our ability to generate revenue will suffer.

The industry in which we operate is subject to significant technological
change. The market generally is characterized by rapid technological change,
changing customer needs, frequent new product introductions, and evolving
industry standards. The introduction of products incorporating new
technologies and the emergence of new industry standards could render our
existing products and services obsolete and unmarketable. There can be no
assurance that we will be successful in developing and marketing new products
and services that respond to technological changes or evolving industry
standards.



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WE MAY BE SUBJECT TO LITIGATION THAT COULD RESULT IN SIGNIFICANT COSTS TO US

We face the risks and uncertainties that are associated with any potential
litigation against us.  We face the risks associated with litigation
concerning the operation of our business.  The uncertainty associated with
substantial unresolved litigation may have an adverse impact on our business.
In particular, such litigation could impair our relationships with existing
customers and our ability to obtain new customers. Defending such litigation
may result in a diversion of management's time and attention away from
business operations, which could have a material adverse effect on our
business, results of operations and financial condition. Such litigation may
also have the effect of discouraging potential acquirers from bidding for us
or reducing the consideration such acquirers would otherwise be willing to pay
in connection with an acquisition.

There can be no assurance that such litigation will not result in liability in
excess of our insurance coverage, that our insurance will cover such claims or
that appropriate insurance will continue to be available to us in the future
at commercially reasonable rates.

OUR SUCCESS AND ABILITY TO COMPETE DEPENDS UPON OUR ABILITY TO SECURE AND
PROTECT OUR INTELLECTUAL PROPERTY

Our success depends on our ability to protect our proprietary rights to the
technologies used to implement and operate our solutions.  In the event that a
third party breaches the confidentiality provisions or other obligations in
one or more of our agreements or misappropriates or infringes our intellectual
property rights or the intellectual property rights licensed to us by third
parties, our business could be seriously harmed.  To protect our proprietary
rights, we rely on a combination of trade secrets, confidentiality and other
contractual provisions and agreements, and intellectual property laws, which
afford us only limited protection.  We currently do not hold any patents on
our technologies, which may limit our ability to protect our technologies.
Third parties may independently discover or invent competing technologies or
reverse engineer our trade secrets, software or other technology. Therefore,
the measures we take to protect our proprietary rights may not be adequate.

CLAIMS THAT WE INFRINGE THIRD-PARTY PROPRIETARY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO PROVIDE SOLUTIONS

We do not believe that our operations or products infringe on the intellectual
property rights of others. However, third parties may claim that our current
or future solutions infringe their proprietary rights or assert other claims
against us.  As the number of entrants into our market increases, the
possibility of an intellectual property or other claim against us grows.  Any
intellectual property or other claim, with or without merit, would be
time-consuming and expensive to litigate or settle and could divert management
attention from focusing on our core business.  As a result of such a dispute,
we may have to pay damages, incur substantial legal fees, develop



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costly non-infringing technology, if possible, or enter into license
agreements, which may not be available on terms acceptable to us, if at all.
Any of these results would increase our expenses and could decrease the
functionality of our solutions, which would make our solutions less attractive
to our current or potential customers.  We have agreed in some of our
agreements, and may agree in the future, to indemnify other parties for any
expenses or liabilities resulting from claimed infringements of the
proprietary rights of third parties.

WE FACE POTENTIAL LIABILITY FOR SECURITY BREACHES RELATING TO OUR TECHNOLOGY

We face the possibility of damages resulting from internal and external
security breaches, and viruses. The systems with which we may interface, such
as the Internet and related systems, may be vulnerable to security breaches,
viruses, programming errors, or similar disruptive problems. The effect of
these security breaches and related issues could reduce demand for our
services. Accordingly, we believe that it is critical that these facilities
and related infrastructures not only be secure, but also be viewed by our
customers as free from potential breach. Maintaining such standards,
protecting against breaches and curing security flaws, may require us to
expend significant capital.

WE MAY NOT EFFECTIVELY MANAGE THE GROWTH NECESSARY TO EXECUTE OUR BUSINESS
PLAN, WHICH COULD ADVERSELY AFFECT OUR RESULTS

We have in the past experienced periods of growth that have placed, and may
continue to place, a significant strain on our resources. In the event we are
unable to identify, hire, train and retain qualified individuals within a
reasonable timeframe, such failure could have a material adverse effect on us.
In addition, our ability to manage future increases, if any, in the scope of
our operations or personnel will depend on significant expansion of our
marketing and sales, management, and administrative and financial
capabilities. The failure of our management to effectively manage expansion in
our business could have a material adverse effect on our business, results of
operations and financial condition.

