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 March 31, 2005

                                OR

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

                Commission file number: 000-30382

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



          Delaware                              330755473
          --------                              ---------
(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 [ ]

As of April 30, 2005, there were 39,925,896 shares of the issuer's Common
Stock outstanding.

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

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


<PAGE>



                              INDEX


PART I.  FINANCIAL INFORMATION..............................................3
  Item 1. Consolidated Financial Statements.................................3

          Unaudited Condensed Consolidated Balance Sheet as of
          March 31, 2005 ...................................................3

          Unaudited Condensed Consolidated Statement of Operations -
          Three Months Ended March 31, 2005 and 2004 .......................4

          Unaudited Condensed Consolidated Statement of Cash Flows -
          Three Months Ended March 31, 2005 and 2004........................5

          Notes to Unaudited Condensed Consolidated Financial
          Statements........................................................6

  Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................22

  Item 3. Quantitative and Qualitative Disclosures About Market Risk.......37

  Item 4. Controls and Procedures..........................................37


PART II.  OTHER INFORMATION................................................38

  Item 1. Legal Proceedings................................................38
  Item 2. Changes in Securities............................................38
  Item 3. Defaults upon Senior Securities..................................38
  Item 4. Submission of Matters to a Vote of Security Holders..............38
  Item 5. Other Information................................................38
  Item 6. Exhibits and Reports Filed on Form 8-K...........................39


SIGNATURES.................................................................40



<PAGE> 2


                  PART I. FINANCIAL INFORMATION


ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEET
                          MARCH 31, 2005

ASSETS

CURRENT ASSETS
  Cash & cash equivalents                                     $   377,469
  Accounts receivable, net of allowance
   for bad debts of $115,312                                    1,712,401
  Marketable securities                                             7,500
  Inventory                                                       231,863
  Prepaid expenses                                                 82,529
                                                              ------------
    Total current assets                                        2,411,762

RESTRICTED CASH                                                   964,519

PROPERTY AND EQUIPMENT, net                                       158,216

INTANGIBLE ASSETS
  Licenses, net                                                    14,584
  Loan origination costs, net                                     233,249
                                                              ------------
    Total intangible assets, net                                  247,833

DEPOSITS                                                            9,111
                                                              ------------
                                                              $ 3,791,441
                                                              ============

              LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable & accrued expenses                         $ 1,688,742
  Notes payable - officers                                         88,824
  Notes payable                                                   275,000
  Convertible debt - current portion                              769,692
                                                              ------------
    Total current liabilities                                   2,822,258

CONVERTIBLE DEBT - LONG TERM PORTION                            1,206,962
                                                              ------------

    Total liabilities                                           4,029,220

STOCKHOLDERS' DEFICIT
  Common stock, $.001 par value;
    authorized shares 100,000,000
    issued and outstanding shares 39,483,272                       39,434
  Additional paid in capital                                    3,533,512
  Shares to be issued                                             142,290
  Unamortized consulting fees                                     (38,130)
  Comprehensive income                                           (196,000)
  Accumulated deficit                                          (3,718,884)
                                                              ------------
    Total stockholders' deficit                                  (237,779)
                                                              ------------
                                                              $ 3,791,441
                                                              ============


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



<PAGE> 3


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF OPERATIONS



                                                        For the quarters
                                                         ended March 31,
                                                      2005           2004
                                                 -------------- --------------

Net revenue                                      $   3,368,268  $   4,001,587

Cost of revenue                                      2,933,500      3,004,324
                                                 -------------- --------------

Gross profit                                           434,768        997,263

Operating expenses                                     674,561        272,756
                                                 -------------- --------------
    Total operating expenses                           674,561        272,756
                                                 -------------- --------------
Income (loss) from operations                         (239,793)       724,507

Non-operating expense:
  Factoring expense                                          -        (67,232)
  Interest expense                                    (146,913)       (10,963)
                                                 -------------- --------------
  Total non-operating expense                         (146,913)       (78,195)
                                                 -------------- --------------
Income (loss) before income tax                       (386,706)       646,312

Provision for income tax                                 3,200          1,600

Minority interest allocation                                 -       (165,180)
                                                 -------------- --------------

Net income (loss)                                     (389,906)       479,532

Other comprehensive loss                                (8,500)             -
                                                 -------------- --------------
Comprehensive income (loss)                      $    (398,406) $     479,532
                                                 ============== ==============

Basic and diluted income (loss) per share        $       (0.01) $        0.01
                                                 ============== ==============

Basic and diluted weighted
  average shares outstanding                        39,376,792     36,547,023
                                                 ============== ==============

*  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 March 31, 2005 and 2004.


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


<PAGE> 4



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                        For the quarters
                                                         ended March 31,
                                                       2005           2004
                                                 -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss)                              $    (389,906) $     479,532
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating
   activities:
      Depreciation and amortization                     74,856         15,932
      Provision for bad debts                            2,312              -
      Issuance of shares for compensation
        and services                                         -        113,350
      Issuance of shares for interest                   19,988              -
      Minority interest                                      -        165,181
  (Increase) decrease in current assets:
      Receivables                                      (84,143)      (693,309)
      Prepaid expenses                                  31,447         (4,558)
      Inventory                                       (178,336)         4,239
  Increase (decrease) in current liabilities:
      Accounts payable and accrued expense             291,221        365,444
      Deferred income                                        -         40,000
                                                 -------------- --------------
        Total adjustments                              157,345          6,279
                                                 -------------- --------------
        Net cash provided by (used in)
        operating activities                          (232,561)       485,811
                                                 -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Decrease in restricted cash                          294,170              -
  Sale of marketable securities                              -        150,904
  (Disposal) acquisition of property & equipment       (49,442)         4,243
                                                 -------------- --------------
        Net cash used in investing activities          244,728        155,147
                                                 -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments to factor                                         -       (572,453)
  Proceeds from loan                                         -        110,000
  Payment of loans                                    (281,546)      (100,000)
  Proceeds from stock options                            3,000              -
  Proceeds from line of credit                               -        182,631
                                                 -------------- --------------
        Net cash used in financing activities         (278,546)      (379,822)
                                                 -------------- --------------

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS    (266,378)       261,136

CASH & CASH EQUIVALENTS, BEGINNING BALANCE             643,847        253,517
                                                 -------------- --------------

CASH & CASH EQUIVALENTS, ENDING BALANCE          $     377,469  $     514,653
                                                 ============== ==============


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


<PAGE> 5




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1. DESCRIPTION OF BUSINESS

DataLogic International, Inc. (formerly, Topclick International, Inc.) (the
"Company") was incorporated on October 3, 1996 in the state of Delaware. The
Company changed its name from Galveston Oil & Gas, Inc. to Topclick
International, Inc. on February 5, 1999. The Company was developing an
Internet website for providing users with a one-stop information index to the
top Internet guides. On July 23, 2001, the board of directors approved the
amendment of the Company's certificate of incorporation to change its name to
DataLogic International, Inc.

