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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

Amendment No. 2

(Mark One)



|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------------

For the transition period from  to

Commission
file number 000-28739

Satellite Security Corporation

(Exact name of small business issuer as specified in its charter)



|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|Nevada                                                        |  | 91-1903590                      
|(State or other jurisdiction ofincorporation or organization) |  | (IRS EmployerIdentification No.)

6779 Mesa Ridge Road, Suite 100

San Diego, California 92121

(Address of principal executive offices,

including zip code)

(877) 437-4199

(Issuers telephone number)





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(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  þ    NO ̈

Indicated by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).    YES ̈NO  þ

On July 31, 2006, the registrant had outstanding 101,570,651 shares of Common Stock, which is the
registrants only class of common equity.

Transitional Small Business Disclosure Format (Check
One)    YES ̈NO  þ



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EXPLANATORY NOTE

We filed our Quarterly Report on Form 10-QSB for the period ended June 30, 2006 on August 11, 2006 (the Original Filing). On September 26, 2006, we filed an amendment on Form 10-QSB/A (the
First Amendment) for the quarter ended June 30, 2006 to correct the accounting treatment associated with:



| |  |  | the calculation of interest expense arising out of the beneficial conversion feature associated with a convertible promissory note issued to the Aston Organization, Ltd. (the
Note); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the calculation of compensation expenses related to certain stock option repricing and grants.
| | - |  | ----------------------------------------------------------------------------------------------

In our Quarterly Report for the period ended March 31, 2006 and our Original Filing for the period ended June 30, 2006 we incorrectly
calculated interest expense associated with the Note. We had fully amortized the beneficial conversion feature, and recognized the resulting interest expense, with each advance under the Note in the period when the advance was made. In accordance
with generally accepted accounting principals, the beneficial conversion feature should have been amortized over the expected life of the Note. We have filed an amendment on Form 10-QSB/A to our Quarterly Report for the period ended March 31,
2006, based on the amortization of the beneficial conversion feature through December 31, 2006, the maturity date of the Note. For the quarterly period ended June 30, 2006, we recalculated the interest expense during the period based on
the amortization of the beneficial conversion feature through July 9, 2006, the date that the Note was converted. This recalculation resulted in an increase of interest expense for the period of $607,688 on our statement of operations for the
quarterly period ended June 30, 2006. We also booked an unamortized beneficial conversion feature balance of $66,568 as a contra liability on the balance sheet.

In our Original Filing we reported on the repricing of a stock option for 1,923,077 shares granted to our Chief Executive Officer and reported no compensation expense in connection with that transaction. We have
recalculated the incremental value from the repricing under the Black-Scholes model based on the fair value before and after modification in accordance with FAS 123(R). This recalculation resulted in the recognition of a compensation expense of
$30,767. We had also calculated the value of other employee stock option grants during the quarter under the Black-Scholes model using an assumed life of the options of 1.77 years. We have subsequently determined that the valuation should have been
made with an estimated life of 5 years, and have recalculated the value of the option grants accordingly. The net result of this recalculation is the recognition of compensation expense of $5,203.

We are filing this amendment (the Second amendment) to label each of our financial statements for the period ended June 30, 2006 as
being restated and to provide additional footnote disclosures as required by Statement of Financial Accounting Standards No. 154 (SFAS No. 154).

In the Original Filing and the First Amendment, our discussion of our disclosure controls included an assessment by our Chief Executive Officer and our Chief Financial Officer that the design and operation of our
disclosure controls were effective as of June 30, 2006. We are revising that disclosure to state that the design and operation of our disclosure controls and procedures were not effective as of June 30, 2006, due to certain material
weaknesses over internal control of financial reporting.

This Quarterly Report on Form 10-QSB/A amends and restates Item 1.
Financial Statements and Item 3. Controls and Procedures  of the Original Filing, as amended by the First Amendment, solely as a result of, and to reflect, the impact of adjustments described in this Explanatory Note.

Pursuant to the rules of the Securities and Exchange Commission, we have included currently-dated certifications from our principal executive officer
and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Except as otherwise specifically noted, all information contained herein is as of June 30, 2006 and does not reflect events or changes that
have occurred subsequent to that date.



