UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549
                      ---------------------
                           FORM 10-QSB

(Mark One)

[X]   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the period ended SEPTEMBER 30, 2006

                                OR

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

                Commission file number: 000-30382

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

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

30950 Rancho Viejo Road, Suite 120, San Juan Capistrano, CA 92675
 ----------------------------------------------------------------
             (Address of principal executive offices)

                          (949) 260-0150
                  -----------------------------
                 (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 [ ]  No [X]

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

As of December 18, 2006, there were 54,447,626 shares of the issuer's common
stock outstanding.

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

<PAGE>






                              INDEX


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

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

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

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

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

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

  Item 2. Management's Discussion and Analysis or Plan of Operation .......40

  Item 3. Controls and Procedures..........................................63

PART II.  OTHER INFORMATION................................................66

  Item 1. Legal Proceedings................................................66
  Item 2. Changes in Securities............................................66
  Item 3. Defaults upon Senior Securities..................................66
  Item 4. Submission of Matters to a Vote of Security Holders..............66
  Item 5. Other Information................................................66
  Item 6. Exhibits.........................................................66


SIGNATURES.................................................................68



                                2
<PAGE>

                  PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



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

                                                           SEPTEMBER 30,
                                                          2006        2005
                                                     ------------ ------------
                                                                   (Restated)
                               ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                          $   128,743  $   850,706
  Accounts receivable, net of allowance for doubtful
   accounts of $9,702 and $131,585, respectively         941,192    1,698,947
  Marketable securities available for sale                 8,754        4,210
  Inventories                                             50,695    1,202,997
  Prepaid expenses and other current assets              212,939      358,912
                                                     ------------ ------------
    Total current assets                               1,342,323    4,115,772

NOTE RECEIVABLE, net of allowance of $100,000
  and $0, respectively                                   150,000      130,000

PROPERTY AND EQUIPMENT, net                              115,539      213,874

OTHER ASSETS:
  Software development costs and licenses, net                 -      394,967
  Loan origination costs, net                                  -      181,415
  Client lists, net                                            -       13,528
  Deposits                                                 8,884       26,435
                                                     ------------ ------------
                                                     $ 1,616,746  $ 5,075,991
                                                     ============ ============

             LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable and accrued expenses              $ 1,139,452  $ 1,715,001
  Accrued payroll and related taxes                      141,095      425,884
  Current portion of deferred revenue                    280,359      372,229
  Notes payable - officers                               550,000       31,624
  Current portion of notes payable                       315,390      216,027
  Current portion of convertible debt                          -      965,909
                                                     ------------ ------------
     Total current liabilities                         2,426,296    3,726,674
                                                     ------------ ------------
LONG-TERM LIABILITIES:
  Notes payable, net of current portion                1,101,468       36,224
  Convertible debt, net of current portion and
   discount of $990,017 as of September 30, 2005               -      341,044
  Derivative and warrant liabilities                      67,950      463,530
  Deferred revenue, net of current portion                15,934            -
                                                     ------------ ------------
     Total long-term liabilities                       1,185,352      840,798
                                                     ------------ ------------
     Total liabilities                                 3,611,648    4,567,472
                                                     ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, $0.001 par value; 100,000,000
   shares authorized; 54,347,626 and 40,010,192
   shares issued and outstanding at September 30,
   2006 and 2005, respectively                            54,349       40,010
  Additional paid-in capital                           6,406,577    2,823,413
  Shares to be issued, 100,000 and 3,496,927 shares
   at September 30, 2006 and 2005, respectively            4,000    1,008,216
  Unamortized consulting fees                             (6,374)      (6,374)
  Accumulated other comprehensive income                   1,554            -
  Accumulated deficit                                 (8,455,008)  (3,356,746)
                                                     ------------ ------------
    Total stockholders' equity (deficit)              (1,994,902)     508,519
                                                     ------------ ------------
                                                     $ 1,616,746  $ 5,075,991
                                                     ============ ============

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

                                3
<PAGE>
<TABLE>
<CAPTION>


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

                                                        For the three months        For the nine months
                                                        ended September 30,         ended September 30,
                                                       2006            2005         2006         2005
                                                   ------------- ------------- ------------- -------------
                                                                   (Restated)                 (Restated)

                                                <c>           <c>           <c>           <c>
Net revenue                                        $  3,368,767  $  4,930,315  $ 11,750,959  $ 12,782,761

Cost of revenue                                       3,380,709     4,577,691    11,178,435    11,469,278
                                                   ------------- ------------- ------------- -------------
Gross profit (loss)                                     (11,942)      352,624       572,524     1,313,483

Operating expenses                                    1,146,411       178,222     3,310,560     1,549,700
                                                   ------------- ------------- ------------- -------------
Income (loss) from operations                        (1,158,353)      174,402    (2,738,036)     (236,217)
                                                   ------------- ------------- ------------- -------------
Non-operating income (expense):
  Interest expense, net                                 (48,855)     (236,133)     (225,461)     (679,350)
  Loss from debt extinguishment                               -             -    (1,337,859)            -
  Change in fair value of derivative and
    warrant liabilities                                 271,800        35,958       469,887     1,168,908
  Other-than-temporary write-down of marketable
    securities available for sale                             -        (3,290)            -      (199,290)
  Gain from sale of property and equipment                    -             -        24,829             -
                                                   ------------- ------------- ------------- -------------
     Total non-operating income (expense)               222,945      (203,465)   (1,068,604)      290,268
                                                   ------------- ------------- ------------- -------------
Income (loss) from continuing operations before
  provision for income tax                             (935,408)      (29,063)   (3,806,640)       54,051
Provision for income tax                                      -             -           800         3,200
                                                   ------------- ------------- ------------- -------------
Income (loss) before discontinued operations           (935,408)      (29,063)   (3,807,440)       50,851

Loss from discontinued operations, net of tax          (690,117)            -      (819,702)            -
                                                   ------------- ------------- ------------- -------------
Net income (loss)                                    (1,625,525)      (29,063)   (4,627,142)       50,851

Other comprehensive income (loss)
  Temporary increase (decrease) in fair value of
    marketable securities available for sale              5,232             -        (1,554)            -
                                                   ------------- ------------- ------------- -------------
Net comprehensive income (loss)                    $ (1,620,293) $    (29,063) $ (4,628,696) $     50,851
                                                   ============= ============= ============= =============
Basic earnings per share
 Income (loss) from continuing operations          $      (0.02) $      (0.00) $      (0.08) $       0.00
 Loss from discontinued operations, net of tax            (0.01)         0.00         (0.02)         0.00
                                                   ------------- ------------- ------------- -------------
                                                   $      (0.03) $      (0.00) $      (0.10) $       0.00
                                                   ============= ============= ============= =============
Basic weighted average shares outstanding*           54,283,552    39,950,396    49,773,533    39,826,766
                                                   ============= ============= ============= =============
Diluted earnings per share
  Income (loss) from continuing operations         $      (0.02) $      (0.00) $      (0.08) $       0.00
  Loss from discontinued operations, net of tax           (0.01)         0.00         (0.02)         0.00
                                                   ------------- ------------- ------------- -------------
                                                   $      (0.03) $      (0.00) $      (0.10) $       0.00
                                                   ============= ============= ============= =============
Diluted weighted average shares outstanding*         54,283,552    39,950,396    49,773,533    39,826,766
                                                   ============= ============= ============= =============

*  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 three and nine months ended September 30, 2006,
   and for the three months ended September 30, 2005.

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

                                        4
</TABLE>
<PAGE>


           DATALOGIC INTERNATIONAL, INC. & SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30,


                                                     2006           2005
                                                 ------------- -------------
                                                                 (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                              $ (4,627,142) $     50,851
  Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
   Loss on extinguishment of debt, less cash paid   1,183,102             -
   Depreciation and amortization                      381,486       145,595
   Loss on discontinued operations                    819,702             -
   Amortization of discount on convertible debt
     and loan origination costs                        39,801       426,975
   Impairment of other assets                         314,375             -
 Change in fair value of derivative and warrant
    liabilities                                      (469,887)   (1,168,908)
   Issuance of or commitment to issue shares and
     options for compensation                         474,832       244,580
   Shares issued for interest                           9,200        19,987
   Other than temporary write-down of marketable
     securities available for sale                          -       199,290
   Bad debt expense                                   114,940        18,956
   Gain on sale of property and equipment             (24,830)            -
  (Increase) decrease in operating assets,
   net of acquisitions and dispositions:
     Accounts receivable                              729,593       (77,935)
     Inventories                                      741,651      (273,816)
     Prepaid expenses and other current assets       (100,347)       (8,908)
     Deposits                                          55,904         1,263
  Increase (decrease) in operating liabilities,
  net of acquisitions and dispositions:
     Accounts payable and accrued expenses           (911,638)      (10,908)
     Deferred revenue                                (104,973)      352,104
                                                 ------------- -------------
  Total adjustments                                 3,252,911      (131,725)
                                                 ------------- -------------
     Net cash used in operating activities         (1,374,231)      (80,874)
                                                 ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash received in acquisition                              -       200,426
  Advances on notes receivable                        (50,000)      (30,000)
  Cash paid for acquisition                                 -       (50,000)
  Payments received on notes receivable                50,000             -
  Proceeds from sale of property and equipment         24,663             -
  Acquisition of property and equipment and costs
   incurred for software development                  (54,298)     (182,352)
                                                 ------------- -------------
     Net cash provided by (used in)
     investing activities                             (29,635)      (61,926)
                                                 ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                       3,850,000             -
  Proceeds from issuance of common stock            1,423,820             -
  Decrease in restricted cash                               -     1,258,689
  Payment on convertible debt                      (2,074,680)     (912,030)
  Payment of notes payable                         (2,123,311)            -
  Payment of officer note payable                           -             -
  Proceeds from stock options                               -         3,000
                                                 ------------- -------------
     Net cash provided by financing activities      1,075,829       349,659
                                                 ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                          (328,037)      206,859

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        456,780       643,847
                                                 ------------- -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD         $    128,743  $    850,706
                                                 ============= =============





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

                                5

<PAGE>







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


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

Interest paid during the period                  $     271,256  $      80,696
Income taxes paid during the period              $         800  $       1,600


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

2006
----
On September 30, 2006, the Company committed to issue 100,000 shares for a
total value of $4,000 for consulting services provided in September 2006.

On September 15, 2006, the Company transferred and assigned fixed assets of
$297 and customer lists of $540,854 to Solana Technologies, Inc. ("STI") as
part of the discontinuance of one of its segments in exchange for 1.) the
termination and release from former employees of the Company who are the
principals of STI, 2.) the assumption of the office space lease for the
Company's offices located in Solana Beach, CA and 3.) the assumption of the
co-location hosting agreement with the Company's co-location service provider
(see Note 3).

During the nine months ended September 30, 2006, the Company purchased
equipment valued at $11,100 in exchange for a note payable.

On July 6, 2006, the Company and an officer, terminated the employment
agreement between them.  In consideration of the termination of the employment
agreement and mutual release of any claims, the Company transferred $110,000
of the principal amount of a note receivable to the former officer.  The
Company also agreed to accept a $50,000 payment in satisfaction of the
remaining obligations to the Company and the Company recorded a note
prepayment discount of $53,916 during the nine months ended September 30,
2006.

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

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

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

                                6
<PAGE>







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


NOTE 1 - DESCRIPTION OF BUSINESS

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

DataLogic International, Inc. ("DataLogic" or the "Company") provides
Information Technology ("IT") outsourcing and consulting services to a wide
range of U.S. and international governmental agencies and commercial
enterprises.