Effective February 23, 1999, the Company acquired all the issued and
outstanding common stock of Topclick Corporation (TC) by issuing 2,200,000
shares of common stock. As a result of the share exchange, control of the
combined companies passed to the former shareholders of TC. The exchange was
accounted for as a capital transaction accompanied by a recapitalization of
TC.

TC was incorporated under the laws of the state of Delaware on July 8, 1998.
Effective July 8, 1998, TC acquired all the issued and outstanding common
stock of Topclick (Canada) Inc. (TCCA), a company under common control, and as
such, the business combination has been accounted for at historical costs in a
manner similar to that in a pooling of interests.

TCCA was incorporated under the laws of the Canada Business Corporation Act
and commenced operations on May 15, 1998. Since TCCA was acquired by TC, a
company under common control, the deemed date of inception of TC is May 15,
1998. In addition, TC purchased certain Internet assets from Helpful by Design
Inc., a company also under common control.  This has been accounted for at
predecessor historical costs. Effective December 31, 2001, the Board of
directors approved dissolution of TC and TCCA.

On July 20, 2001, the Company acquired 100% shares outstanding of DataLogic
Consulting, Inc. (DCI), a Texas Corporation, and became a parent Company. DCI
provides SAS consulting services, Telecommunication and Wireless consulting
services, Web design and E-commerce development, and IT staffing and offshore
development services to various industries throughout the country. DCI was
formed on August 20, 1993.

On June 2, 2003, the Company closed a transaction, whereby it acquired 51% of
the issued and outstanding shares of capital stock of i-PhoneHome, Inc., a
California corporation which was 100% owned by several individuals. In
exchange for 51% of the shares common stock of i-PhoneHome, Inc., the Company
will issue i-PhoneHome, Inc. fifty-seven thousand ($57,000) dollars in
restricted common stock.  On December 2, 2003, the company will issue
i-PhoneHome, Inc. an additional forty thousand ($40,000) dollars in restricted
common stock provided that this agreement remained valid and that i-PhoneHome,
Inc. is profitable on or about this date.  On March 2, 2004, the Company will
issue i-PhoneHome, Inc. an additional forty thousand ($40,000) in restricted
common stock provided that this agreement remained valid and that i-PhoneHome,
Inc. is profitable on or about this date. i-PhoneHome, Inc. develops and
markets voice over IP (VoIP) phone products.


<PAGE> 6




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


On July 24, 2003, i-PhoneHome, Inc. changed its name to IPN Communications,
Inc.  On January 5, 2004, the Management agreement with IPN Communications,
Inc. was amended.  The term of the Agreement shall remain in effect until
December 31, 2004 unless terminated prior to that time in accordance with the
terms in the Agreement. The amendment provided for DataLogic to pay IPN in the
amount of $100,000 payable in DataLogic restricted common stock in full
consideration of IPN's performance of services. In addition, DataLogic shall
pay IPN eleven percent of net profits. DataLogic shall no longer be obligated
to pay IPN monthly service fees or any other payout based on the net profit
milestones as outlined in the original Management Agreement. In lieu of the
agreement, the company issued 370,370 shares of common stock valued at $
100,000 on January 5, 2004.

On November 5, 2004, the Company acquired the remaining 49% of the issued and
outstanding shares of capital stock of IPN Communications.  In exchange for
49% of the shares of common stock of IPN, the Company issued IPN three hundred
thousand ($300,000) dollars in restricted common stock. These shares have been
subsequently on April 25, 2005 cancelled and have not been included in
computation of weighted average shares outstanding and statement of
stockholders deficit in the accompanying financial statements. The Company
also entered into a Service Agreement with IPN principals in which the Company
granted 1,500,000 options at market to be vested over a period of two years.

On March 1, 2005, the Company completed a purchase of certain assets of I.S.
Solutions LLC ("ISS").  The Company agreed to pay ISS $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 up to $400,000, payable in our restricted common stock, if revenues of
greater than $5,000,000 and net income before taxes greater than $350,000 are
achieved during any consecutive 12 months following the closing.  The acquired
assets are held in a newly formed wholly owned subsidiary DataLogic New
Mexico, Inc., a New Mexico corporation.  DataLogic New Mexico, Inc. also
entered into an employment agreement with the principal of ISS as President of
DataLogic New Mexico, Inc.

DataLogic New Mexico is an Information Technology consultancy and solutions
provider for government, public safety and homeland security agencies.
DataLogic New Mexico has developed a next-generation encryption and two-factor
authentication product, EncrypTAC(tm), that allows law enforcement agents
using mobile communications to access FBI databases efficiently without
compromising security.


<PAGE> 7



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Basis of presentation

The accompanying unaudited condensed consolidated interim financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for the presentation of interim financial
information, but do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The audited consolidated financial statements for the year ended December 31,
2004 were filed on May 9, 2005 with the Securities and Exchange Commission and
are hereby referenced. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2005 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2005.

Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Issuance of shares for service

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

Marketable Securities

The Company's securities are classified as available-for-sale and, as such,
are carried at fair value. All of the securities comprised of shares of common
stock of investee. Securities classified as available-for-sale may be sold in
response to changes in interest rates, liquidity needs, and for other
purposes.

Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as comprehensive income as a separate
component of stockholder's equity.   Following is a summary of investment
securities classified as available for sale as on March 31, 2005:


                                         Cost       Fair     Unrealized
                                         Basis     Value        Loss

Marketable securities-Common stock    $ 203,500   $ 7,500    $ 196,000


Unrealized holding gains and losses for the three month period ended March 31,
2005 amounted to $8,500.


<PAGE> 8


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

Net intangible assets at March 31, 2005 were as follows:


          Website Development             $     4,900
          Loan Origination Costs              311,000
          Licensing Rights                     39,000
                                          ------------
                                              354,900
          Less Accumulated amortization      (107,067)
                                          ------------

                                          $   247,833
                                          ============

          Client lists                    $    33,086
          Less Accumulated amortization       (33,086)
                                          ------------
                                          $         -
                                          ============



Amortization for years 2005 through 2007 will be as follows:


          2005                           $    114,592
          2006                                107,324
          2007                                 25,917
                                         -------------
          Total                          $    247,833
                                         =============

Inventories

Inventories are valued at the lower of cost (determined on a weighted average
basis) or market. Management compares the cost of inventories with the market
value and an allowance is made for writing down the inventories to there
market value, if lower. Inventories at March 31, 2005 were comprised of
finished phone and GPS products amounting to $231,862. There are no allowances
provided for the quarter ended March 31, 2005.