OUR BUSINESS PLAN REQUIRES CONTINUED INVESTMENT IN SOPHISTICATED
TELECOMMUNICATIONS AND COMPUTER SYSTEMS AND COMPUTER SOFTWARE, WHICH COULD
INCREASE OUR COSTS AND ADVERSELY AFFECT OUR BUSINESS

We anticipate making significant investments in the acquisition, development
and maintenance of such technologies and we believe that such expenditures
will be necessary on an on-going basis. Computer and telecommunication
technologies are evolving rapidly and are characterized by short product
lifecycles, which requires us to anticipate technological developments. We can
give no assurance that we will be successful in anticipating, managing or
adopting such technological changes on a timely basis or that we will have the
resources available to invest in new technologies. Our business is dependent
on our computer and telecommunications equipment and software systems, the
temporary or permanent loss of which, through physical damage or



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operating malfunction, could have a material adverse effect on our business.
Operating malfunctions in the software systems of financial institutions,
market makers and other parties might have an adverse effect on our
operations. We depend on service provided by various local and long distance
telephone companies. A significant increase in the cost of telephone services
that is not recoverable through an increase in the price of our services, or
any significant interruption in telephone services, could have a material
adverse effect on our business. Additionally, as we continue to introduce new
services that use new technologies, we may be required to license technology
from third parties. There can be no assurance that these licenses will be
available on commercially reasonable terms, if at all. Our inability to obtain
any of these licenses could result in delays or reductions in the introduction
of new services or could adversely affect our existing business.

IF WE WERE TO LOSE THE SERVICES OF KEY PERSONNEL, WE MAY NOT BE ABLE TO
EXECUTE OUR BUSINESS STRATEGY

Our operations are dependent upon our key personnel. If such personnel were to
leave unexpectedly, we may not be able to execute our business plan. Our
future performance depends in significant part upon the continued service of
our key technical and senior management personnel, many of whom have been with
us for a significant period of time. These personnel have acquired specialized
knowledge and skills with respect to our business. We do not maintain key man
life insurance on any of our employees. Because we have a relatively small
number of employees when compared to other leading companies in the same
industry, our dependence on maintaining our relationship with key employees is
particularly significant. We are also dependent on our ability to attract and
retain high-quality personnel.

CHANGES IN ACCOUNTING POLICIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
RESULTS

We are subject to changes in and interpretations of financial accounting
matters that govern the measurement of our performance. Based on our reading
and interpretations of relevant guidance, principles or concepts issued by,
among other authorities, the American Institute of Certified Public
Accountants ("AICPA"), the FASB, and the United States SEC, management
believes that our current sales and business arrangements have been properly
reported. However, there continue to be issued interpretations and guidance
for applying the relevant standards to a wide range of sales contract terms
and business arrangements that are prevalent in our industries. Future
interpretations or changes by the regulators of existing accounting standards
or changes in our business practices could result in future changes in our
revenue recognition and/or other accounting policies and practices that could
have a material adverse effect on our business, financial condition, cash
flows, revenue and results of operations.


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OUR MOBILE ASSET TRACKING BUSINESS DEPENDS ON GPS TECHNOLOGY AND WIRELESS
NETWORKS CONTROLLED BY OTHERS

Our mobile asset tracking solutions rely on signals from GPS satellites built
and maintained by the U.S. Department of Defense.  GPS satellites and their
ground support systems are subject to electronic and mechanical failures and
sabotage.  If one or more satellites malfunction, there could be a substantial
delay before they are repaired or replaced, if at all, and our products and
services may cease to function and customer satisfaction would suffer.

In addition, the U.S. government could decide not to continue to operate and
maintain GPS satellites over a long period of time or to charge for the use of
the GPS.  Furthermore, because of ever-increasing commercial applications of
the GPS and international political unrest, U.S. government agencies may
become increasingly involved in the administration or the regulation of the
use of GPS signals in the future.  If factors such as the foregoing affect the
GPS, for example by affecting the availability, quality, accuracy or pricing
of GPS technology, our business may suffer.

Currently, our mobile asset tracking solution functions on General Packet
Radio Services networks and Code Division Multiple Access 1xRTT networks
controlled by wireless communications providers.  Our existing agreements with
wireless communications providers may in some cases be terminated immediately
upon the occurrence of certain conditions or with prior written notice.  If
one or more of our wireless communications providers decides to terminate or
not to renew its contract with us, we may incur additional costs relating to
obtaining alternate coverage from another wireless communications provider
outside of its primary coverage area, or we may be unable to replace the
coverage at all, causing a complete loss of services to our customers in that
coverage area.

THE REPORTING OF INACCURATE LOCATION INFORMATION COULD CAUSE THE LOSS OF
CUSTOMERS AND EXPOSE US TO LEGAL LIABILITY

The accurate reporting of location information is critical to our customers'
businesses.  If we fail to accurately report location information, we could
lose customers, our reputation and ability to attract new customers could be
harmed, and we could be exposed to legal liability.  We may not have insurance
adequate to cover losses we may incur as a result of these inaccuracies.