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TABLE OF CONTENTS



|        |  |                                                                    |  |   
|------- |  | ------------------------------------------------------------------ |  | --
|        |  | Part I  Financial Information                                     |  |   
|Item 1. |  | Financial Statements (Unaudited)                                   |  | 4 
|        |  | Consolidated Balance Sheet (as restated)                           |  | 4 
|        |  | Consolidated Statements of Operations (as restated)                |  | 5 
|        |  | Consolidated Statements of Cash Flows (as restated)                |  | 6 
|        |  | Condensed Notes to Consolidated Financial Statements (as restated) |  | 7 
|Item 3. |  | Controls and Procedures (as restated)                              |  | 19



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

Satellite Security Corporation and Subsidiary

Consolidated Balance Sheet

(Unaudited)



|                                                                                                          |  |                        |            |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- | -
|                                                                                                          |  | June 30, 2006 Restated |           
|Assets                                                                                                    |  |                        |            |  
|Current Assets                                                                                            |  |                        |            |  
|Cash                                                                                                      |  | $                      | 18,629     |  
|Accounts receivable, net of allowance for doubtful accounts of $204,840                                   |  |                        | 302,674    |  
|Inventories, net of allowance for obsolete inventory of $45,370                                           |  |                        | 467,392    |  
|Other current assets                                                                                      |  |                        | 8,363      |  
|                                                                                                          |  |                        |            |  
|Total Current Assets                                                                                      |  |                        | 797,058    |  
|                                                                                                          |  |                        |            |  
|Property and equipment, net                                                                               |  |                        | 211,601    |  
|Other Assets                                                                                              |  |                        |            |  
|Restricted cash for letter of credit                                                                      |  |                        | 75,000     |  
|                                                                                                          |  |                        |            |  
|Total other assets                                                                                        |  |                        | 75,000     |  
|                                                                                                          |  |                        |            |  
|Total Assets                                                                                              |  | $                      | 1,083,659  |  
|                                                                                                          |  |                        |            |  
|Liabilities and Shareholders Deficit                                                                     |  |                        |            |  
|Current Liabilities                                                                                       |  |                        |            |  
|Accounts payable                                                                                          |  | $                      | 1,342,949  |  
|Accrued expenses                                                                                          |  |                        | 427,908    |  
|Deferred revenue - current portion                                                                        |  |                        | 68,455     |  
|Short-term debt                                                                                           |  |                        | 560,658    |  
|Notes and loans payable to related parties                                                                |  |                        | 1,395,652  |  
|                                                                                                          |  |                        |            |  
|Total Current Liabilities                                                                                 |  |                        | 3,795,622  |  
|                                                                                                          |  |                        |            |  
|Non-Current Liabilities                                                                                   |  |                        |            |  
|Long-term debt, net of current portion                                                                    |  |                        | 14,138     |  
|Long-term debt payable to related parties, net of current portion                                         |  |                        | 840,007    |  
|Deferred revenue, net of current portion                                                                  |  |                        | 369,478    |  
|                                                                                                          |  |                        |            |  
|Total Non-Current Liabilities                                                                             |  |                        | 1,223,623  |  
|                                                                                                          |  |                        |            |  
|Total Liabilities                                                                                         |  |                        | 5,019,245  |  
|                                                                                                          |  |                        |            |  
|Commitments and Contingencies                                                                             |  |                        |            |  
|Shareholders Deficit                                                                                     |  |                        |            |  
|Common stock, $0.001 par value Authorized - 250,000,000 shares Issued and outstanding - 99,136,563 shares |  |                        | 99,137     |  
|Additional paid-in capital                                                                                |  |                        | 5,463,440  |  
|Accumulated deficit                                                                                       |  |                        | (9,498,163 | )
|                                                                                                          |  |                        |            |  
|Total Shareholders Deficit                                                                               |  |                        | (3,935,586 | )
|                                                                                                          |  |                        |            |  
|Total Liabilities and Shareholders Deficit                                                               |  | $                      | 1,083,659  |  
|                                                                                                          |  |                        |            |  

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



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Satellite Security Corporation and Subsidiary