Property & Equipment

Capital assets are stated at cost. Equipment consisting of computers is
carried at cost. Depreciation of equipment is provided using the straight-line
method over the estimated useful lives (3-5 years) of the assets. Expenditures
for maintenance and repairs are charged to expense as incurred.



<PAGE> 9




           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Segment Reporting

The Company has two reportable segments consisting of the 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 reportable segments for the Three month periods
ended March 31, 2005 and 2004 (in thousands):

For the three month period ended March 31, 2005 (in thousands):


                              Consulting Communications
                                Segment      Segment    Unallocated    Total
                             ------------ ------------- ----------- ----------
Revenue                      $     3,285  $        83   $       -   $  3,368

Gross Margin                         403           32           -        435

Depreciation & amortization          (69)          (6)          -        (75)

Interest expense                    (145)          (2)          -       (147)

Income from continuing
 operations before Income taxes     (308)         (79)          -       (387)

Identifiable assets                3,641          150           -      3,791

Capital expenditures                 100            -           -        100



For the three month period ended March 31, 2004 (in thousands):


                             Consulting  Communications
                               Segment      Segment    Unallocated    Total
                             ------------ ------------ ----------- ----------
Revenue                      $     3,192  $       810  $        -  $    4,002

Gross margin                         521          476           -         997

Depreciation and amortization         (2)          (6)         (8)        (16)

Interest expense                      (8)          (3)          -         (11)

Income(Loss) from continuing
operations before income taxes       316          338          (8)        646

Identifiable assets                2,263          716           -       2,979

Capital expenditures                   -            -           -           -



<PAGE> 10



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Reclassifications

Certain comparative amounts have been reclassified to conform with the current
year's presentation.


NOTE 2 - PRINCIPLES OF CONSOLIDATION

The accompanying 2005 consolidated financial statements include the accounts
of DataLogic International, Inc, its 100% wholly owned subsidiary, DataLogic
Consulting, Inc. (DCI), 100% owned subsidiary, IPN Communications, Inc.
(formerly, i-PhoneHome, Inc.), and 100% owned subsidiary, DataLogic New
Mexico, Inc. All significant inter-company accounts and transactions have been
eliminated in consolidation.

The accompanying 2004 consolidated financial statements include the accounts
of DataLogic International, Inc, its 100% wholly owned subsidiary, and
DataLogic Consulting, Inc. (DCI) and 51% owned subsidiary, IPN Communications,
Inc.(formerly, i-PhoneHome, Inc.) from the acquisition date.  All significant
inter-company accounts and transactions have been eliminated in consolidation.
Minority interest represents 49% interest in IPN Communications.


NOTE 3 - RECENT PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,

"Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used, on
reported results. The Statement is effective for the Companies' interim
reporting period ending January 31, 2003.

In compliance with FAS No. 148, the Company has elected to continue to follow
the intrinsic value method in accounting for its stock-based employee
compensation plan as defined by APB No. 25 and has made the applicable
disclosures below.

Had the Company determined employee stock based compensation cost based on a
fair value model at the grant date for its stock options under SFAS 123, the
Company's net earnings per share would have been adjusted to the pro forma
amounts for the three months ended March 31, 2005 as follows ($ in thousands,
except per share amounts):



<PAGE> 11



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



           Net Loss - as reported                   $        (390)
           Stock-Based employee compensation
             expense included in reported net
             income, net of tax                                 -

           Total stock-based employee
             compensation expense determined
             under fair-value-based method for all
             rewards, net of tax                             (268)
                                                    --------------
           Pro forma net loss                       $        (658)
                                                    ==============
           Loss per share:
           Basic, as reported                       $       (0.01)
           Diluted, as reported                     $       (0.01)
           Basic, pro forma                         $       (0.02)
           Diluted, pro forma                       $       (0.02)



In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." The EITF reached a consensus about the
criteria that should be used to determine when an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss and how that criteria should be applied to investments
accounted for under SFAS No. 115, "ACCOUNTING IN CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES." EITF 03-01 also included accounting considerations
subsequent to the recognition of an other-than-temporary impairment and
requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. Additionally, EITF 03-01
includes new disclosure requirements for investments that are deemed to be
temporarily impaired. In September 2004, the Financial Accounting Standards
Board (FASB) delayed the accounting provisions of EITF 03-01; however the
disclosure requirements remain effective for annual reports ending after June
15, 2004. The Company will evaluate the impact of EITF 03-01 once final
guidance is issued.

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R").  FAS No.
123R requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees.  FAS No. 123R is effective beginning in the Company's
second quarter of fiscal 2006.  The Company is evaluating the impact of this
pronouncement on its financial statements.

In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Nonmonetary Assets."  The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance.  The Company believes that the adoption
of this standard will have no material impact on its financial statements.


<PAGE> 12


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


SEC Staff Accounting Bulletin (SAB) No. 105, "APPLICATION OF ACCOUNTING
PRINCIPLES TO LOAN COMMITMENTS," summarizes the views of the staff of the SEC
regarding the application of generally accepted accounting principles to loan
commitments accounted for as derivative instruments. SAB No.105 provides that
the fair value of recorded loan commitments that are accounted for as
derivatives under SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES," should not incorporate the expected future cash flows
related to the associated servicing of the future loan. In addition, SAB No.
105 requires registrants to disclose their accounting policy for loan
commitments. The provisions of SAB No. 105 must be applied to loan commitments
accounted for as derivatives that are entered into after March 31, 2004. The
adoption of this accounting standard does not have a material impact on the
Company's financial statements.


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 9 below, $964,519 of the
principal amount of the convertible term note is 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. Funds will be released
to the company from this account upon conversion of principal once the company
has reduced the unrestricted principal amount of the Note ($1,750,000) to zero
or upon the satisfaction of other specified conditions. The restricted cash
account earns interest at the rate of 3.25 % per annum and the Company earned
$5,855 in interest income from the restricted cash account for the quarter
ended March 31, 2005.


NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at March 31, 2005 consist of the
following:


Accounts payable                 $   882,843
Accrued payroll & payroll taxes      356,962
Accrued sales taxes                  166,882
Accrued interest expense             135,566
Accrued expenses- other              146,489
                                 ------------
                                 $ 1,688,742
                                 ============



<PAGE> 13


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - DUE TO FACTOR

On August 23, 2002, the Company entered into a factoring and security
agreement to sell certain accounts receivable to Allied Capital Partners, L.P.
The purchase price for each account sold is the face amount of the account
less a discount of 1.75%. All accounts sold are with recourse on seller.
Allied may defer making payment to the Company of a portion of the purchase
price payable for all accounts purchased which have not been paid up to 13.25%
of such accounts (reserve). All of the Company's accounts receivable,
inventories and computer hardware are pledged as collateral under this
agreement. The initial term is for three month and will automatically renew
for additional three month at the end of the term. The Company discontinued
the services of factor as of June 30, 2004. All the outstanding balances due
to the factor have been paid in full. In connection with the factoring
agreement, the Company incurred fees of $67,315 during the period ended March
31, 2004.

NOTE 7 - NOTES PAYABLE- OFFICER

The company repaid $ 66,800 of the loan from officer during the three month
period ended March 31, 2005. The notes payable to the officers amounted to
$88,824 at March 31, 2005. The notes are unsecured, past due and payable and
bear the annual interest rate of 6% on the unpaid principal balance. Interest
on these notes for the period ended March 31, 2005 and 2004 amounted to $1,523
and $4,239.

NOTE 8 - NOTES PAYABLE & LINE OF CREDIT

Notes payable comprised of the following:

Unsecured note, interest rate 10%, interest payable on last
 day of each month, past due and immediately payable               $   25,000
Unsecured note, interest rate 6%, interest payable at the
 end of the term or on demand, past due and immediately payable       100,000
Unsecured note, interest rate 6%, interest payable at the
 end of the term or on demand, past due and immediately payable       150,000
                                                                  -----------
                                                                  $   275,000
                                                                  ===========


Interest on these notes for the period ended March 31, 2005 and March 31, 2004
was $4,491 and $4,239 respectively.

The Company has a line of credit from a financial institution for $450,000
with outstanding balance of $429,406 as of March 31, 2004. The line expired on
May 31, 2004. The line was secured by the Company's assets, was personally
guaranteed by the CEO of the Company and bore an interest rate of 4.38%.


<PAGE> 14


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - CONVERTIBLE DEBT

On June 25, 2004, the Company entered into a Securities Purchase Agreement
with Laurus Master Fund, Ltd. (Purchaser) in connection with the private
placement of a convertible term note issued by the company in the principal
amount of $3,000,000 due June 25, 2007 and a common stock purchase warrant.
The note is convertible into shares of common stock, $.001 par value at a
fixed conversion rate of $0.66, and bears an interest rate at prime plus 2%.
The warrant provides 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
warrants have cashless exercise features. $1,250,000 of the principal amount
(reduced to $950,000 on January 28, 2005 per below) of the Note will be 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.
Funds will be released to the company from this account upon conversion of
principal once the company has reduced the unrestricted principal amount of
the Note ($1,750,000) to zero or upon the satisfaction of other specified
conditions. The notes are secured by all the Company's assets and the assets
of the subsidiaries.

On January 28, 2005, the Purchaser made available $300,000 of the principal
amount held in the restricted account and the Company amended the Note and
related agreements to state that the fixed conversion price for the first
$450,000 aggregate principal amount of the Note converted on or after January
28, 2005 shall be $0.42. After the first $450,000 is converted, the fixed
conversion price shall revert to $0.66.  The Company recorded the beneficial
conversion feature associated with the amendment for $1,948. The Company
recorded amortization expense for $545 for the quarter ended March 31, 2005
for the beneficial conversion feature associated with the amendment.

The Company incurred $311,000 as the loan origination cost for the debt. The
Company is amortizing the cost over the period of the loan. The Company
amortized $ 25,917 for the quarter ended March 31, 2005.  The Company recorded
the beneficial conversion feature associated with the debt for $431,81.  The
Company recorded the beneficial conversion feature associated with the
warrants for $430,050. These costs have been reduced from the long term
portion of the convertible debt on the balance sheet and are being amortized
over their lives. The Company has recorded amortization expense for $ 36,825
for the quarter ended March 31, 2005 for the beneficial conversion feature
associated with the debt.  The Company has recorded amortization expense for
$15,485 for the quarter ended March 31, 2005 for the beneficial conversion
feature associated with the warrants.

In February 2005, 300,113 shares were issued as payment of principal and
interest valued at $ 106,061 of principal and $ 19,987 of interest.

The balance of the convertible debt (net of beneficial conversion feature of
$705,164) as of March 31, 2005 was $769,692, for current portion and $
1,206,962 for long-term portion.


<PAGE> 15


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.

Cash flow statements for the three-month period ended March 31, 2005 does not
include the effects of issuance of 252,525 shares of common stock for the
principal repayment $106,061 of the Company's note payable.

Cash flow statements for the three-month period ended March 31, 2004 does not
include the effects of issuance of 370,370 shares of common stock for
management services amounting $100,000.

The Company paid $2,400 and $800 for income tax during the period ended March
31, 2005 and 2004. The Company paid $21,889 and $4,762 interest during the
period ended March 31, 2005 and 2004, respectively.

NOTE 11 - RELATED PARTY TRANSACTIONS

The Company issued 370,370 shares of common stock for management fees
amounting $100,000. These shares have been issued to shareholders of IPN as
part of the management agreement between the company and IPN for the
management services to be provided by IPN from January 01, 2004 to December
31, 2004. This management fees will be amortized over the period of service. $
0 and $ 25,000 has been expensed for the three months period ending March 31,
2005 and 2004, respectively.  The Company also entered into a Service
Agreement with IPN principals in which the Company granted 1,500,000 options
at market to be vested over a period of two years.

Notes payable to officers amounted to $ 88,824 at March 31, 2005. The notes
are unsecured and bear the annual interest rates of 6% on the unpaid principal
balance. Interest on these notes for the period ended March 31, 2005 and 2004
amounted to $1,523 and $4,239.

Effective January 19, 2005, the Company entered into employment agreements
with its two principal shareholders as officers of the Company.  Under the
terms of the agreements,  the principals will earn an annual salary of
$140,000 and $160,000 payable in a combination of cash and common stock during
the next two years.  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, the grant date and the five
trading days immediately following the grant date.

On November 5, 2004, the Company acquired the remaining 49% of the issued and
outstanding shares of capital stock of IPN Communications.  In exchange for
49% of the shares of common stock of IPN, the Company issued IPN three hundred
thousand ($300,000) dollars in restricted common stock. These shares have been
subsequently on April 25, 2005 been cancelled and have not been included in
computation of weighted average shares outstanding and statement of
stockholders deficit in the accompanying financial statements.