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

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

On June 30, 2006, the Company entered into an Asset Purchase Agreement with
Huron Holdings, Inc. ("Huron") whereby the Company sold certain inventory and
assets related to the Company's small fleet/sub-prime lending market
operations including its BounceGPS trademark and existing customer
relationships.

On September 15, 2006, the Company transferred certain fixed assets and
customer lists acquired in the BluBat acquisition in exchange for the
assumption of certain liabilities by the transferee (see Note 3).

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

DCI provides complete IT consulting services that include, but are not limited
to, project management and systems analysis, design, implementation, testing
and maintenance.  DCI also provides short and long-term staffing solutions to
IT clients, healthcare providers and other businesses.

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

DNM was formed in the first quarter of 2005 as a result of the acquisition of
the assets of IS Solutions, LLC ("ISS").  DNM is an IT solutions provider for
public safety and homeland security agencies.


                                7
<PAGE>







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


NOTE 1 - DESCRIPTION OF BUSINESS, continued

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

The accompanying consolidated interim financial statements have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") for the presentation of interim financial information.
These interim consolidated financial statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the consolidated balance
sheets, consolidated operating results and consolidated cash flows for the
periods presented in accordance with accounting principles generally accepted
in the United States of America ("GAAP").  Operating results for the three and
nine months ended September 30, 2006 are not necessarily indicative of the
results that may be achieved for the year ending December 31, 2006 or for any
other interim period during such year.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been omitted in accordance with the rules and regulations of
the SEC.  These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Form 10-KSB for the year ended December 31,
2005.

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

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

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

                                8

<PAGE>






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


NOTE 1 - DESCRIPTION OF BUSINESS, continued

Consolidated Balance Sheet:

    Long-term portion of convertible debt, net of discount, decreased by
    $389,473.

    Derivative and warrant liabilities increased by $463,530.

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

    Accumulated deficit decreased by $818,299.

Consolidated Statements of Operations for the three and nine months ended
September 30, 2005:

    Interest expense increased by $89,630 and $271,990, respectively.

    Change in fair value of derivative and warrant liabilities increased by
    $35,958 and $1,168,908, respectively.

    Net loss decreased by $292,812 and $896,918, respectively, resulting in
    net income of $50,852 for the nine months ended September 30, 2005.

Consolidated Statement of Cash Flows for the nine months ended September 30,
2005:

    Net loss decreased by $896,918, resulting in net income of $50,852.

    Amortization of discount on convertible debt and debt issuance costs
    increased by $426,975.

    Change in fair value of derivative and warrant liabilities decreased by
    $1,168,908.

    Payments on notes payable and convertible debt decreased by $1,947.

                                9

<PAGE>







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


NOTE 1 - DESCRIPTION OF BUSINESS, continued

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

The Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally
accepted in the United States of America ("GAAP"), and have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of business.  The Company has
an accumulated deficit of $8,455,008 and a working capital deficit of
$1,083,973 at September 30, 2006 and a history of operating losses over the
last several years.  Additionally, during the third quarter of 2006, a major
customer terminated its consulting contract with the Company and substantially
all of the employees of the Company's communications business segment resigned
or were terminated.  Management has taken various steps to revise its
operating and financial requirements, has obtained additional financing and
has revised the repayment terms of existing notes payable.  Management
believes additional financing will be required to meet the Company's
obligations and commitments for the next twelve months.  Management has also
devoted considerable effort during the nine months ended September 30, 2006
towards management of liabilities and improvement of the Company's operations.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities,


                                10
<PAGE>







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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Significant estimates include the collectibility of
receivables, the realizability of inventories, the recoverability of
long-lived assets and the valuation allowance of the deferred tax asset.
Actual results could differ from those estimates.

Segment Information
-------------------

As a result of the discontinuation of the BluBat operations in the third
quarter of 2006, the Company no longer operates in more than one segment.

Goodwill
--------

Goodwill represents the excess of acquisition cost over the net assets
acquired in a business combination and is not amortized in accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets."  The provisions of
Statement of Financial Accounting Standards ("SFAS") No. 142 require that the
Company allocate its goodwill to its various reporting units, determine the
carrying value of those businesses, and estimate the fair value of the
reporting units so that a two-step goodwill impairment test can be performed.
In the first step of the goodwill impairment test, the fair value of each
reporting unit is compared to its carrying value.  Management reviews, on an
annual basis or whenever events or changes in circumstances indicate that the
historical cost carrying value may no longer be appropriate, the carrying
value of goodwill in order to determine whether impairment has occurred.
Impairment is based on several factors including the Company's projection of
future discounted operating cash flows.  If an impairment of the carrying
value were to be indicated by this review, the Company would perform the
second step of the goodwill impairment test in order to determine the amount
of goodwill impairment, if any.  Due to the disposition of the operations
acquired from BluBat in the third quarter of 2006 (see Note 3), the Company
wrote off the associated goodwill of $288,000 and the related deferred tax
liability of $288,000.  The net amount is included in loss on discontinued
operations in the accompanying consolidated statements of operations.

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

The Company accounts for its long-lived assets in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."  SFAS
No. 144 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the historical cost carrying
value of an asset may no longer be appropriate.  The Company assesses
recoverability of the carrying value of an asset by estimating the future net
cash flows expected to result from the asset, including

                                11
<PAGE>





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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

eventual disposition.  If the future net cash flows are less than the carrying
value of the asset, an impairment loss is recorded equal to the difference
between the asset's carrying value and fair value or disposable value. During
the quarter ended September 30, 2006, the Company became aware of certain
problems with the functionality of the BounceGPS software.  Consequently, the
Company will no longer be offering these specific software products and has
recorded an impairment loss of $314,375, representing the unamortized cost of
the software development costs as of September 30, 2006.  Other than this, the
Company does not believe there has been any impairment of its long-lived
assets as of September 30, 2006.  There can be no assurances, however, that
demand for the Company's products and services will continue, which could
result in an impairment of long-lived assets in the future.

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

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

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

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

The Company's derivative financial instruments consist of embedded derivatives
related to the Laurus notes entered into on June 25, 2004, since the notes are
either not conventional convertible debt or the warrants require registration
(see Note 7). The embedded derivatives include the conversion feature, monthly
payment options, variable interest features, liquidated damages clauses in the
registration rights agreement and certain default provisions. The accounting
treatment of derivative financial instruments requires that the Company record
the derivatives and related warrants at their fair values as of the inception
of the agreement and at fair value as of each subsequent balance sheet date.

In addition, under the provisions of EITF Issue No. 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock," as a result of entering into the convertible debt, the
Company is required to classify all other non-employee stock options and
warrants as derivative liabilities and mark them to market at each reporting
date (see Note 7).

                                12


<PAGE>





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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

                                       2006                 2005
                             ---------------------- ---------------------
  Risk-free interest rate          4.53 - 5.15%          4.01 - 4.73%
  Volatility                        291 -  322%           282 -  287%
  Expected dividend yield                    0%                    0%


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

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

The Company's financial instruments consist of cash and cash equivalents,
marketable securities available for sale, accounts receivable, notes
receivable, accounts payable and accrued expenses, notes payable and
convertible debt.  Pursuant to SFAS No. 107, "Disclosures About the Fair Value
of Financial Instruments," the Company is required to estimate the fair value
of all financial instruments at the balance sheet date.  Due to their short
maturities the Company considers the carrying values of its financial
instruments in the financial statements to approximate their fair values.

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

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


                                13

<PAGE>






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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

For sales of communication products, the Company's revenue recognition
policies are in compliance with Staff Accounting Bulletin ("SAB") 104.
Revenue is recognized at the date of shipment to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is
complete, no other significant obligations of the Company exist and
collectibility is reasonably assured.  Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as
deferred revenue in the accompanying consolidated balance sheets.  Revenues
and costs of revenues from consulting contracts are recognized during the
period in which the service is performed.

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

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

The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
("EPS").  SFAS No. 128 provides for the calculation of basic and diluted
earnings per share.   Basic EPS includes no dilution and is computed by
dividing income or loss available to common stockholders by the weighted
average number of common shares outstanding for the period.  Diluted EPS
reflects the potential dilution of securities that could share in the earnings
or losses of the entity.  Such amounts include shares potentially issuable
pursuant to shares to be issued, convertible debentures and outstanding
options and warrants.  Had such shares been included in diluted EPS, they
would have resulted in weighted-average common shares of 54,283,552 and
40,901,434 for the three months ended September 30, 2006 and 2005,
respectively and 49,773,533 and 40,777,804 for the nine months ended September
30, 2006 and 2005, respectively.


                                14


<PAGE>






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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

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

On January 1, 2006, the first day of the Company's fiscal year 2006, the
Company adopted the fair value recognition provisions of SFAS No. 123(R),
"Share Based Payment", using the modified-prospective transition method. Under
this transition method, compensation cost recognized in the nine months ended
September 30, 2006 includes: (a) compensation cost for all share-based
payments granted and not yet vested prior to January 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all share-based payments granted
subsequent to December 31, 2005 based on the grant date fair value estimated
in accordance with the provisions of SFAS No. 123(R). Results for prior
periods have not been restated. Since stock-based compensation expense
recognized in the statements of operations for the three and nine months ended
September 30, 2006 is based on awards ultimately expected to vest, the
compensation expense has been reduced for estimated forfeitures. SFAS No.
123(R) requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates. The Company estimated forfeitures to be 5% of the awards issued.

                                15


<PAGE>







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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Company calculates stock-based compensation by estimating the fair value
of each option using the Black-Scholes option pricing model. The Company's
determination of fair value of share-based payment awards are made as of their
respective dates of grant using that option pricing model and is affected by
the Company's stock price as well as a number of subjective assumptions. These
variables include, but are not limited to, the Company's expected stock price
volatility over the term of the awards and actual and projected employee stock
option exercise behavior. The expected term of options granted is derived from
historical data on employee exercises and post-vesting employment termination
behavior. The risk-free rate selected to value any particular grant is based
on the U.S. Treasury rate that corresponds to the pricing term of the grant
effective as of the date of the grant. The expected volatility is based on the
historical volatility of the Company's stock price. These factors could change
in the future, affecting the determination of stock-based compensation expense
in future periods. The Black-Scholes option pricing model was developed for
use in estimating the value of traded options that have no vesting or hedging
restrictions and are fully transferable. Because the Company's options have
certain characteristics that are significantly different from traded options,
the existing valuation models may not provide an accurate measure of the fair
value of the Company's options. Although the fair value of the Company's
options is determined in accordance with SFAS No. 123(R) using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction. The calculated
compensation cost is recognized on a straight-line basis over the vesting
period of the options.

Prior to the adoption of SFAS No. 123(R), the Company presented all tax
benefits of deductions resulting from the exercise of stock options as
operating cash flows in the statement of cash flows. SFAS No. 123(R) requires
the cash flows resulting from the tax benefits resulting from tax deductions
in excess of the compensation cost recognized for those options (excess tax
benefit) to be classified as financing cash flows.