Consolidated Statements of Operations

(Unaudited)



|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|-------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ------------ |  | - | ---------- | - |  | - | ---------- | -
|                                 |  | For the three months endedJune 30, |            |   | For the six months endedJune 30, |  
|                                 |  | 2006Restated                       |            |   | 2005                             |   |            | 2006Restated |  |   | 2005       |  
|Revenues                         |  | $                                  | 449,409    |   |                                  | $ | 325,230    |              |  | $ | 655,297    |   |  | $ | 708,795    |  
|Cost of revenues                 |  |                                    | 388,008    |   |                                  |   | 166,846    |              |  |   | 561,592    |   |  |   | 366,949    |  
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Gross Profit                     |  |                                    | 61,401     |   |                                  |   | 158,384    |              |  |   | 93,705     |   |  |   | 341,846    |  
|Operating Expense                |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Research and development         |  |                                    | 62,634     |   |                                  |   | 78,110     |              |  |   | 137,167    |   |  |   | 153,273    |  
|Marketing and sales              |  |                                    | 155,951    |   |                                  |   | 73,799     |              |  |   | 288,946    |   |  |   | 148,366    |  
|General and administrative       |  |                                    | 872,642    |   |                                  |   | 253,131    |              |  |   | 1,468,988  |   |  |   | 623,047    |  
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Total Expenses                   |  |                                    | 1,091,227  |   |                                  |   | 405,040    |              |  |   | 1,895,101  |   |  |   | 924,686    |  
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Operating Loss                   |  |                                    | (1,029,826 | ) |                                  |   | (246,656   | )            |  |   | (1,801,396 | ) |  |   | (582,840   | )
|Other Expense                    |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Interest expense                 |  |                                    | 740,524    |   |                                  |   | 26,583     |              |  |   | 866,368    |   |  |   | 47,672     |  
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Net Loss                         |  | $                                  | (1,770,350 | ) |                                  | $ | (273,239   | )            |  | $ | (2,667,764 | ) |  | $ | (630,512   | )
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Basic and diluted loss per share |  | $                                  | (0.02      | ) |                                  | $ | (0.01      | )            |  | $ | (0.03      | ) |  | $ | (0.01      | )
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  
|Weighted average common shares   |  |                                    | 98,841,178 |   |                                  |   | 49,133,229 |              |  |   | 98,451,038 |   |  |   | 48,610,979 |  
|                                 |  |                                    |            |   |                                  |   |            |              |  |   |            |   |  |   |            |  

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



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Satellite Security Corporation and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                            |  |                                  |            |   |      |   |          |  
|--------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---- | - | -------- | -
|                                                                            |  | For the six months endedJune 30, |           
|                                                                            |  | 2006Restated                     |            |   | 2005 |  
|Cash flows from operating activities:                                       |  |                                  |            |   |      |   |          |  
|Net loss                                                                    |  | $                                | (2,667,764 | ) |      | $ | (630,512 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                  |            |   |      |   |          |  
|Share-based compensation expense                                            |  |                                  | 53,331     |   |      |   |         |  
|Common stock issued for services                                            |  |                                  | 180,000    |   |      |   |         |  
|Depreciation                                                                |  |                                  | 31,968     |   |      |   | 22,672   |  
|Non-cash interest expense                                                   |  |                                  | 733,047    |   |      |   |         |  
|Original issue discount amortization                                        |  |                                  | 40,000     |   |      |   |         |  
|Other non-cash items                                                        |  |                                  | 19,951     |   |      |   |          |  
|Changes in operating assets and liabilities:                                |  |                                  |            |   |      |   |          |  
|Accounts receivable, net                                                    |  |                                  | (201,138   | ) |      |   | 24,134   |  
|Inventories                                                                 |  |                                  | (433,692   | ) |      |   | 2,526    |  
|Accounts payable                                                            |  |                                  | 845,067    |   |      |   | (133,932 | )
|Accrued liabilities                                                         |  |                                  | (54,796    | ) |      |   | (42,471  | )
|Deferred revenues                                                           |  |                                  | 7,836      |   |      |   | 255,149  |  
|Other                                                                       |  |                                  | (1,347     | ) |      |   | 8,615    |  
|                                                                            |  |                                  |            |   |      |   |          |  
|Net cash used in operating activities                                       |  | $                                | (1,447,537 | ) |      | $ | (493,819 | )
|                                                                            |  |                                  |            |   |      |   |          |  
|Cash flows from investing activities:                                       |  |                                  |            |   |      |   |          |  
|Purchases of property and equipment                                         |  |                                  | (86,056    | ) |      |   | (7,106   | )
|                                                                            |  |                                  |            |   |      |   |          |  
|Net cash (used in) investing activities                                     |  |                                  | (86,056    | ) |      |   | (7,106   | )
|                                                                            |  |                                  |            |   |      |   |          |  
|Cash flows from financing activities:                                       |  |                                  |            |   |      |   |          |  
|Repayment of long-term debt                                                 |  |                                  | (9,681     | ) |      |   | (9,117   | )
|Proceeds from short-term loan                                               |  |                                  | 500,000    |   |      |   |         |  
|Proceeds from related party loan                                            |  |                                  | 1,171,973  |   |      |   | 316,348  |  
|Repayment of related party loan                                             |  |                                  | (50,000    | ) |      |   |         |  
|Shareholder advances                                                        |  |                                  | 105,000    |   |      |   | 259,918  |  
|Shareholder repayments                                                      |  |                                  | (181,512   | ) |      |   | (33,768  | )
|                                                                            |  |                                  |            |   |      |   |          |  
|Net cash provided by financing activities                                   |  |                                  | 1,535,780  |   |      |   | 533,381  |  
|                                                                            |  |                                  |            |   |      |   |          |  
|Net increase in cash                                                        |  |                                  | 2,187      |   |      |   | 32,456   |  
|Cash at beginning of period                                                 |  |                                  | 16,442     |   |      |   | 2,239    |  
|                                                                            |  |                                  |            |   |      |   |          |  
|Cash at end of period                                                       |  | $                                | 18,629     |   |      | $ | 34,695   |  
|                                                                            |  |                                  |            |   |      |   |          |  
|Supplemental disclosure of cash flow information:                           |  |                                  |            |   |      |   |          |  
|Cash paid during the period for interest                                    |  | $                                | 44,427     |   |      | $ | 47,672   |  
|                                                                            |  |                                  |            |   |      |   |          |  
|Supplemental schedule of non-cash financing activities:                     |  |                                  |            |   |      |   |          |  
|Conversion of related party debt into common stock                          |  | $                                | 96,000     |   |      | $ |         |  
|                                                                            |  |                                  |            |   |      |   |          |  