<PAGE> 16


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - STOCKHOLDERS' DEFICIT

Common stock

During the period ended March 31, 2005 -

The Company issued 300,113 shares as payment of principal and interest valued
at $106,061 of principal and $ 19,987 of interest

The Company issued 20,000 shares from the exercise of stock options amounting
to $3,000.

During the three month period ended March 31, 2004, the Company issued common
stocks for various services to following parties:

The Company issued 370,370 shares of common stock for management fees
amounting $100,000. These shares have been issued to shareholders of IPN as
part of the management agreement between the company and IPN for the
management services to be provided by IPN from January 01, 2004 to December
31, 2004. This management fees will be amortized over the period of service. $
25,000 has been expensed for the three month period ending March 31, 2004.

The company entered into a consulting agreement on February 27, 2004 under
which it will issue 180,000 shares as consideration for the consulting
services to be provided under the agreement. The shares had not been issued as
of March 31, 2004. The company has recorded the cost of services based on 20
day average of stock price at the date of agreement amounting to $ 160,200.
The cost will be amortized over the period of service. $26,700 and $13,350
have been expensed for the three month period ending March 31, 2005 and March
31, 2004 respectively.

At March 31, 2005 the Company has shares to be issued for the purchase of
certain assets of ISS (See Note 16) for $50,000, officer compensation equal to
$47,333, and consulting services equal to $44,957.

Treasury stock

The Company sold the treasury stock during the quarter ended March 31, 2004
for $ 150,904.

Stock Option

In 1999 the board of directors approved the creation of the 1999 Stock Option
Plan. This plan provides for the grant of incentive stock options to
employees, directors and consultants. Options issued under this plan will
expire over a maximum term of ten years from the date of grant.

Pursuant to the Corporate Stock Option Plan, the Company granted 600,000
options to two key employees (300,000 options each) during the year ended
December 31, 2002. 150,000 options vested immediately and remaining 450,000
options will vest quarterly, over 3 years beginning three months after the
vesting commencement date. The Option has an expiry that is 2 years from the
vesting schedule date.



<PAGE> 17


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The option exercise prices were $0.04 for the first 200,000 options and $0.03
for 400,000 options which were the same as fair value of the shares at the
time of granting of the options.

Pursuant to the Corporate Stock Option Plan, the Company granted 1,150,000
options to two key employees during the year ended December 31, 2003. 440,000
options vested immediately and remaining options will vest quarterly, over 3
years beginning three months after the vesting commencement date. The Option
has an expiry that is 2 years from the vesting schedule date.

Pursuant to the Corporate Stock Option Plan, the Company granted  2,855,000
options to five key employees during the year ended December 31, 2004. 797,000
options vested immediately and remaining options will vest quarterly, over 2
years beginning three months after the vesting commencement date. The Option
has an expiry that is 2 years from the vesting schedule date.  The exercise
prices of the granted options were $.06 to $.76 per share.

Pursuant to the Corporate Stock Option Plan, the Company granted 2,800,000
options to three key employees during the three months period ended March 31,
2005. 560,000 options vested immediately and remaining options will vest
quarterly, over 2 years beginning three months after the vesting commencement
date. The Option has an expiry that is 2 years from the vesting schedule date.

Following is a summary of the stock option activity:

            Outstanding at December 31, 2002                   600,000
                Granted                                      1,150,000
                Forfeited                                            -
                Exercised                                            -
                                                            -----------
            Outstanding at December 31, 2003                 2,137,500

                Granted                                      2,905,000
                Forfeited                                            -
                Exercised                                     (987,500)
                                                            -----------
            Outstanding at December 31, 2004                 4,055,000

                Granted                                      2,800,000
                Forfeited                                   (1,500,000)
                Exercised                                      (20,000)
                                                            -----------
            Outstanding at March 31, 2005                    5,335,000
                                                            ===========


<PAGE> 18



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Following is a summary of the status of options outstanding at March 31, 2005:


                         Outstanding Options        Exercisable Options
                  -------------------------------  --------------------------
                            Weighted
                            Average      Weighted                  Weighted
                           Remaining     Average                   Average
                           Contractual   Exercise                  Exercise
Exercise Price    Number     Life        Price       Number        Price
--------------   --------- -----------  ----------- ------------  -----------
$ 0.06-$0.24       762,500     4.91       $  0.13    1,387,500     $  0.13
$ 0.33-$0.76     4,572,500     5.00       $  0.56    2,587,250     $  0.56


Stock-based compensations recognized during the quarters ended March 31, 2005
and 2004 were $0 and $ 0, respectively.

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


                                                 2005          2004
                                                 ----          -----
Risk-free interest rate                          4.5%          4.0%
Expected life of the options                     5.00 years    5.00 years
Expected volatility                              276%          100%
Expected dividend yield                          0             0

NOTE 13 - BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share for the three month period ended
March 31, 2005 and 2004 determined by dividing net income (loss) for the
periods by the weighted average number of basic and diluted shares of common
stock outstanding.

NOTE 14 - MAJOR CUSTOMERS

Two major customers provided 90% of the net revenue for the period ended March
31, 2005. Total receivable from these major customers amounted to
approximately $975,000.

Two major customers provided 74% of the net revenue for the three month period
ended March 31, 2004.

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


<PAGE> 19



           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - COMMITMENTS

The company headquarter consists of approximately 2,900 square feet of office
space and is leased by the company until August 31, 2006. The company also
leases six office facilities under month-to-month basis.

NOTE 16 - ACQUISITION OF ASSETS

On March 1, 2005, the Company completed a purchase of certain assets of I.S.
Solutions LLC ("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 up to $400,000, payable in our restricted common stock, if revenues of
greater than $5,000,000 and net income before taxes greater than $350,000 are
achieved during any consecutive 12 months following the closing.  The acquired
assets are held in a newly formed wholly owned subsidiary DataLogic New
Mexico, Inc., a New Mexico corporation.  DataLogic New Mexico is an
Information Technology 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 for is as follows:


                                             Allocated Amount

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

         Consideration paid                       Amount
     117,664 shares of restricted common stock   $  50,000
     50,000 cash                                    50,000
                                                 ---------
                                                 $ 100,000
                                                 ---------

NOTE 17 - GOING CONCERN

The Company's consolidated financial statements are prepared using the
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company has accumulated deficit of $
3,718,884 at March 31, 2005. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying 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 or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.