For the three and nine months ended September 30, 2006, the Company recognized
compensation cost of $61,540 and $368,522, respectively, which is included in
operating expenses in the accompanying statements of operations, as a result
of the adoption of SFAS No. 123(R). The effect of the change in applying the
original provisions of SFAS No. 123 resulted in an increase in the loss from
continuing operations, loss before taxes, net loss, and basic and diluted loss
per share in the three and nine month periods ended September 30, 2006 are as
follows:

                                16





<PAGE>


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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

<TABLE>
<CAPTION>

                                     For the Three Months Ended  For the Nine Months Ended
                                          September 30, 2006         September 30, 2006
                                   ---------------------------- ------------------------------
                                      SFAS 123R      APB 25       SFAS 123R        APB 25
                                   -------------  ------------  -------------  ---------------

                                <c>            <c>           <c>            <c>
Loss from continuing operations
 before income taxes and
 discontinued operations           $   (935,408)  $   (873,868)  $ (3,806,640)  $ (3,438,118)
                                   ============= ============== ============== ==============
Net loss                           $ (1,625,525)  $ (1,563,985)  $ (4,627,142)  $ (4,258,620)
                                   ============= ============== ============== ==============
Basic loss per share               $      (0.03)  $      (0.03)  $      (0.10)  $      (0.08)
                                   ============= ============== ============== ==============
Diluted loss per share             $      (0.03)  $      (0.03)  $      (0.10)  $      (0.08)
                                   ============= ============== ============== ==============

</TABLE>

The following table illustrates the effect on net loss and net loss per share
for the three and nine months ended September 30, 2005 as if the Company had
applied the fair value recognition provisions of SFAS No. 123 to options
granted under the Company's stock plans. For purposes of this pro forma
disclosure, the fair value of the options is estimated using the Black Scholes
option-pricing model and amortized on a straight-line basis to expense over
the options' vesting period:

                                       For the Three       For the Nine
                                       Months Ended        Months Ended
                                       September 30, 2005  September 30, 2005
                                       ------------------  ------------------
Net income (loss), as restated         $         (29,063)  $          50,851

Add: Share-based employee compensation
expense included in net income, net of
related tax effects, as reported                       -                   -

Deduct: Share-based employee compensation
expense determined under the fair value
method, net of related tax effects
- pro forma                                     (839,874)           (259,601)
                                       ------------------  ------------------
Net income (loss)- Pro forma           $        (868,937)  $        (208,750)
                                       ================== ===================
Net income (loss) per common share, as reported
  Basic                                $               -   $               -
                                       =================== ==================
  Diluted                              $               -   $               -
                                       =================== ==================
Net income (loss) per common share, proforma
  Basic                                $               -   $               -
                                       =================== ==================
  Diluted                              $               -   $               -
                                       =================== ==================

                                17

<PAGE>








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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Company has four stock option plans:  The 2003 Stock Compensation Plan
(the "2003 Plan"), the 2004 Non-Qualified Stock and Stock Option Plan (the
"2004 Plan"), the 2005 Non-Qualified Stock and Stock Option Plan (the "2005
Plan") and the 2006 Stock Incentive Plan (the "2006 Plan").  The 2003 Plan was
adopted on April 1, 2003 and reserved ten million shares of the Company's
common stock for grant under the plan to directors, key employees and
independent contractors who provide services to the Company.  The 2003 Plan is
administered by the Board of Directors.  All options must be exercised within
ten years of the date granted and may not be less than 100% of the fair market
value of the Company's common shares on the date of grant.

Under the 2004 2005 and 2006 Plans, two, twelve and eight million shares,
respectively, of the Company's common stock are reserved for grant to
officers, directors, employees, consultants and others.  The 2004 2005 and
2006 Plans are administered by the Compensation Committee of the Board of
Directors.  All options must be granted within ten years of the adoption of
the plan.  Additionally, any options granted to a shareholder who owns at
least a ten percent interest in the Company have a maximum term of ten years.
All expenses of administering the 2003, 2004, 2005 and 2006 Plans are borne by
the Company.

A summary of the shares reserved for grant and awards available for grant
under each Stock Plan as of September 30, 2006 is as follows:

                         Shares Reserved for Grant  Awards Available for Grant
                         -------------------------  --------------------------
  2003 Plan                     10,000,000                    -

  2004 Plan                      2,000,000                    -

  2005 Plan                     12,000,000                    -

  2006 Plan                      8,000,000                2,264,696
                         -------------------------  -------------------------

  Total                         32,000,000                2,264,696
                         ========================= ==========================
The Company issues awards to employees, qualified consultants and directors
that generally vest over time based solely on continued employment or service
during the related vesting period and are exercisable over a five to ten year
service period. Typically, employee awards vest monthly over a three year
period, although awards are sometimes granted with immediate vesting and in
certain cases, vesting of awards has been accelerated. Options are generally
granted with an exercise price equal to the market


                                18

<PAGE>






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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

price of the Company's stock at the date of grant, although in certain
instances, the exercise price has been higher than the market price on the
date of grant.

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

                                                        2006        2005
                                                        -----       -----
Risk-free interest rate                                 5.15%       4.00%
Expected life of the options                            5.00 yrs    5.00 yrs
Expected volatility                                      322%        282%
Expected dividend yield                                    -           -

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

The fair value calculations are based on the following assumptions:

                                                 2006                2005
                                                 ----                ----
Risk-free interest rate                   4.86% - 5.15%       4.00% - 4.50%
Expected life of the options                   5.00 yrs            5.00 yrs
Expected volatility                         297% - 322%         276% - 282%
Expected dividend yield                              -                   -

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


                                19

<PAGE>








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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

                                                      Weighted
                                                      Average
                                            Weighted  Remaining   Aggregate
                                 Number of  Average   Contractual Intrinsic
                                 Shares (in Exercise  Term (in    Value (in
                                 Thousands) Price     Years)      Thousands)
                                 ---------- --------- ----------- ----------
 Outstanding at January 1, 2006     9,184     $0.33
    Granted                         1,975     $0.19
    Forfeited                      (1,146)    $0.30
    Exercised                         (60)    $0.18
                                 ---------- ---------
 Outstanding at Sept. 30, 2006      9,953     $0.32      4.45      $ 3,167
                                 ========== ========= ===========  ========
 Vested and expected to vest at
 September 30, 2006                 9,455     $0.32      3.08      $ 2,192
                                 ========== ========= ============ ========
 Exercisable at Sept. 30, 2006      6,734     $0.32      3.01      $ 2,143
                                 ========== ========= ============ ========

As of September 30, 2006, there was $638,947 of total unrecognized
compensation cost related to employee and director stock option compensation
arrangements.  That cost is expected to be recognized on a straight-line basis
over the next 1.9 weighted average years.

The per share weighted average fair value of options granted during the three
months ended September 30, 2006 and September 30, 2005 was $0.23 and $0.27,
respectively.

The total intrinsic value of options exercised during the three months ended
September 30, 2006 and September 30, 2005 was approximately $ 0 and $24,000,
respectively.

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

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

                                20


<PAGE>






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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

The Company maintains its cash balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000.
At various times throughout the three and nine months ended September 30,
2006, the Company's cash balances exceeded the amount insured by the FDIC.
Management believes the risk of loss of cash balances in excess of the insured
limit to be low.

Three major customers accounted for 66% and 72% of the net revenue for the
nine months ended September 30, 2006 and 2005, respectively.  Accounts
receivable from these major customers amounted to $46,972 and $532,761 as of
September 30, 2006 and 2005, respectively.

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

On September 26, 2006, the Company received notice from the State of Rhode
Island that it was terminating the contractual arrangements under which DCI
provides temporary employee services to agencies of the State (the "Rhode
Island Contract"). As a result of receiving the notice of termination, DCI
terminated the employment of approximately 360 employees who provided services
under the Rhode Island Contract. The Rhode Island Contract represented
approximately $2.5 million and $7.7 million of the Company's revenues for the
three and nine months ended September 30, 2006 and $2.6 million and $8.4
million of the Company's revenue for the three and nine months ended September
30, 2005. The working capital required to fulfill this contract was
significant and as a result, the termination has reduced the working capital
requirements of DCI.

                                21


<PAGE>






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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

Recent Accounting Pronouncements

In September 2006, the FASB adopted SFAS No. 157, "Fair Value Measurements."
SFAS No. 157 establishes a framework for measuring fair value and expands
disclosure about fair value measurements.  Specifically, this standard
establishes that fair value is a market-based measurement, not an entity
specific measurement.  As such, the value measurement should be determined
based on assumptions the market participants would using in pricing an asset
or liability, including, but not limited to assumptions about risk,
restrictions on the sale or use of an asset and the risk of nonperformance for
a liability.  The expanded disclosures include disclosure of the inputs used
to measure fair value and the effect of certain of the measurements on
earnings for the period.  SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007.  The Company has not yet determined the effect
adoption of SFAS No. 157 will have on its financial position or results of
operations.

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes."  This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax
return.  This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition.  The Interpretation is effective for fiscal years
beginning after December 15, 2006.  The Company has not yet analyzed the
impact this Interpretation will have on our financial condition, results of
operations, cash flows or disclosures.

In September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108
("SAB 108") to require registrants to quantify financial statement
misstatements that have been accumulating in their financial statements for
years and to correct them, if material, without restating. Under the
provisions of SAB 108, financial statement misstatements are to be quantified
and evaluated for materiality using both balance sheet and income statement
approaches. SAB 108 is effective for fiscal years ending after November 15,
2006. The Company is currently evaluating the impact of adopting SAB 108 on
its financial statements.

NOTE 3 - DISCONTINUED OPERATIONS

In September 2006, substantially all of the employees of the Company's
communications business segment resigned or were terminated.  As a result, the
Company does not expect


                                22
<PAGE>






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

NOTE 3 - DISCONTINUED OPERATIONS, continued

this segment to make a material contribution to its results of operations
going forward. On September 15, 2006, the Company entered into an assignment
and assumption agreement to sell certain assets used in connection with the
services provided by BluBat.  The consideration was the assumption of certain
liabilities related to these assets.

In accordance with SFAS No. 144, "Accounting for the Impairment of Disposal of
Long Lived Assets," the assets and liabilities related to this transaction
were liquidated as of September 30, 2006. In addition, operations associated
with these assets and liabilities and the loss on the sale have been
classified as loss from discontinued operations in the accompanying
consolidated statements of operations.

Discontinued operations' results were as follows:


<TABLE>
<CAPTION>

                                         For the Three Months Ended   For the Nine Months Ended
                                               September 30,                September 30,
                                              2006         2005          2006           2005
                                        ------------- ------------- ------------- --------------

                                     <c>           <c>           <c>           <c>
Results of discontinued operations:

  Net sales                             $    454,175  $          -  $  1,368,564  $         -
                                        ============= ============= ============= ==============
  Loss before income taxes                   148,966             -       278,551            -
                                        ============= ============= ============= ==============
Loss on sale of discontinued operations:

  Sales price                                      -             -             -            -
  Net assets sold                            541,151             -       541,151            -
                                        ============= ============= ============= ==============
  Loss on sale                               541,151             -       541,151            -
                                        ============= ============= ============= ==============
  Income(loss)from discontinued
    operations before income taxes           690,117             -       819,702            -
  Income taxes                                     -             -             -            -
                                        ============= ============= ============= ==============
  Income(loss)from discontinued
  operations                            $    690,117  $          -  $    819,702  $         -
                                        ============= ============= ============= ==============


                                      23

</TABLE>
<PAGE>








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


NOTE 4 - NOTES RECEIVABLE

On June 30, 2006, the Company entered into an agreement with Huron.  Pursuant
to the agreement, the Company sold to Huron 700 units of its Panther Trak
asset tracking device, related inventory and certain other assets including
its BounceGPS trademark for $450,000 in cash and a $250,000 promissory note.
The promissory note has a term of two years (with quarterly amortization and
payments of principal of $31,250, plus accrued interest) and bears interest at
9% per annum.  Interest income for the three and nine months ended September
30, 2006 was $3,781.  There was no interest paid during the three or nine
months ended September 30, 2006.

Huron also assumed certain liabilities related to the Company's small
fleet/sub-prime lending market operations. The Company will receive a royalty
stream equal to 2% of net revenue from Huron's sales of asset tracking devices
based substantially on the licensed technology and 5% of net revenue from its
sales of asset management solutions based substantially on the licensed
technology.