DEFECTS OR ERRORS IN OUR SOLUTIONS COULD RESULT IN THE CANCELLATION OF OR
DELAYS IN THE IMPLEMENTATION OF OUR SOLUTIONS, WHICH COULD DAMAGE OUR
REPUTATION AND HARM OUR FINANCIAL CONDITION

We must develop our mobile asset tracking solutions quickly to keep pace with
a rapidly changing market.  Solutions that address this market are likely to
contain undetected errors or defects, especially when first introduced or when
new versions are introduced.  We may be forced to delay commercial



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release of new solutions or updated versions of existing solutions until such
errors or defects are corrected, and in some cases, we may need to implement
enhancements to correct errors that were not detected until after deployment
of our solutions.  Even after testing and release, our solutions may not be
free from errors or defects, which could result in the cancellation or
disruption of our services or dissatisfaction of customers.  Such customer
dissatisfaction could damage our reputation and result in lost revenues,
diverted development resources, and increased service and warranty costs.

OUR SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND EXPAND OUR SALES CHANNELS

To increase our market awareness, customer base and revenues, we need to
expand our direct and indirect sales operations.  There is strong competition
for qualified sales personnel, and we may not be able to attract or retain
sufficient new sales personnel to expand our operations.  New sales personnel
require training and it takes time for them to achieve full productivity, if
at all.  In addition, we believe that our success is dependent on the
expansion of our indirect distribution channels, including our relationships
with independent sales agents.  These sales channel alliances require training
in selling our solutions and it will take time for these alliances to achieve
productivity, if at all.  We may not be able to establish relationships with
additional distributors on a timely basis, or at all.  Our independent sales
agents, many of which are not engaged with us on an exclusive basis, may not
devote adequate resources to promoting and selling our solutions.


ITEM 3. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls as of the end of the period
covered by this report, June 30, 2006. This evaluation was carried out under
the supervision and with the participation of our CEO, Mr. Keith Moore, and
our Chief Financial Officer, Mr. Khanh Nguyen (collectively, the "Certifying
Officers"). Based upon that evaluation, our Certifying Officers concluded that
as of the end of the period covered by this report, June 30, 2006, our
disclosure controls and procedures are effective in timely alerting management
to material information relating to us and required to be included in our
periodic filings with the Securities and Exchange Commission (the
"Commission").

Disclosure controls and procedures are controls and procedures that are
designed to ensure that information required to be disclosed in our periodic
reports under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and
forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in our periodic reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal




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executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.

Remediation of Material Weakness in Internal Control

As discussed in Note 1 to its 2005 consolidated financial statements, the
Company has restated its consolidated financial statements for the year ended
December 31, 2004 and has restated or will restate the quarterly reports for
the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.
These restatements are the result of the Company's accounting treatment for
(i) non-conventional convertible notes payable to Laurus Master Fund, Ltd.,
which allowed for the note holder to convert the notes payable into shares of
its common stock at prices that were variable, and (ii) warrants issued to
Laurus Master Fund, Ltd.  Based on the restatement, we determined that at the
end of 2005 that the Company's policies and procedures did not provide for
adequate management oversight and review of the Company's accounting for (i)
the identification of the variable conversion features embedded within its
debt instruments, and (ii) the accounting for warrants issued in connection
with certain convertible promissory notes.  These deficiencies resulted in the
restatement of the Company's consolidated financial statements for the year
ended December 31, 2004 and quarterly reports for the quarters ended March 31,
2005, June 30, 2005 and September 30, 2005.

The foregoing led our management to conclude that our disclosure controls and
procedures were not effective as of December 31, 2005 because of a material
weakness in our internal controls over financial reporting.

In the first quarter of 2006, we implemented additional review procedures to
ensure that a complete review is performed on all terms of our debt
instruments and stock-based compensation arrangements, and that supporting
accounting documentation is available to ensure that our accounting for the
previously noted material weaknesses is in accordance with accounting
principles generally accepted in the United States of America.  These review
procedures were in place in connection with the preparation of our
consolidated financial statements for the first and second quarters of 2006.
As such, we believe that the remediation initiative outlined above was
sufficient to eliminate the material weakness in internal control over
financial reporting as discussed above.

(b) Changes in internal control over financial reporting. Other than as noted
above, there were no changes in the Company's internal control over financial
reporting that occurred during the three and six months ended June 30, 2006
that has materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.