<PAGE> 20


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
     NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Management has taken various steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue on in next twelve months. Management devoted considerable
effort during the period ended March 31, 2005, towards management of
liabilities and improving the operations. Further, the Company has secured a
material contract to provide its Panther Trak product for mobile asset
tracking.  This contract can provide the Company with an increased level of
revenues that should support the Company's current overhead expenses and
provide for increasing cash flows that can improve the current stockholders'
equity and allow the Company to continue its operations through the next
twelve months.


<PAGE> 21



ITEM 2. MANAGEMENT  DISCUSSION AND ANALYSIS AND PLAN OF OPERATION


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

The forward-looking statements generally include 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," "estimates," "continues,"
"anticipate" and similar words. The forward-looking statements and associated
risks may include, relate to, or be qualified by other important factors,
including, without limitation:

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

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

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

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

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

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

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

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


<PAGE> 22


The information contained in this report is not a complete description of our
business or the risks associated with an investment in our common stock.
Before deciding to buy or maintain a position in our common stock, you should
carefully review and consider the various disclosures we made in this report,
and in our other materials filed with the Securities and Exchange Commission
that discuss our business in greater detail and that disclose various risks,
uncertainties and other factors that may affect our business, results of
operations or financial condition. In particular, you should review our most
recent filing of Form SB-2, our annual report on Form 10-KSB for the year
ended December 31, 2004, and the following risk factors:

RISKS RELATED TO OUR BUSINESS

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 provide quality consulting services to Fortune 1000 clients and
governmental agents.  Our dependence on major customers subjects us to
significant financial risks in the operation of our business if a major
customer were to terminate or materially reduce, for any reason, its business
relationship with us. Further, some of our government agency customers are
subject to unique political and budgetary constraints and have special
contracting requirements that may affect our ability to obtain new government
customers.  In addition, future sales to government agencies will depend on
our ability to meet government contracting requirements, certain of which may
be onerous or impossible to meet, resulting in our inability to obtain a
particular contract. Common requirements in government contracts include
bonding; provisions permitting the purchasing agency to modify or terminate,
at will, the contract without penalty; and provisions permitting the agency to
perform investigations or audits of our business practices.

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
offerings, 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 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;


<PAGE> 23


    .   changes in revenue recognition or other accounting guidelines employed
        by us and/or established by the Financial Accounting Standards Board
        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;

    .   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.

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.

Two of our directors and principal shareholders beneficially owned
approximately 35% of the outstanding shares of our common stock at March 31,
2005 which makes it possible for them to have significant influence over the
outcome of all matters submitted to our shareholders for approval, including
the election of our directors and other corporate actions, which influence may
be alleged to conflict with our interests and the interests of our other
shareholders.


<PAGE> 24


We have identified areas of weaknesses in our internal controls for IPN which
existed during the quarter ended March 31, 2005.  Although we have taken steps
to remedy these weaknesses, our ability to implement and maintain a full
system of internal controls and proper corporate governance will depend upon
our ability to attract both capital and human resources, and if we are
unsuccessful we risk being violation of our public company reporting
obligations in the future, which could give rise to potential regulatory
and/or shareholder actions that could have a material adverse effect upon our
business and financial condition, and the market value of our stock.

For the quarter ended March 31, 2005, our management identified material
weaknesses in our internal controls and a lack of segregation of duties for
IPN which resulted from, among other things, a lack of a systematic and formal
system of checks and balances in our corporate governance.   We also 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.  We believe that our current system of internal controls, in light of
the changes we have made since March 31, 2005, are generally adequate.
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.

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.

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

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


<PAGE> 25


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

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

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

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

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

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

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.

We do not believe that our operations or products infringe on the intellectual
property rights of others. However, there can be no assurance that others will
not assert infringement or trade secret claims against us with respect to our
current or future products or that any such assertion will not require us to
enter into a license agreement or royalty arrangement or other financial
arrangement with the party asserting the claim. Responding to and defending
any such claims may distract the attention of Company management and have a
material adverse effect on our business, results of operations and financial
condition. In addition, claims may be brought against third parties from which
we purchase software, and such claims could adversely affect our ability to
access third party software for our systems.

We have registered our key Internet URLs and review these registrations on a
regular basis to ensure that they remain current and in good standing. While
we have applied for registration of trademarks, service marks and registered
domain names in an effort to protect them, we cannot be sure of the nature or
extent of the protection afforded, since trademark registration does not
assure any enforceable rights under many circumstances and there exists
significant uncertainty surrounding legal protection of domain names.


<PAGE> 26


We do not hold any patents on our technologies nor have we applied for any
patents, which may limit our ability to protect our technologies. In addition,
any particular aspect of our technologies may infringe the claims of other
existing patents, and therefore, subject us to an infringement action.

Legal proceedings could subject us to significant liability for damages or
invalidate our proprietary rights. Any potential intellectual property
litigation also could force us to take specific actions, including:

     .  cease selling products that use the challenged intellectual property;

     .  obtain from the owner of the infringed intellectual property a right
        or a license to sell or use the relevant technology, which license
        may not be available on reasonable terms, or at all; or

     .  redesign those products that are found to use infringing intellectual
        property.

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.

Our failure to manage growth could harm us. We have in the past experienced
periods of growth which 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 success will depend on our continued investment in sophisticated
telecommunications and computer systems and computer software. 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 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 affect on our operations. We depend on service provided



<PAGE> 27


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.

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.

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, the Financial Accounting Standards Board, and the United States
Securities and Exchange Commission, 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.

Our earnings may be adversely affected if we change our accounting policy with
respect to employee stock options. Stock options have from time to time been
an important component of the compensation packages for our senior-level
employees. We currently do not deduct the expense of employee stock option
grants from our income. Many companies, however, are considering a change to
their accounting policies to record the value of stock options issued to
employees as an expense and changes in the accounting treatment of stock
options are currently under consideration by the Financial Accounting
Standards Board or other accounting standards-setting bodies. If we were to
voluntarily or involuntarily change our accounting policy with respect to the
treatment of employee stock option grants, our earnings could be materially
adversely affected.

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


<PAGE> 28


to 6,130,455 shares of common stock throughout the three years term, and
accordingly, our stockholders may experience dilution. Further procurement of
additional financing through the issuance of equity, equity-related or
convertible debt securities or preferred stock may further dilute existing
stock. Further, the perceived risk of dilution may cause the selling
stockholder, as well as other holders, to sell their shares, which would
contribute to downward movement in the price of your shares.