Huron did not remit the accrued interest and principal payment due October 1,
2006, claiming performance issues with the operation of the BounceGPS
software.  As a result, the Company issued a notice of default to Huron
demanding immediate repayment in full.  The Company believes it will
ultimately collect approximately $150,000 on the note and has accrued an
allowance for doubtful debt of $100,000 for the three and nine months ended
September 30, 2006, respectively.

As part of the purchase of certain assets of CBSi the Company purchased a note
receivable of $100,000 due from MBSi. The Company made an additional advance
under the note of $30,000 during the nine months ended September 30, 2005 and
$50,000 during the nine months ended September 30, 2006.

On July 6, 2006, the Company and Mr. Camping terminated the employment
agreement between them. In consideration of the termination of the employment
agreement and mutual release of any claims, the Company transferred to Mr.
Camping $110,000 of the principal amount of the note receivable from MBSi,
forgave the accrued interest on the MBSi note receivable of $8,916 and the
payment of $25,000 in other receivables.  The Company also accepted a $50,000
payment from MBSi in satisfaction of MBSi's remaining obligations to the
Company.  The Company recorded a note prepayment discount of $53,916 during
the nine months ended September 30, 2006.

The Company recorded interest income of $242 and $6,456 related to the notes
during the three and nine months ended September 30, 2006, respectively.

NOTE 5 - NOTES PAYABLE - OFFICERS

The Company received deposits in one of its bank accounts totaling $550,000
during the period from August 8, 2006 through August 21, 2006 and, based on
representations

                                24

<PAGE>






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


NOTE 5 - NOTES PAYABLE - OFFICERS, continued

from the individuals involved, has determined that the deposits were advanced
on behalf of Derek K. Nguyen, the Company's Chief Information Officer and
Keith D. Nguyen, the Company's President and a member of its Board of
Directors.  The funds were used to meet the August 2006 payroll obligations
and August 2006 principal and interest payment to Laurus Master Fund, Ltd.,
due to unanticipated delays in the Company's collection of its accounts
receivable.

The Company entered into a promissory note with each of Derek K. Nguyen and
Keith D. Nguyen (in the amounts of $250,000 and $300,000, respectively) to
evidence the deposits (collectively, the "Officer Loans").  The Officer Loans
are unsecured, are subordinated to the Company's senior secured indebtedness,
are non-transferable and bear interest at 6% per annum.  All amounts advanced
under the Officer Loans are due and payable in monthly installments of $20,833
beginning October 8, 2006 through August 17, 2007.

Notes payable to officers as of September 30, 2005 are unsecured, payable on
demand and bear interest at an annual rate of 6 percent on the unpaid
principal balance.  The balance on the notes payable to the officers amounted
to $31,624 as of September 30, 2005.

The Company repaid $0 and $50,000 of the notes payable to officers during the
three and nine month periods ended September 30, 2006, respectively.  Interest
expense on these notes for the three months ended September 30, 2006 and 2005
amounted to $888 and $3,191, respectively.  Interest expense on these notes
for the nine months ended September 30, 2006 and 2005 amounted to $1,388 and
$5,548, respectively.

In connection with private placement of the Company's 10% secured convertible
term notes and attached warrants subsequent to September 30, 2006 (see Note
11), an officer and director of the Company also agreed to exchange his
$300,000 promissory note payable by the Company for $300,000 principal amount
of secured convertible promissory notes and warrants to purchase 15,000,000
shares of stock.  The Company received no additional proceeds from the
exchange.  The Company is in the process of determining whether this
transaction qualifies as a debt extinguishment under EITF 98-16.  The effects
of this transaction will be reflected in the Company's consolidated financial
statements for the year ending December 31, 2006.

NOTE 6 - NOTES PAYABLE

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

                                23
<PAGE>








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

NOTE 6 - NOTES PAYABLE, continued
                                                       Current     Long-term
                                                      ----------- -----------
Note secured by all assets, interest rate of
  prime plus 2% (totaling 10.25% as of Sept. 30,
  2006) payable in monthly principal installments
  of $25,000 commencing January 1, 2007,
  increasing to $50,000 on July 1, 2007 through
  December 31, 2007 with a balloon payment due
  December 31, 2008, plus unpaid interest             $   300,000 $ 1,101,468

Other                                                      15,390           -
                                                      ----------- -----------
                                                      $   315,390 $ 1,101,468
                                                      =========== ===========

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

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

Interest expense on these notes for the three months ended September 30, 2006
and 2005 was $73,321 and $ 3,501, respectively. Interest expense on these
notes for the nine months ended September 30, 2006 and 2005 was $194,638 and
$11,817, respectively.

NOTE 7 - CONVERTIBLE DEBT

On January 20, 2006, the Company entered into a Securities Purchase Agreement
(the "Agreement") with Laurus Master Fund, Ltd. ("Laurus"). Pursuant to the
Agreement, the Company issued to Laurus a Secured Term Note (the "New Note")
in the principal amount of $3,250,000 and redeemed the $3,000,000 original
principal amount under the Secured Convertible Term Note which had an original
maturity date of June 25, 2007 (the "Old Note") held by Laurus.  The New Note,
which is not convertible, bears interest at the coupon rate of the Wall Street
Journal prime rate plus 2.00% (or 10.25% as of September


                                26
<PAGE>






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


NOTE 7 - CONVERTIBLE DEBT, continued

30, 2006) and is subject to a floor interest rate of 8.00%.  The New Note
matures on December 31, 2007.  The initial monthly principal payment of
$154,762 was due on April 1, 2006.  On March 31, 2006, the New Note was
amended to defer the date of initial monthly principal payment thereunder from
April 1, 2006 to May 1, 2006.  The amount of the April installment was added
to the principal of the New Note to be repaid by the Company at maturity.  On
April 29, 2006, the Company issued 40,000 shares of common stock to Laurus as
consideration for the amendment, valued at $9,200.

In connection with the sale of the New Note to Laurus, the Company issued to
Laurus an option to purchase 1,560,000 shares of the Company's common stock
for $0.001 per share in a private placement exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.  The value of these options was
$390,000 on January 20, 2006 and was recorded as a component of the loss on
extinguishment of debt in the accompanying consolidated statement of
operations for the nine months ended September 30, 2006.  The options are
marked to market at each reporting date as a result of the warrants
registration rights.  The decrease in the fair value of the warrants of
$271,800 and $469,887 for the three and nine months ended September 30, 2006,
respectively, is included in other income in the accompanying consolidated
statements of operations.

The redemption price of the Old Note was $2,153,091, comprising 105% of
outstanding principal and accrued interest, plus fees paid to Laurus of
$48,750 in connection with the New Note and $12,000 of expenses paid to third
parties related to the redemption. The net proceeds from the New Note were
used for the repayment in full of the Old Note and general corporate purposes.
The Company has the option of prepaying the New Note, upon seven days' written
notice, by paying an amount equal to 103% of the principal amount outstanding,
plus accrued but unpaid interest and any and all other sums due, accrued or
payable to the holder of the New Note.

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

The New Note is collateralized by a security interest in substantially all of
the Company's assets and the assets of the Company's subsidiaries pursuant to
a Master Security Agreement by and among Laurus, the Company and its
subsidiaries entered into

                                27

<PAGE>






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


NOTE 7 - CONVERTIBLE DEBT, continued

concurrently with the Agreement (the "New Master Security Agreement") and
other related security agreements.   The Company's obligations under the New
Note are guaranteed by each of its subsidiaries.

The Company filed a registration statement on Form SB-2 for the shares of
common stock issuable upon exercise of the warrants granted to Laurus under
both the Old Note and the New Note, pursuant to a Registration Rights
Agreement by and between Laurus and the Company entered into concurrently with
the Agreement (the "New Registration Rights Agreement").  On October 17, 2006,
the Company withdrew the registration statement, which had not yet been
declared effective.

On September 1, 2006, Laurus issued a notice of default to the Company citing
various events of default, as defined in the New Note, including, without
limitation, the admission by the Company, in writing, of its inability to pay
its debts as they became due.  Under the terms of the New Master Security
Agreement, all cash collected under DCI's lockbox arrangement were remitted
directly to Laurus.  During the three and nine months ended September 30,
2006, cash collections of $1,539,008 were offset against the balance due under
the New Note.  Additional default provisions would have caused the amount of
the principal balance to increase to 130% of the then-outstanding principal
and be subject to acceleration.  However, this was not enforced by Laurus.

On October 31, 2006, the Company entered into an Amended and Restated Secured
Term Note (the "Secured Term Note") with Laurus (see Note 11).  Pursuant to
the Secured Term Note, the Company is obligated to make monthly principal
payments of $25,000 per month beginning January 1, 2007 and increasing to
$50,000 per month beginning July 1, 2007 through maturity at December 31,
2008.  As of October 31, 2006, DataLogic had $1,364,976 principal amount
outstanding under the Secured Term Note.  The Company is in the process of
determining whether this transaction qualifies as a debt extinguishment under
EITF 98-16.  The effects of this transaction will be reflected in the
Company's consolidated financial statements for the year ending December 31,
2006.

In connection with the restructuring of the Secured Term Note, Laurus withdrew
its notice of default by DataLogic and released the hold it had placed on
DataLogic's accounts receivable "lockbox" account.

The Secured Term Note may be prepaid by the Company at any time by paying 103
percent of the principal amount outstanding plus accrued but unpaid interest.
Following an event of default, additional interest of 2 percent per month will
be payable until the event of default is cured or waived.  Additionally,
Laurus may demand immediate repayment of 130 percent of the outstanding
principal amount plus accrued but unpaid interest.

The Old Note was entered into on June 25, 2004 with Laurus in connection with
a private placement of a convertible term note issued by the Company in the
principal amount of

                                28
<PAGE>








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


NOTE 7 - CONVERTIBLE DEBT, continued

$3,000,000, due June 25, 2007.  The Old Note (as amended) was convertible into
shares of the Company's common stock at conversion prices of $0.32 for the
first $950,000 of aggregate principal converted and $0.60 thereafter and bore
interest at the prime rate plus 2%.  Additionally, the Old Note provisions
included cashless warrants that provide for the purchase of up to 705,000
shares of common stock at exercise prices ranging from $0.73 to $0.79, until
June 25, 2011.  The Old Note was secured by all the Company's assets.

On January 28, 2005, the Purchaser made available $300,000 of the principal
amount held in the restricted account and the Old Note was amended. In
addition, on August 17, 2005, the Purchaser made available $950,000 of the
principal amount held in the restricted account and the Old Note was further
amended.  Pursuant to EITF Issue No. 96-19, neither of the modifications were
considered substantial and thus the Company did not record any gain or loss
related to the amendments.  The Old Notes included certain features that were
considered embedded derivative financial instruments, such as the conversion
feature, a variable interest rate feature, events of default and a liquidated
damages clause, which were recorded at their fair value. These features are
described below, as follows:

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

Because the Old Notes were not conventional convertible debt, the Company was
also required to record the related warrants at their fair values.  The total
of the Laurus-related derivative and warrant liabilities at June 25, 2004
totaled $1,712,588, which was recorded to debt discount, and was being
amortized to interest expense through the redemption date of the Old Note.
The debt discount was offset against the long-term portion of the Old Note on
the consolidated balance sheet.  The balance of the unamortized debt discount
of $818,848 was written off in January 2006 in connection with the redemption
of the Old Note and is included in the loss on extinguishment of debt in the
consolidated statement of operations for the nine months ended September 30,
2006.  The Company has recorded amortization expense of $ 0 and $143,889 for
the three months ended September 30, 2006 and 2005, respectively.  The Company
has recorded amortization expense of $31,280 and $426,975 for the nine months
ended September 30, 2006 and 2005, respectively.