Internal Control Over Financial Reporting

Further, as required by Rule 13a-15(d) of the Exchange Act and under the
supervision and with the participation of our Certifying Officers, we carried


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out an evaluation as to whether there has been any change in our internal
control over financial reporting during our fiscal quarter ended June 30,
2006. Based upon this evaluation, we have concluded that, other than as noted
above, there has not been any change in our internal control over financial
reporting during our fiscal quarter ended June 30, 2006, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.  Internal control over financial reporting is a
process designed by, or under the supervision of, our principal executive and
principal financial officers, or persons performing similar functions, and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements. See: RISKS FACTORS.


                   PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 2.  RECENT SALES OF UNREGISTERED SECURITIES

On May 23, 2006, the Company closed on $1,625,000 in gross proceeds from a
private placement of shares of common stock and common stock purchase
warrants.

In the private placement, the Company offered and sold the shares of common
stock and common stock purchase warrants together as a unit, at a purchase
price of $0.20 per unit.  For each share of common stock in the unit, each
purchaser will also receive warrants to purchase the number of Class A
warrants equal to forty percent of the number of common shares purchased and
Class B warrants equal to twenty-five percent of the number of common shares
purchased.  Class A warrants have an exercise price of $0.35 per share and
Class B warrants have an exercise price of $0.45 per share.  Both classes of
warrants are exercisable beginning November 23, 2006 and have a 5-1/2 year
term, expiring November 23, 2011.  The gross proceeds of $1,625,000 raised in
the private placement resulted in the sale and issuance to the investors a
total of 8,125,000 shares of common stock, Class A warrants to purchase
3,250,000 shares of common stock and Class B warrants to purchase an
additional 2,031,250 shares of common stock. The private placement shares and
warrants were offered and sold solely to accredited investors in reliance on
the exemption from registration provided by Rule 506 of Regulation D under the
Securities Act.

In connection with the private placement, the Company paid to the placement
agent consideration consisting of (a) a cash sales commission (including a
non-accountable expense allowance) of $130,000 (representing 8% of the gross
proceeds raised in the private placement), (b) warrants to purchase 650,000
shares of common stock (representing 8% of the aggregate number of shares of
common stock sold in the private placement), with each warrant having an
exercise price of $0.20 per share, (c) warrants to purchase 260,000 shares of
common stock (representing 8% of the aggregate number of shares of common
stock underlying the Class A common stock purchase warrants sold in the
private placement), with each warrant having an exercise price of $0.35 per
share, and (d) warrants to purchase 162,500 shares of common stock
(representing 8% of the aggregate number of shares of common stock underlying
the Class B common stock purchase warrants sold in the private placement),
with each warrant having an exercise price of $0.45 per share.  Each of the
warrants issued to the placement agent is exercisable beginning November 23,
2006 and expiring on November 23, 2011.  The Company also agreed to pay legal
fees in the amount of $10,000 to legal counsel for the investors in the
private placement.

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During the three months ended June 30, 2006, the Company issued 30,777 shares
of unregistered common shares to its Executive Vice President for services
performed.

During the three months ended June 30, 2006, the Company issued 71,544 shares
of unregistered common shares to other employees and consultants for services
performed.

During the three months ended June 30, 2006, the Company issued 40,000 shares
of unregistered common shares for interest to Laurus Master Fund, Ltd.

The issuance of all of the above listed sales of unregistered securities were
made pursuant to an exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, and/or Regulation D promulgated
thereunder.

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
-------  -----------
The exhibits required by Item 601 of Regulation S-B are identified below and
attached hereto or incorporated by reference as noted in the list.

(10.1)    Amendment No. 1 to Registration Rights Agreement with Laurus Master
          Fund, Ltd. (1)
(10.2)    Form of Securities Purchase Agreement for May 2006 Private Placement
          (1)
(10.3)    Form of Class A Common Stock Purchase Warrant for May 2006 Private
          Placement (1)
(10.4)    Form of Class B Common Stock Purchase Warrant for May 2006 Private
          Placement (1)
(10.5)    Registration Rights Agreement for May 2006 Private Placement (1)
(10.6)    Form of Common Stock Purchase Warrant issued to Midtown Partners (1)
(10.7)    Asset Purchase Agreement with Huron Holdings, Inc. (2)
(10.8)    Technology License Agreement with Huron Holdings, Inc. (2)
(10.9)    Amendment No. 3 to Secured Term Note and Consent with Laurus Master
          Fund, Ltd. (2)
(31.1)    Certification pursuant Section 302
(31.2)    Certification pursuant Section 302
(32.1)    Certification pursuant Section 906

(1) Filed with Form 8-K dated May 24, 2006
(2) Filed with Form 8-K dated July 11, 2006



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                            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: August 14, 2006               /s/ Keith Moore
                                    ------------------------------------
                                    Title: Chief Executive Officer,
                                    Chief Operating Officer and Director


Date: August 14, 2006               /s/ Khanh Nguyen
                                    ------------------------------------
                                    Title: President, Chief Financial
                                    Officer and Director





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