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

     .  failure to pay interest and principal payments when due;
     .  a breach by us of any material covenant or term or condition of the
        note or any agreement made in connection therewith;
     .  a breach by us of any material representation or warranty made in the
        note or in any agreement made in connection therewith;
     .  we make 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;
     .  our failure to timely deliver shares of common stock when due upon
        conversions of the note; and
     .  our common stock is suspended for 5 consecutive days or 5 days during
        any 10 consecutive days from a principal market.

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

Any of the factors described above or in the "Risk Factors" section of our
latest annual report on Form 10-KSB could cause our financial results,
including our net income (loss) or growth in net income (loss) to differ
materially from prior results, which in turn could, among other things, cause
the price of our common stock to fluctuate substantially.

Critical Accounting Policies

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


<PAGE> 29


Revenue Recognition

Revenue Recognition Revenue is recognized when earned. Our revenue recognition
policies are in compliance with all applicable accounting regulations,
including American Institute of Certified Public Accountants (AICPA) Statement
of Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2, With Respect to Certain Transactions. Expenses are
recognized in the period in which the corresponding liability is incurred.

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

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customer current creditworthiness,
as determined by our review of their current credit information. We
continuously monitor collections and payments from our customers and maintain
a provision for estimated credit losses based upon our historical experience
and any specific customer collection issues that we have identified. While
such credit losses have historically been within our expectations and the
provisions established, we cannot guarantee that we will continue to
experience the same credit loss rates that we have in the past. Since our
accounts receivable are concentrated in a relatively few number of customers,
a significant change in the liquidity or financial position of any one of
these customers could have a material adverse impact on the collectability of
our accounts receivables and our future operating results

Recently Adopted Accounting Principles

On January 1, 2003, we adopted Statement of Financial Accounting Standards
("SFAS")  No. 143, Accounting for Asset Retirement Obligations, which
addresses financial and reporting for obligations associated with the
retirement of long-lived assets and related asset retirement costs. SFAS No.
143 establishes accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. It also
provides accounting guidance for legal obligations associated with the
retirement of tangible long-lived assets. The adoption of SFAS No. 143 did not
have a material impact on our consolidated financial statements.

On January 1, 2003, we adopted SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
Emerging Issues Task Force ("EITF") Issue 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a liability
for an exit cost, as defined in EITF Issue 94-3, was recognized at the date of
an entity  commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value. The
adoption of SFAS No. 146 for exit or disposal activities did not have a
material impact on our consolidated financial statements for the quarter ended
March 31, 2005.


<PAGE> 30


On January 1, 2003, we adopted Financial Accounting Standards Board
Interpretation ("FIN")  No. 45, Guarantor  Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 requires increased financial statement disclosures by a
guarantor about its obligations under certain guarantees it has issued. FIN
No. 45 also requires that a guarantor recognize a liability for the fair value
of a certain guarantees made after December 31, 2002. We adopted the
disclosure provisions of FIN No. 45 at December 31, 2002, with no impact on
our financial position or results of operations.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. In general, a variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN No. 46 requires a variable interest
entity to be consolidated by us if we are subject to a majority of the risk of
loss from the variable interest entity  activities or entitled to receive a
majority of the entity  residual returns or both. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after June 15,
2003. Certain of the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. We did not have any variable interest entities as of March
31, 2005 and 2004. The adoption of FIN No. 46 did not have a material impact
on our consolidated financial statements.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. Issue 00-21 provides guidance on how
to account for arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The provisions of
Issue 00-21 apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of Issue 00-21 did not have a
material effect on our consolidated financial position, results of operations
or cash flows.

Recently Issued Accounting Pronouncements

We account for employee stock-based compensation under the "Intrinsic value"
method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), as opposed to the fair value method
prescribed by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS 123"). Pursuant to the provisions of APB
25, we generally do not record an expense for the value of stock-based awards
granted to employees.

In December 2004, the FASB issues SFAS No. 123 (Revised), "Share-Based
Payment".   This standard revised SFAS No. 123, APB Opinion No. 25 and related
accounting interpretations and eliminates the use of the intrinsic value
method for employee stock-based compensation.  SFAS No. 123(R) requires
compensation costs related to share-based payment transactions to be
recognized in financial statements over the period that an employee provides
service in exchange for the award.  Currently, the Company uses the intrinsic
value method of APB Opinion No. 25 to value share-based options granted to
employees and board members.  This standard requires the expensing of all
share-based compensation, including options, using the fair value based
method.  The effective date of this standard for the Company will be January
1, 2006.  Management is currently assessing the impact that this new standard
will have on the Company's  financial statements.


<PAGE> 31


Company Overview

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

The Company, originally named Galveston Oil & Gas, Inc., was incorporated in
the State of Delaware on October 3, 1996. Its initial business was in the
development of oil and gas properties. After the consummation of a series of
corporate acquisitions, the nature of the Company's business changed from
development of oil and gas properties to the business of facilitating the
consumption of information, products and services via the Internet. The
Company changed its name to TopClick International, Inc. on February 5, 1999
and then, to DataLogic International, Inc. on July 23, 2001.

On July 20, 2001, the Company completed the acquisition of DataLogic
Consulting, Inc. (DCI), a Texas corporation, formed on August 20, 1993, in a
business combination with DCI being the surviving entity for accounting
purposes. Pursuant to the Acquisition Agreement, the shareholders of DCI
exchanged 100% of the issued and outstanding shares of DCI for 17,500,000
shares of the Company's common stock.

The Company's wholly owned subsidiaries include DCI, IPN Communications, Inc.
and DataLogic New Mexico, Inc.  DCI provides complete IT consulting services
that include but are not limited to project management, system analysis,
design, implementation, testing and maintenance. The services can be provided
at the clients' locations or off-site at the Company's US or affiliated
offshore facilities. DCI also provides short- and long-term staffing solutions
to IT clients, healthcare providers and other businesses.

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

On January, 2004, the Company acquired the Machine-to-Machine (M2M) technology
from two technologists and entered into the mobile asset tracking business.
Panther Trak(TM) is the Company's first product in the M2M mobile asset
tracking vertical market.  This GPS based mobile asset tracking device was
designed to focus largely on theft, recovery, and tracking services.

The Company derives its M2M revenues from the selling of the mobile tracking
units, software and hardware licenses, and residual income from monthly user
subscription fees.

DataLogic New Mexico, Inc. was formed in Q1 2005 as a result of the
acquisition of the assets IS Solutions, LLC.  The company is a technical
solution provider for public safety and homeland security agencies.

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



<PAGE> 32


Company Strategy

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

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

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

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

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

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

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

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

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

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

Consulting Services.