                                29

<PAGE>






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


NOTE 7 - CONVERTIBLE DEBT, continued

During the three and nine months ended September 30, 2005, the fair value of
the warrant and derivative liabilities decreased by $35,958 and $1,168,908,
respectively.  The change in warrant and derivative liabilities is reflected
as a component of other income (expense) in the accompanying consolidated
statements of operations.

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

The balance of the New Note as of September 30, 2006 was $300,000 and
$1,101,468 for the current and long-term portions, respectively.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

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

During the normal course of business, the Company has made certain indemnities
and guarantees under which it may be required to make payments in relation to
certain transactions.  These indemnities include certain agreements with the
Company's officers under which the Company may be required to indemnify such
persons for liabilities arising out of their employment relationship, lease
agreements where the Company may be required to indemnify landlords, contracts
where the Company may be required to indemnify the other party from
liabilities resulting from claimed infringements of the proprietary rights of
third parties, asset and stock purchase agreements where the Company may be
required to indemnify the sellers for breach of representations or warranties
and the Laurus agreement where the Company may be required to indemnify
Laurus.  The duration of these indemnities and guarantees varies, and in
certain cases, is indefinite.

The majority of these indemnities and guarantees do not provide for any
limitation of the maximum potential future payments the Company would be
obligated to make.  Historically, the Company has not been obligated to make
significant payments for these obligations and no liability has been recorded
for these indemnities in the accompanying consolidated balance sheets.

NOTE 9 - STOCKHOLDERS' EQUITY

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

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

                                30

<PAGE>








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


NOTE 9 - STOCKHOLDERS' EQUITY, continued

2006
----

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

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

In connection with the private placement, the Company paid to the placement
agent consideration consisting of (a) a cash sales commission (including a
non-accountable expense allowance) of $130,000 (representing 8% of the gross
proceeds raised in the private placement), (b) warrants to purchase 650,000
shares of common stock (representing 8% of the aggregate number of shares of
common stock sold in the private placement), with each warrant having an
exercise price of $0.20 per share, (c) warrants to purchase 260,000 shares of
common stock (representing 8% of the aggregate number of shares of common
stock underlying the Class A common stock purchase warrants sold in the
private placement), with each warrant having an exercise price of $0.35 per
share, and (d) warrants to purchase 162,500 shares of common stock
(representing 8% of the aggregate number of shares of common stock underlying
the Class B common stock purchase warrants sold in the private placement),
with each warrant having an exercise price of $0.45 per share.  Each of the
warrants issued to the placement agent is exercisable beginning November 23,
2006 and expiring on November 23, 2011.  The Company also agreed to pay
legal fees in the amount of $10,000 on behalf of the investors in the private
placement.
                                31

<PAGE>






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


NOTE 9 - STOCKHOLDERS' EQUITY, continued

The Company filed a registration statement on Form SB-2 with the Securities
and Exchange Commission (the "SEC") for the shares sold in the private
financing and the shares underlying the warrants. On October 17, 2006, the
Company withdrew the registration statement, which was not yet declared
effective.  The private placement agreement stipulated that if the
registration statement is not filed or declared effective within certain time
frames, the investors will be entitled to monetary liquidated damages equal to
1.0% of the total amount invested by such investor in the private placement,
plus an additional 1.0% liquidated damages for each 30-day period thereafter,
up to a maximum liquidated damages amount of not more than 9% of the amount
invested by each investor. The Company anticipates that, in connection with
the new agreement, the investors will waive the above damages.

The Company granted the investors in the private placement "most favored
nations" rights. Specifically, during the 12-month period after the closing of
the private placement, if the Company or a subsidiary consummates another
financing of common stock, common stock equivalents or debt securities, the
investors will have the right to exchange any remaining shares that they
purchased in the private placement for the securities offered in the new
financing.  The Company anticipates that, as a result of the officer notes
entered into in the third quarter and pursuant to the terms of "most favored
nations" rights clause and additional private placement, the Company will
issue an additional $2,450,000 principal amount of secured convertible
promissory notes and warrants to purchase 122,500,000 shares of common stock
to its May 2006 private placement investors in exchange for the 8,125,000
shares of common stock issued in the May 2006 private placement.  The Company
will receive no additional proceeds from the exchange (See Notes 4 and 11).
The investors who have exercised their exchange rights have also agreed to
release the Company from any claims relating to the May 2006 private
placement, including the Company's non-compliance with the registration
obligations discussed above.  The Company is in discussions with the remaining
May 2006 private placement investors regarding the exercise of their exchange
rights.

During the nine months ended September 30, 2006, the Company issued 40,000
shares of common stock in payment of interest of $9,200 (see Note 6).  The
Company issued 332,708 shares of common stock that were committed to be issued
at December 31, 2005 and the Company issued 627,867 shares of common stock for
management and consulting services amounting to $93,108 during the nine months
ended September 30, 2006.

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

                                32

<PAGE>






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


NOTE 9 - STOCKHOLDERS' EQUITY, continued

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

On September 30, 2006, the Company committed to issue 100,000 shares for
consulting services.

2005
----

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

The Company issued 117,664 shares of restricted common stock related to the
purchase of certain assets of ISS.

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

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

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

                                33

<PAGE>








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


NOTE 10 - RELATED PARTY TRANSACTIONS

In 2004 the Company entered into a service agreement with IPN principals in
which the Company granted 1,500,000 options to IPN management to be vested
over a period of two years. On October 1, 2005, the management agreement was
terminated and 825,000 options were cancelled.  Additionally, on October 1,
2005, the Company entered into a commission only sales consulting agreement
with one of the IPN principals.

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

The Company entered into written employment agreements with its two principal
shareholders as officers of the Company on August 18, 2005 to be effective as
of January 19, 2005.  Under the terms of the agreements, the principals will
earn an annual salary of $140,000 in 2005 and $160,000 in 2006, payable in a
combination of cash and common stock over the term of the agreements.

Further, they shall receive stock option grants of no less than 100,000 shares
per quarter vesting over two years with an exercise price equal to the average
closing price for the Company's common stock for the five trading days
immediately preceding and following the grant date.  The Company granted
100,000 and 200,000 options to these employees during the three months ended
September 30, 2006 and 2005, respectively and 700,000 and 600,000 options
during the nine months ended September 30, 2006 and 2005, respectively.

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

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

                                34
<PAGE>







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

NOTE 10 - RELATED PARTY TRANSACTIONS, continued

Corporate Development Services Agreement.  Under the corporate development
services agreement with MBMC, the Company will pay to MBMC a monthly fee of
$7,000 (or $14,000 in the case of the initial payment).  The monthly fee is
payable $3,000 in cash and $4,000 in shares of common stock ($6,000 in cash
and $8,000 in shares of common stock in the case of the initial payment).

The number of shares of common stock to be issued will calculated based on the
average closing price of the Company's common stock for the last ten days of
each month in which the monthly fee is earned.  The Company issued, pursuant
to this agreement, 209,053 common stock shares during the nine months ended
September 30, 2006.  The Company will also reimburse MBMC for certain expenses
in connection with providing services.

In addition, the Company will grant to MBMC on a quarterly basis commencing
April 1, 2006, an option to purchase 75,000 shares (or 50,000 shares in the
case of the initial grant) of common stock at an exercise price equal to 120%
of the average closing price of the Company's common stock for the last ten
days of the quarter for which the option is granted; provided that if certain
milestones specified in the agreement are achieved the exercise price of the
options will be reduced to 100% of the average closing price of the Company's
common stock for the last ten days of the quarter for which the option is
granted.  The options will be exercisable for a period of five years following
the date of grant. The initial term of the agreement expires on December 31,
2006 and continues thereafter on a month-to-month basis unless terminated by
either party.

Chief Financial Officer Services Agreement.  Under the chief financial officer
services agreement with MBMC, the Company will pay to MBMC a monthly fee of
$6,250 in cash.  The Company will also reimburse MBMC for certain expenses in
connection with providing services to it.  The initial term of the agreement
expires on March 31, 2007 and renews thereafter on an annual basis unless
terminated by either party.  The agreement was terminated on April 27, 2006.
During the nine months ended September 30, 2006, the Company incurred $51,083
in connection with the above agreements.

On July 6, 2006, the Company and Mr. Camping terminated the employment
agreement between them. In consideration of the termination of the employment
agreement and mutual release of any claims, the Company transferred to Mr.
Camping $110,000 of the principal amount of the note receivable from MBSi,
forgave the accrued interest on the MBSi note receivable of $8,916 and the
payment of $25,000 in other receivables.  The Company also accepted a $50,000
payment from MBSi in satisfaction of MBSi's remaining obligations to the
Company.  The Company recorded a note prepayment discount of $53,916 during
the nine months ended September 30, 2006.


                                35

<PAGE>






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


NOTE 10 - RELATED PARTY TRANSACTIONS, continued

The Company received deposits totaling $550,000 during the period from August
8, 2006 through August 21, 2006 and, based on representations from the
individuals involved, has determined that the deposits were advanced on behalf
of Derek K. Nguyen, the Company's Chief Information Officer and Keith D.
Nguyen, the Company's President and a member of its Board of Directors.  The
funds were used to meet the August 2006 payroll obligations and August 2006
principal and interest payment to Laurus Master Fund, Ltd., due to
unanticipated delays in the Company's collection of its accounts receivable.

The Company entered into a promissory note with each of Derek K. Nguyen and
Keith D. Nguyen (in the amount of $250,000, $300,000, respectively) to
evidence the deposits (collectively, the "Officer Loans").  The Officer Loans
are unsecured, are subordinated to the Company's senior secured indebtedness,
are non-transferable and bear interest at 6% per annum.  All amounts advanced
under the Officer Loans are due and payable in monthly installments beginning
October 8, 2006 through August 17, 2007.

In connection with private placement of the Company's 10% secured convertible
term notes and attached warrants (see Note 11), Keith D. Nguyen exchanged his
$300,000 Officer Loan for $300,000 principal amount of secured convertible
promissory notes and warrants to purchase 15,000,000 shares of stock.  The
Company received no additional proceeds from the exchange.

NOTE 11 - SUBSEQUENT EVENTS

On October 31, 2006, the Company entered into the Secured Term Note with
Laurus.  Pursuant to the Secured Term Note, the Company is obligated to make
monthly principal payments of $25,000 per month beginning January 1, 2007 and
increasing to $50,000 per month beginning July 1, 2007 through maturity at
December 31, 2008.  As of October 31, 2006, DataLogic had $1,364,976 principal
amount outstanding under the Secured Term Note.

                                36

<PAGE>





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


NOTE 11 - SUBSEQUENT EVENTS, continued

In connection with the restructuring of the Secured Term Note, Laurus withdrew
its notice of default by DataLogic and released the hold it had placed on the
Company's accounts receivable "lockbox" account.

On October 31 2006, the Company closed on $412,500 in gross proceeds from the
private placement of its 10% secured convertible promissory notes and common
stock warrants to purchase 20,625,000 shares of common stock.

The secured convertible promissory notes pay interest at the rate of 10% per
annum, are due October 31 2008, begin amortization of principal on February
15, 2007, are secured by all of the assets of the Company and are convertible
into common stock at an initial conversion price of $0.02 per share.  The
common stock purchase warrants have an exercise price of $0.04 per share.  The
warrants will be exercisable for a three-year period beginning on the date a
resale registration statement for the shares underlying the secured
convertible promissory notes and warrants is declared effective by the
Securities and Exchange Commission (the "SEC").  The private placement of
notes and warrants was offered and sold solely to accredited investors in
reliance on the exemption from registration provided by Rule 506 of Regulation
D under the Securities Act of 1933, as amended.