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



<PAGE> 33


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

Communications.

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

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

Mobile Asset Tracking.  We provide complete solutions for real-time vehicle
and asset management services.  Our competitively priced Panther Trak(TM)
device harnesses wireless connectivity and the Global Positioning System (GPS)
to allow a complete range of customer-defined options in keeping track of
valuable vehicular assets.

Panther Trak allows complete control from a user's cell phone, PC, or
landline, including customized functions, such as notification when the
vehicle or asset is moved, disabling the vehicle or even unlocking the vehicle
doors with a cell phone from anywhere in the world.  In the event of a
kidnapping, a hidden microphone can be activated to listen to what is
happening in the vehicle.

Secured Mobile Communications.  Through our recent acquisition of the assets
of IS Solutions, LLC (New Mexico), we now offer a next-generation encryption
and two-factor authentication product, EncrypTAC(TM). EncrypTAC allows law
enforcement agents using mobile communications to efficiently access FBI
databases without compromising security.  EncrypTAC is already approved by New
Mexico-based police departments and is ready for nationwide launch.
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.


Clients

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

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


<PAGE> 34


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

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


Sales and Marketing

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

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

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

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

During the quarters ended March 31, 2005 and 2004, the Company spent a limited
amount on research and development activities.


Intellectual Property

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

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


<PAGE> 35


Costs and Effects of Compliance with Environmental Laws

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


Competition

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


Employees

As of March 31, 2005, the Company had 438 employees. There were 364 part-time
and 74 full-time employees including 10 employees consisting of executive,
supervisory, administrative, sales and clerical personnel. The Company
considers its relations with its employees to be good. The Company has no
collective bargaining agreements with any of its employees. The Company has
employment agreements with senior management and with each of its billable
employees.


Results of Operations

Comparison of Three Months Ended March 31, 2005 to Three Months Ended March
31, 2004

Revenues.  The net revenues for the quarter ended March 31, 2005 decreased
$633,319 or 15.8% to $3,368,268 as compared to net revenues of $4,001,587 for
the same period in the prior year.  The year-over-year decrease in revenues
was primarily due to the decreased VoIP sales.

Gross Profit. The gross profit for the quarter ended March 31, 2005 decreased
$562,495 or 56.4% to $434,768 as compared to the gross profit of $997,263 for
the same period in the prior year.

Operating Expenses.  The operating expenses for the quarter ended March 31,
2005 were $674,561 as compared to the operating expenses of $272,756 for the
same period in the prior year.  The increase is attributable to financing
fees, financing related legal fees, general R & D, product development costs,
and increase in operational, administrative and marketing costs.

Non-Operating Expenses.  Interest expense for the quarter ended March 31, 2005
was $146,913 as compared to $10,963 for the same period in the prior year.
Factoring expenses for the quarter ended March 31, 2005 were $0 as compared to
$67,232 for the same period in the prior year.

Net Loss.  As a result of the above, the net loss for the quarter ended March
31, 2005 was $389,906 as compared to the net income of $479,532 for the same
period in the prior year.  The loss was primarily due to the higher operating
expenses and a decrease in VoIP sales. The basic and diluted loss per share
was $0.01 during the three months ended March 31, 2005 as compared to an
income of $0.01 per share during the same period last year.


<PAGE> 36


Liquidity and Capital Resources

On June 29, 2004, we issued $3 million of convertible secured debt (the "$3
Million Financing"), including the issuance of warrants to purchase a total of
705,000 shares of our common stock. The proceeds from the $3 Million Financing
improved our working capital position.  As of March 31, 2005 we have $377,469
in cash and $964,519 in restricted cash. Given our March 31, 2005 cash balance
and the projected operating cash requirements, we anticipate that existing
capital resources will be adequate to satisfy our cash flow requirements
through December 31, 2005. Our cash flow estimates are based upon achieving
certain levels of sales, gross profit and operating expenses.

Our liquidity primarily consists of $377,469 in cash, restricted cash of
$964,519 and $1,712,401 in accounts receivable.  The Company's current
liabilities consist of $2,822,258 in accounts payable, accrued expenses, and
short-term debts.

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

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


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.


ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of the filing of this Form 10-QSB, we
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c)
and 5d-14(c). Based upon our review, we concluded that our disclosure controls
and procedures for IPN Communications during our quarter ended March 31, 2005
had not been effective in timely alerting us to material information relating
to the company required to be included in our reports required to be filed
under the Securities Exchange Act. The deficiencies which we experienced
during that period resulted from three primary problems: (1) a general lack of
corporate governance due to our extreme lack of resources and manpower, and an
inability to create an effective segregation of duties, due to the requirement


<PAGE> 37


of the Chief Financial Officer performing too many corporate and business
functions simultaneously; (2) a lack of general oversight through a systematic
and formal approach to the conduct of our corporate, financial and business
affairs, resulting in a lack of effective communication between management and
our Board of Directors; and (3) the lack of a full-time and experienced Chief
Financial Officer.

Since March 31, 2005, we have worked diligently with other professional
advisors and our auditors to address these deficiencies, which we have taken
very seriously. In January 2005, Mr. Moore joined the Company as Chief
Executive Officer.  We have also obtained new professional assistance, both
independent and in-house, designed to help us improve our corporate
governance, public company reporting and other activities generally. Finally,
our Board has determined, subject to our receipt of adequate financing to
support its efforts, to undertake an executive search to recruit a full-time
Chief Financial Officer with public company experience.

With these changes, we have concluded as of the time of the filing of this
Report that our Company does have in place an effective system for timely
meeting our Securities Exchange Act requirements, although further refinements
are contemplated as indicated above. Of course, the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
adhering to its stated goals under all potential future conditions. These
include an assumption that we will be able to raise through equity investment,
grants or otherwise the funding necessary to implement and maintain our full
system. There can be no assurance that we will be able to implement or
maintain an effective system of internal controls, and if we are not able to
do so, we risk being in violation of our obligations as a public company in
the future. See: RISKS RELATED TO OUR BUSINESS.



                   PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.



<PAGE> 38



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibit   Description
-------  ------------

 31       Certification pursuant Section 302
 32       Certification pursuant Section 906




<PAGE> 39


                            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: May 23, 2005                  /s/ Keith Moore
                                    ------------------------------------
                                    Title: Chief Executive Officer,
                                    Chief Operating Officer and Director


Date: May 23, 2005                  /s/ Khanh Nguyen
                                    ------------------------------------
                                    Title: President, Chief Financial
                                    Officer and Director



<PAGE> 40