As a result of the private placement and pursuant to the terms of "most
favored nations" rights granted to investors in DataLogic's May 2006 private
placement, the Company anticipates that it will issue an additional $2,450,000
principal amount of secured convertible promissory notes and warrants to
purchase 122,500,000 shares of common stock to its May 2006 private placement
investors in exchange for up to 8,125,000 shares of common stock issued in the
May 2006 private placement.  The Company received no additional proceeds from
the exchange (see Note 5).

In the transaction, an officer and director of the Company also agreed to
exchange a $300,000 promissory note payable by the Company for $300,000
principal amount of secured convertible promissory notes and warrants to
purchase 15,000,000 shares of stock.  The Company received no additional
proceeds from the exchange.

                                37

<PAGE>







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


NOTE 11 - SUBSEQUENT EVENTS, continued

In connection with the private placement, the Company paid the placement agent
consideration consisting of (a) a cash sales commission (including a
non-accountable expense allowance) of $33,000 (representing 8% of the gross
proceeds raised in the private placement), (b) warrants to purchase
1,650,000 shares of common stock (representing 8% of the aggregate number of
shares of common stock issuable upon conversion of the secured convertible
promissory notes sold in the private placement), with each warrant having an
exercise price of $0.02 per share, and (c) warrants to purchase 1,650,000
shares of common stock (representing 8% of the aggregate number of shares of
common stock underlying the common stock purchase warrants sold in the private
placement), with each warrant having an exercise price of $0.04 per share.
Each of the warrants issued to the placement agent is exercisable for a
three-year period beginning on the date a resale registration statement for
the shares underlying the secured convertible promissory notes and warrants is
declared effective by the Securities and Exchange Commission.  DataLogic also
agreed to pay legal fees in the amount of $25,000 to legal counsel for the
investors in the private placement.

Under the terms of the financing, the Company has agreed to use best efforts
to obtain stockholder approval to (i) increase the authorized shares of its
common stock to a number that is not less than 100% of the maximum number of
shares of common stock which would be issuable upon conversion of the secured
convertible promissory notes and exercise of the warrants, and (ii) effect a
reverse stock split so that its common stock is quoted on the OTC Bulletin
Board at a price per share of not less than $1.00 immediately following the
reverse stock split.

The Company also agreed to prepare and file a resale registration statement
with the SEC for the shares sold in the private financing and the shares
underlying the warrants. Specifically, the Company is obligated to (a) file a
registration statement with the SEC on or before February 15, 2007, and (b)
use its best efforts to have the registration statement declared effective not
later than May 16, 2007 (or by June 15, 2007 if the registration statement
receives a full review by the SEC). If the registration statement is not filed
or declared effective within these time frames, the investors will be entitled
to monetary liquidated damages equal to 1.0% of the total amount invested by
such investor in the private placement, plus an additional 1.0% liquidated
damages for each 30-day period thereafter, up to a maximum liquidated damages
amount of not more than 9% of the amount invested by each investor. The
Company is obligated to maintain the effectiveness of the registration
statement
                                38

<PAGE>





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


NOTE 11 - SUBSEQUENT EVENTS, continued

for up to two years.

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

The Company is in the process of assessing the appropriate accounting for all
of these financing transactions subsequent to September 30, 2006 and of
effecting the reverse stock split.

On October 31, 2006, Derek K. Nguyen resigned as a member of the Board of
Directors.  Mr. Nguyen's resignation was not because of a disagreement with
the Company on any matter relating to its operations, policies, or practices.
He will continue to serve as the Company's Chief Information Officer.

On October 31, 2006, the Board of Directors appointed Alexander Kreger as a
member of the Board of Directors to fill the vacancy resulting from Mr.
Nguyen's resignation.

In October 2006, the Company issued 100,000 shares that were committed to be
issued at September 30, 2006.

On November 14, 2006, the Company awarded 2,500,000 shares of restricted
Common Stock to each of the three members of its Board of Directors.


                                39

<PAGE>







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

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

Information Regarding Forward-Looking Statements

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

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

      .  anticipated trends in our financial condition and results of
         operations (including expected changes in our gross margin and
         general, administrative and selling expenses);
      .  our ability to finance our working capital and other cash
         requirements;
      .  our business strategy for expanding our presence in the information
         security products and services markets; and
      .  our ability to distinguish ourselves from our current and future
         competitors.

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

Important factors to consider in evaluating forward-looking statements
include:

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


                                40






      .  changes in our business strategy or an inability to execute our
         strategy due to unanticipated changes in the markets; and
      .  various other factors that may prevent us from competing
         Successfully in the marketplace.

General

We are an IT solutions company.  We leverage our technology expertise,
customer relationships and supplier channels to develop solutions addressing
markets with attractive growth characteristics, such as strategic IT
outsourcing.

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

Company Strategy

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

      .  Further penetrate vertical markets in which we have or are developing
         reference customers.  We have developed relationships with customers
         in selected vertical markets, such as public safety.
         We are leveraging our relationships with these customers
         and our knowledge of their needs to attract other potential customers
         in these markets.  In other vertical markets, we intend to replicate
         the model of deploying our solutions with a leading reference
         customer and leveraging this relationship and our market expertise to
         attract other customers in those markets.
      .  Exploit cross-selling opportunities to our existing customers.  We
         plan to focus our sales efforts toward our existing customers to
         expand the scope of the solutions we provide to them.
      .  Enhance our product development, sales and customer support
         infrastructure.  We intend to continue making investments in our
         corporate infrastructure, including product development, sales,
         implementation, and customer support.
      .  Create new value-added products and services for our customers.  We
         will continue to add new features and functionality to our solutions
         and develop new product and service platforms that take advantage of
         improvements that are being made in IT and other technologies.
      .  Acquire complementary businesses and technologies.  We intend to
         build our revenue base and solutions by selectively acquiring
         complementary businesses and technologies.  We target companies with
         the following characteristics:  (1) an established market presence in
         their respective fields, (2) a loyal customer base that can be used
         to cross-sell other products and services, and (3) products and
         services that provide recurring, predictable service and maintenance
         revenue streams.


                                41

<PAGE>






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

Company History

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

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

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

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

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

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

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

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

In September 2006, substantially all of the employees of the Company's
communications business segment resigned or were terminated.  As a result, the
Company does not expect this segment to make a material contribution to its
results of operations going forward.

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


                                42
<PAGE>







Operations

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

We plan to capitalize on the growth trends in IT outsourcing by large
corporations and public entities that look to economize their operations, move
fixed costs to variable costs, and focus on core competencies.  IT outsourcing
is now a prevalent practice due to the proliferation and increased
sophistication of technology in the workplace.

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

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


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

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

Net Revenue

The net revenues for the three months ended September 30, 2006 decreased
$1,561,548 or 32% to $3,368,767 as compared to net revenues of $4,930,315 for
the three months ended September 30, 2005.  The decrease in revenues was due
to loss of the Rhode Island Contract during the third quarter of 2006.


                                43
<PAGE>








Gross Profit

The gross profit for the three months ended September 30, 2006 decreased
$364,566 to a loss of $11,942 as compared to the gross profit of $352,624 for
the three months ended September 30, 2005.  The decrease in gross profit was
due to decreased in revenue from the loss of the Rhode Island Contract and the
discontinued operations.

Operating Expenses

The operating expenses for the three months ended September 30, 2006 were
$1,146,411 as compared to the operating expenses of $178,222 for the three
months ended September 30, 2005.  The increase was due to an impairment of
intangibles, the officer buyout, an increase in compensation costs associated
with the expensing of stock options (per SFAS 123(R)), an increase in employee
benefits, workers compensation, unemployment insurance, and professional fees.

Non-Operating Expenses

Interest expense for the three months ended September 30, 2006 was $48,855 as
compared to $236,133 for the three months ended September 30, 2005.  The
decrease in interest expense was primarily due to a decrease in interest
expense associated with the amortization of the debt discount on the
convertible term note issued by the Company to Laurus which was refinanced in
January 2006.  The change in the fair value of derivative and warrant
liabilities was $271,800 for the three months ended September 30, 2006 as
compared to $35,958 for the three months ended September 30, 2005.  The
increase was primarily due to decreases in the Company's stock prices in 2006
versus decreases in the Company's stock price in the comparable period of
2005.
Discontinued Operations

The Company had a loss from discontinued operations of $690,117 for the three
months ended September 30, 2006 and no loss from discontinued operations for
the three months ended September 30, 2005, since the discontinued operation
was not initially acquired by the Company until the fourth quarter of 2005.

Net Loss

As a result of the above, the net loss for the three months ended September
30, 2006 was $1,625,525 as compared to the net loss of $29,063 for the three
months ended September 30, 2005.

The basic and diluted loss per share was $0.03 during the three months ended
September 30, 2006 as compared to the basic and diluted earnings per share of
$0.00 in 2005.

Comparison of the nine months ended September 30, 2006 to nine months ended
September 30, 2005


                                44

<PAGE>





Net Revenue

The net revenues for the nine months ended September 30, 2006 decreased
$1,031,802 or 8% to $11,750,959 as compared to net revenues of $12,782,761 for
the nine months ended September 30, 2005.  The decrease in revenues was due to
loss of the Rhode Island Contract during the third quarter of 2006.

Gross Profit

The gross profit for the nine months ended September 30, 2006 decreased
$740,959 to $572,524 as compared to the gross profit of $1,313,483 for the
nine months ended September 30, 2005.  The decrease in gross profit was due to
decreased in revenue from the loss of the Rhode Island Contract and the
discontinued operations.

Operating Expenses

The operating expenses for the nine months ended September 30, 2006 were
$3,310,560 as compared to the operating expenses of $1,549,700 for the nine
months ended September 30, 2005.  The increase was due to an impairment of
intangibles, the officer buyout, an increase in compensation costs associated
with the expensing of stock options (per SFAS 123(R)), an increase in employee
benefits, workers compensation, unemployment insurance, and professional fees.
The Company also recorded an impairment of intangibles of $314,375 on its GPS
software for the nine months ended September 30, 2006.

Non-Operating Expenses

Interest expense for the nine months ended September 30, 2006 was $225,461 as
compared to $679,350 for the nine months ended September 30, 2005.  The
decrease in interest expense was primarily due to a decrease in interest
expense associated with the amortization of the debt discount on the
convertible term note issued by the Company to Laurus which was refinanced in
January 2006.  The change in the fair value of derivative and warrant
liabilities was $469,887 for the nine months ended September 30, 2006 as
compared to $1,168,908 for the nine months ended September 30, 2005.  The
decrease was primarily due to decreases in the Company's stock prices in 2006
versus decreases in the Company's stock price in the comparable period of
2005.  The Company also recorded a loss from debt extinguishment of $1,337,859
in the nine months ended September 30, 2006 due the Laurus note payoff
refinance.

Discontinued Operations

The Company had a loss from discontinued operations of $819,702 for the nine
months ended September 30, 2006 and no loss from discontinued operations for
the nine months ended September 30, 2005 since the discontinued operation was
not initially acquired by the Company until the fourth quarter of 2005.



                                45

<PAGE>



Net Loss

As a result of the above, the net loss for the nine months ended September 30,
2006 was $4,627,142 as compared to the net profit of $50,851 for the nine
months ended September 30, 2005.

The basic and diluted loss per share was $0.10 during the nine months ended
September 30, 2006 as compared to the basic and diluted earnings per share of
$0.00 in 2005.

Liquidity and Capital Resources

As of September 30, 2006, we had $128,743 in cash and $941,192 in accounts
receivable.  Our current liabilities consisted of $2,426,296 in accounts
payable, deferred revenue, accrued expenses, and current portion of notes
payable.

For the nine months ended September 30, 2006, we had a net decrease in cash of
$328,037, resulting from $1,374,231 of cash used in our operating activities,
$29,635 of cash used in our investing activities, and $1,075,829 of cash
provided by our financing activities.

Cash Flows from Operating Activities

Net cash used in our operating activities of $1,374,231 for the nine months
ended September 30, 2006 was primarily attributable to a net loss of
$4,627,142, offset by the loss on extinguishment of debt in the amount of
$1,182,102, and the issuance of or commitment to issue shares and options for
services rendered of $474,832. We used more cash in operations for the nine
months ended September 30, 2006 versus the nine months ended September 30,
2005 due primarily to an increase in our net loss in nine months ended
September 30, 2006 over the same period in 2005.  The increase in our net loss
was primarily attributable to an increase in compensation costs associated
with the expensing of stock options (per SFAS 123(R)), an impairment of
intangibles, officer buyout, an increase in employee benefits, workers
compensation, unemployment insurance, professional fees, bad debt and other
one-time costs associated with the restatement of the Company's financial
statements.

Cash Flows from Investing Activities

Net cash used in our investing activities of $29,635 for the nine months ended
September 30, 2006 was primarily attributable to payments received on notes
receivable of $50,000 offset by proceeds from the sale of property and
equipment of $24,663.

We used less cash from investing activities for the nine months ended
September 30, 2006 versus the nine months ended September 30, 2005 due
primarily to more property and other acquisitions in 2005 than 2006.

Cash Flows from Financing Activities

                                46

<PAGE>






Net cash provided by our financing activities of $1,075,829 for the nine
months ended September 30, 2006 was comprised of an increase in notes payable
proceeds of $3,850,000, proceeds from common stock sales of $1,423,820, offset
by the payment of our convertible debt and notes in the amount of $4,197,991.

As of September 30, 2006, we had $128,743 in cash and $941,192 in accounts
receivable.  Our current liabilities consisted of $2,426,296 in accounts
payable, deferred revenue, accrued expenses, and current portion of notes
payable.

For the nine months ended September 30, 2006, we had a net decrease in cash of
$328,037, resulting from $1,297,663 of cash used in our operating activities,
$100,365 of cash used in our investing activities, and $869,261 of cash
provided by our financing activities.

The Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally
accepted in the United States of America ("GAAP"), and have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of business.  The Company has
an accumulated deficit of $8,455,008 at September 30, 2006 and a history of
operating losses over the last several years.  Additionally, a major customer
terminated its consulting contract with the Company during the third quarter
of 2006.  Management has taken various steps to revise its operating and
financial requirements, has obtained additional financing and has revised the
repayment terms of existing notes payable.  Management believes additional
financing will be required to meet the Company's obligations and commitments
for the next twelve months.

In view of the matters described above, recoverability of a major portion of
the recorded asset amounts shown in the accompanying consolidated balance
sheets is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations.  The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.  As a result, our independent registered public accounting firms have
included "going concern" modifications in their reports on the consolidated
financial statements for the years ended December 31, 2005 and 2004.

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

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

On March 31, 2006, we obtained an amendment to the Secured Note deferring the
date for payment of the initial monthly principal installment from April 1 to
May 1, 2006 in exchange for issuing 40,000 shares of our common stock to the
holder of the Secured Note.

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

                                47
<PAGE>





result of the private placement and pursuant to the terms of "most favored
nations" rights granted to investors in DataLogic's May 2006 private
placement, the Company anticipates that it will issue an additional $2,450,000
principal amount of secured convertible promissory notes and warrants to
purchase 122,500,000 shares of common stock to its May 2006 private placement
investors in exchange for up to 8,125,000 shares of common stock issued in the
May 2006 private placement.  The Company received no additional proceeds from
the exchange.

On October 31, 2006, the Company entered into an Amended and Restated Secured
Term Note (the "Secured Term Note") with Laurus.  Pursuant to the Secured Term
Note, the Company is obligated to make monthly principal payments of $25,000
per month beginning January 1, 2007 and increasing to $50,000 per month
beginning July 1, 2007 through maturity at December 31, 2008.  As of October
31, 2006, DataLogic had $1,364,976 principal amount outstanding under the
Secured Term Note.

On October 31 2006, the Company closed on $412,500 in gross proceeds from the
private placement of its 10% secured convertible promissory notes and common
stock warrants to purchase 20,625,000 shares of common stock.

There can be no assurance that we will be able to obtain subsequent deferrals
of our repayment obligations under the Secured Note on terms that management
deems satisfactory or at all.

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

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

Over the longer term, we must successfully execute our plans to increase
revenue and income streams that will generate significant positive cash flow
if we are to sustain adequate liquidity without impairing growth or requiring
the infusion of additional funds from external sources.  Additionally, a major
expansion, such as would occur with the acquisition of a major new subsidiary,
might also require external financing that could include additional debt or
capital.  There can be no assurance that additional financing, if required,
will be available on acceptable terms, if at all.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP. As



                                48

<PAGE>





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

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

Accounts receivable consists of amounts billed to customers upon performance
of service or delivery of goods and expenses incurred by the Company but not
yet billed to customers for consulting services.  The Company performs ongoing
credit evaluations of customers and adjusts credit limits based upon payment
history and the customer current creditworthiness, as determined by its review
of their current credit information.  The Company continuously monitors
collections and payments from its customers and maintains a provision for
estimated credit losses based upon its historical experience and any
customer-specific collection issues that it has identified.

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

Inventories consist of finished goods and are valued at the lower of cost
(determined on a weighted average basis) or market.  Management compares the
cost of inventories with their market value and an allowance is recorded to
write down the inventories to their market value, if lower.

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

For the period ended September 30, 2005, other assets consisted of software
development costs, website development costs, software licenses and client
lists and are recorded at cost.

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

During the quarter ended September 30, 2006, the Company became aware of
certain problems with the functionality of the BounceGPS software.
Consequently, the Company will no longer be offering these specific software
products and has recorded an impairment loss of $314,375, representing the
unamortized cost of the software development costs as of September 30, 2006.

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

The Company accounts for its long-lived assets in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."  SFAS
No. 144

                                49

<PAGE>







requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost carrying value of
an asset may no longer be appropriate.  The Company assesses recoverability of
the carrying value of an asset by estimating the future net cash flows
expected to result from the asset, including eventual disposition.  If the
future net cash flows are less than the carrying value of the asset, an
impairment loss is recorded equal to the difference between the asset's
carrying value and fair value or disposable value.

During the quarter ended September 30, 2006, the Company became aware of
certain problems with the functionality of the BounceGPS software.
Consequently, the Company will no longer be offering these specific software
products and has recorded an impairment loss of $314,375, representing the
unamortized cost of the software development costs as of September 30, 2006.
Other than this, the Company does not believe there has been any impairment of
its long-lived assets as of September 30, 2006.

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

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

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

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

The Company's derivative financial instruments consist of embedded derivatives
related to the Laurus notes and warrants entered into in June 2004 and January
2006, since the notes were not conventional convertible debt or the warrants
require registration (see Note 7). The embedded derivatives included the
conversion feature, monthly payment options, variable interest features,
liquidated damages clauses in the registration rights agreement and certain
default provisions. The accounting treatment of derivative financial
instruments requires that we record the derivatives and related warrants at
their fair values as of the inception date of the agreement and at fair value
as of each subsequent balance sheet date.

Any change in fair value of these instruments will be recorded as non-
operating, non-cash income or expense at each reporting date. If the fair
value


                                50
<PAGE>






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

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

Revenue is recognized when earned.  The Company recognizes revenue on its
software products in accordance with all applicable accounting regulations,
including the American Institute of Certified Public Accountants' ("AICPA")
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", and SOP
98-9, "Modification of SOP 97-2, With Respect to Certain Transactions."
For sales of communication products, our revenue recognition policies are in
compliance with Staff Accounting Bulletin ("SAB") 104.  Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no
other significant obligations by us exist and collectibility is reasonably
assured.  Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as deferred revenue in the accompanying
consolidated balance sheet.

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

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

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

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


                                51

<PAGE>




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

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

The Company's accounting policy for equity instruments issued to consultants
and vendors in exchange for goods and services follows the provisions of EITF
96-18, "Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
and EITF 00-18, "Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees." The measurement date for
the fair value of the equity instruments issued is determined at the earlier
of (i) the date at which a commitment for performance by the consultant or
vendor is reached or (ii) the date at which the consultant or vendor's
performance is complete.  In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the
term of the consulting agreement. In accordance to EITF 00-18, an asset
acquired in exchange for the issuance of fully vested, nonforfeitable equity
instruments should not be presented or classified as an offset to equity on
the grantor's balance sheet once the equity instrument is granted for
accounting purposes.

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

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


                                52

<PAGE>





The Company calculates stock-based compensation by estimating the fair value
of each option using the Black-Scholes option pricing model.  The Company's
determination of fair value of share-based payment awards are made as of their
respective dates of grant using that option pricing model and is affected by
the Company's stock price as well as assumptions regarding a number of
subjective variables.  These variables include, but are not limited to the
Company's expected stock price volatility over the term of the awards and
actual and projected employee stock option exercise behavior.  The
Black-Scholes option pricing model was developed for use in estimating the
value of traded options that have no vesting or hedging restrictions and are
fully transferable.  Because the Company's employee stock options have certain
characteristics that are significantly different from traded options, the
existing valuation models may not provide an accurate measure of the fair
value of the Company's employee stock options.  Although the fair value of
employee stock options is determined in accordance with SFAS No. 123(R) using
an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.  The calculated
compensation cost is recognized on a straight-line basis over the vesting
period of the option.

Risk Factors

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

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

As of September 30, 2006, we had an accumulated deficit of $8,455,008 and net
losses of $4,628,696 for the nine months ended September 30, 2006.  To achieve
profitability we will need to generate significant revenues to offset our cost
of revenues and our sales and marketing, research and development and general
and administrative expenses.  We may not achieve or sustain our revenue or
profit goals and may incur losses in the future.  Changes such as increases in
our pricing for solutions or the pricing of competing solutions may harm our
ability to increase sales of our solutions to new and existing customers.  If
we are not able to expand our customer base and increase our revenue from new
and existing customers, we may continue to be unprofitable.

WE HAVE RECENTLY LOST MAJOR CUSTOMER RELTIONSHIPS AND OPERATIONS WHICH WILL
HAVE A MATERIAL AND ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS FOR THE
FORESEEABLE FUTURE

On September 26, 2006, the Company received notice from the State of Rhode
Island that it was terminating the contractual arrangements under which DCI
provides temporary employee services to agencies of the State (the "Rhode
Island Contract").  As a result of receiving the notice of termination, DCI

                                53

<PAGE>





terminated the employment of approximately 360 employees who provided services
under the Rhode Island Contract.  The Rhode Island Contract represented
approximately $2.5 million and $7.7 million of the Company's revenues for the
three and nine months ended September 30, 2006 and $2.6 million and $8.4
million of the Company's revenue for the three and nine months ended September
30, 2005.

In September 2006, substantially all of the employees of the Company's
communications business segment resigned or were terminated.  As a result, the
Company does not expect this segment to make a material contribution to its
results of operations going forward.

As a result of the loss of these customer relationships and operations, the
Company expects to generate significantly lower revenues for the foreseeable
future.

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

On October 31, 2006, the Company entered into the Secured Term Note with
Laurus.  Pursuant to the Secured Term Note, the Company is obligated to make
monthly principal payments of $25,000 per month beginning January 1, 2007 and
increasing to $50,000 per month beginning July 1, 2007 through maturity at
December 31, 2008.  As of October 31, 2006, the Company had $1,364,976
principal amount outstanding under the Secured Term Note.

On October 31 2006, we also completed a private placement of our 10% secured
convertible promissory notes and common stock purchase warrants.
The secured convertible promissory notes pay interest at the rate of 10% per
annum, are due October 31 2008, begin amortization of principal on February
15, 2007, are secured by all of the assets of the Company.

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

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


                                54


<PAGE>





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

The Secured Term Note and our 10% secured convertible promissory notes are
secured by liens on substantially all of our assets, including our equipment,
inventory, contract rights, receivables, general intangibles, and intellectual
property. A default by us under our secured debt would enable the holders of
our secured debt to take control of substantially all of our assets.  If this
happens, the holders of our secured debt could force us to substantially
curtail or cease our operations and you could lose your entire investment in
the Company.

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

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

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

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

If we default on the Secured Term Note and the holder demands all payments due
and payable, we will be required to pay 130% of the outstanding principal
amount of each note and any interest accrued thereon.  Since we do not have
sufficient cash to repay such an amount, such a default on the Secured Term
Note could materially adversely affect our business, operating results or
financial condition to such extent that we are forced to restructure, file for
bankruptcy, sell assets or cease operations, any of which could result in the
loss of your entire investment in the Company.

We received the consent of Laurus to complete the October 2006 private
placement of our 10% secured convertible promissory notes.  Laurus's consent
was conditioned upon our obtaining the agreement of the note holders to
subordinate their rights under the 10% secured convertible


                                55
<PAGE>







promissory notes to Laurus's rights under our Secured Term Note.  We have
not obtained the required subordination agreements from the note holders.
Accordingly, we may be in default of our obligations under our agreements with
Laurus.  To date, Laurus has not asserted our failure to obtain the
subordination agreements as an event of default.  However, there can be no
assurance that Laurus will not assert such an event of default in the future.

THE COMPANY INTENDS TO ISSUE ADDITIONAL SECURITIES, INCLUDING COMMON STOCK

We intend to raise additional funds through the issuance of equity,
equity-related or convertible debt securities.  The issuance of additional
common stock dilutes existing stockholdings.  Further procurement of
additional
financing through the issuance of equity, equity-related or convertible debt
securities or preferred stock may further dilute existing stock.  Further, the
perceived risk of dilution may cause our stockholders to sell their shares,
which would contribute to downward movement in the price of the shares.

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

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

WE DEPEND ON A FEW CUSTOMERS

We depend on a few major customers for the majority of our revenues.  This
creates a significant financial risk to the Company because if a major
customer were to terminate or materially reduce, for any reason, its business
relationship with us, we would suffer an immediate and substantial decline in
revenue.

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

OUR STOCK PRICE IS VOLATILE

The price of our shares and the trading volume of our shares have been
volatile


                                56

<PAGE>





historically and may continue to be volatile.  Volatility may be caused by a
number of factors including but not limited to:

      .  Actual or anticipated quarterly variations in operating results;

      .  Rumors about our performance or merger and acquisition activity;

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

      .  Client relationship developments;

      .  Purchases or sales of Company stock;

      .  Changes occurring in the markets in general; and

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

ABILITY OF DEREK NGUYEN AND KEITH NGUYEN TO EXERCISE CONTROL

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

WE MAY NOT SUCCESSFULLY EXECUTE OR INTEGRATE OUR ACQUISITIONS

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

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

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

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

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

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


                                57
<PAGE>




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

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

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

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

      .  the size and timing of orders from clients;

      .  the length of sales cycles;

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

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

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

      .  the availability and cost of system components;

      .  the financial stability of clients;

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

      .  our success in expanding our sales and marketing programs;

      .  execution of or changes to Company strategy;

      .  personnel changes; and

      .  general market/economic factors.


                                58

<PAGE>






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

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

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

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

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

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

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

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

We face the risks and uncertainties that are associated with any potential
litigation against us.  We face the risks associated with litigation
concerning the operation of our business.  The uncertainty associated with
substantial unresolved litigation may have an adverse impact on our business.
In particular, such litigation could impair our relationships with existing
customers and our ability to obtain new customers. Defending such litigation
may result in a diversion of management's time and attention away from
business


                                59
<PAGE>





operations, which could have a material adverse effect on our business,
results of operations and financial condition. Such litigation may also have
the effect of discouraging potential acquirers from bidding for us or reducing
the consideration such acquirers would otherwise be willing to pay in
connection with an acquisition.

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

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

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

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

We do not believe that our operations or products infringe on the intellectual
property rights of others. However, third parties may claim that our current
or future solutions infringe their proprietary rights or assert other claims
against us.  As the number of entrants into our market increases, the
possibility of an intellectual property or other claim against us grows.  Any
intellectual property or other claim, with or without merit, would be
time-consuming and expensive to litigate or settle and could divert management
attention from focusing on our core business.  As a result of such a dispute,
we may have to pay damages, incur substantial legal fees, develop costly
non-infringing technology, if possible, or enter into license agreements,
which may not be available on terms acceptable to us, if at all.  Any of these
results would increase our expenses and could decrease the functionality of
our solutions, which would make our solutions less attractive to our current
or potential customers.  We have agreed in some of our agreements, and may
agree in the future, to indemnify other parties for any expenses or
liabilities resulting from claimed infringements of the proprietary rights of
third parties.

                                60
<PAGE>





WE FACE POTENTIAL LIABILITY FOR SECURITY BREACHES RELATING TO OUR TECHNOLOGY


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

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

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

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

We anticipate making significant investments in the acquisition, development
and maintenance of such technologies and we believe that such expenditures
will be necessary on an on-going basis. Computer and telecommunication
technologies are evolving rapidly and are characterized by short product
lifecycles, which requires us to anticipate technological developments. We can
give no assurance that we will be successful in anticipating, managing or
adopting such technological changes on a timely basis or that we will have the
resources available to invest in new technologies. Our business is dependent
on our computer and telecommunications equipment and software systems, the
temporary or permanent loss of which, through physical damage or operating
malfunction, could have a material adverse effect on our business. Operating
malfunctions in the software systems of financial institutions, market makers
and other parties might have an adverse effect on our operations. We depend on
service provided by various local and long distance telephone companies. A
significant increase in the cost of telephone services that is not recoverable
through an increase in the price of our services, or any significant
interruption in telephone services, could have a material adverse effect on
our business. Additionally, as we continue to introduce new services that use
new technologies, we may be required to license technology from third parties.
There can be no assurance that these licenses will be available on
commercially reasonable terms, if at


                                61
<PAGE>






all. Our inability to obtain any of these licenses could result in delays or
reductions in the introduction of new services or could adversely affect our
existing business.

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

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

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

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

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

We must develop our mobile asset tracking solutions quickly to keep pace with
a rapidly changing market.  Solutions that address this market are likely to
contain undetected errors or defects, especially when first introduced or when
new versions are introduced.  We may be forced to delay commercial release of
new solutions or updated versions of existing solutions until such errors or
defects are corrected, and in some cases, we may need to implement
enhancements to correct errors that were not detected until after deployment
of our solutions.  Even after testing and release, our solutions may not be
free from errors or defects, which could result in the cancellation or
disruption of our


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services or dissatisfaction of customers.  Such customer dissatisfaction could
damage our reputation and result in lost revenues, diverted development
resources, and increased service and warranty costs.

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

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


ITEM 3. CONTROLS AND PROCEDURES

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

Disclosure controls and procedures are controls and procedures that are
designed to ensure that information required to be disclosed in our periodic
reports under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and
forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in our periodic reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.

Remediation of Material Weakness in Internal Control

As discussed in Note 1 to its 2005 consolidated financial statements, the


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

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

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

As discussed in Note 5, the Company received deposits totaling $550,000 during
the period from August 8, 2006 through August 21, 2006 and, based on
representations from the individuals involved, has determined that the
deposits were advanced on behalf of Derek K. Nguyen, the Company's Chief
Information Officer and Keith D. Nguyen, the Company's President and a member
of its Board of Directors.  The funds were used to meet the August 2006
payroll obligations and August 2006 principal and interest payment to Laurus
Master Fund, Ltd., due to unanticipated delays in the Company's collection of
its accounts receivable.

In the third quarter of 2006, we implemented additional procedures to ensure
that a all terms of our debt instruments were properly approved and
documented.  These procedures were in place in connection with the preparation
of our consolidated financial statements for the third quarter of 2006.
Further, in October, 2006, the Company appointed an independent outside
director to replace Derek Nguyen.  The independent outside director will
review all transactions between the Company and it's Officer/Directors.  As
such, we believe that the

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remediation initiative outlined above was sufficient to eliminate the material
weakness in internal control over financial reporting as discussed above.

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

Internal Control Over Financial Reporting

Further, as required by Rule 13a-15(d) of the Exchange Act and under the
supervision and with the participation of our Certifying Officer, we carried
out an evaluation as to whether there has been any change in our internal
control over financial reporting during our fiscal quarter ended September 30,
2006. Based upon this evaluation, we have concluded that, other than as noted
above, there has not been any change in our internal control over financial
reporting during our fiscal quarter ended September 30, 2006, that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.  Internal control over financial
reporting is a process designed by, or under the supervision of, our principal
executive and principal financial officers, or persons performing similar
functions, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our assets; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements. See: RISKS
FACTORS.
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<PAGE>

                   PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 2.  RECENT SALES OF UNREGISTERED SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

We received the consent of Laurus to complete the October 2006 private
placement of our 10% secured convertible promissory notes.  Laurus's consent
was conditioned upon our obtaining the agreement of the note holders to
subordinate their rights under the 10% secured convertible promissory notes to
Laurus's rights under our Secured Term Note.  We have not obtained the
required subordination agreements from the note holders.  Accordingly, we may
be in default of our obligations under our agreements with Laurus.  To date,
Laurus has not asserted our failure to obtain the subordination agreements as
an event of default.  However, there can be no assurance that Laurus will not
assert such an event of default in the future.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

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

Exhibit  Description
-------  -----------
10.1  Promissory Note (with Addendum A and Addendum B) with Derek K. Nguyen(1)
10.2  Promissory Note (with Addendum A, Addendum B and Addendum C) with Keith
      D. Nguyen (1)
10.3  Amended and Restated Secured Term Note with Laurus Master Fund, Ltd. (2)
10.4  Form of Note and Warrant Purchase Agreement for November 2006 Private
      Placement (2)
10.5  Form of Secured Convertible Promissory Note for November 2006 Private
      Placement (2)
10.6  Form of Common Stock Purchase Warrant for November 2006 Private
      Placement (2)
10.7  Registration Rights Agreement for November 2006 Private Placement (2)
10.8  Security Agreement for November 2006 Private Placement (2)

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10.9  Form of Restricted Stock Agreement
31.1  Certification pursuant Section 302
31.2  Certification pursuant Section 302
32.1  Certification pursuant Section 906

(1) Filed with Form 8-K dated September 18, 2006
(2) Filed with Form 8-K dated November 17, 2006



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                            SIGNATURES

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

                                    DataLogic International, Inc.
                                   (Registrant)

Date: December 21, 2006             /s/ Keith Moore
                                    ------------------------------------
                                    Title: Chief Executive Officer, Chief
                                    Financial Officer, Chief Operating
                                    Officer and Director









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