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



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SATELLITE SECURITY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and Basis of Presentation

The Company

The Company was incorporated under the laws of the State of Nevada on April 8, 1998 under the name Celtron International,
Inc (Celtron). On December 9, 2005, Celtron and Satellite Security Systems, Inc., a California corporation (Satellite) entered into an Agreement and Plan of Merger (the Merger Agreement). On
December 31, 2005, Satellite merged with and into a wholly owned subsidiary of Celtron (the Merger). Pursuant to the terms of the Merger Agreement, Celtron issued one share of its common stock in exchange for each 3.12 shares of
Satellites outstanding common stock resulting in the issuance of 65,076,750 shares of common stock to the former stockholders of Satellite. Holders of 32,979,813 outstanding shares of Celtrons common stock continued to hold their stock
following the Merger and there were no monetary assets exchanged to these holders.

On May 23, 2006, the Company changed its name to
Satellite Security Corporation (referred to in this report as we or the Company). The Company is authorized to issue a total of 250,000,000 shares of common stock with a par value of $0.001. In addition the
Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001.

The Company currently has one operating
subsidiary, Satellite, which is primarily engaged in the development and sale of asset tracking and monitoring solutions and services.

Basis of
Presentation

The accompanying consolidated financial statements as of June 30, 2006 and for the three and six months ended
June 30, 2006 and 2005, respectively, are unaudited. The consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles applicable to interim periods. In the opinion of
management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods
presented. Certain prior year amounts have been reclassified to conform to current period presentation.

The information contained in the
following Condensed Notes to the Consolidated Financial Statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements should be reviewed in conjunction with
the consolidated financial statements and related notes thereto contained in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2005. It should be understood that the accounting measurements at an interim date
inherently involve greater reliance on estimates than at year-end. The results of operations for interim periods presented are not necessarily indicative of operating results for the entire year.

In accordance with generally accepted accounting principles, the Merger was treated as a public shell merger purchase for financial reporting purposes.
In accordance with the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations, Satellite was considered the acquiring enterprise for financial reporting purposes. Accordingly the financial
statements include the historical results of operations of Satellite, the accounting acquirer, except for the statements of changes in shareholders deficit, which has been converted to shares of the Company based on the above merger ratios.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has incurred significant losses to date from operations, and for the six months ended June 30, 2006. This factor, among others, including continuing negative cash flows
from operations, negative working capital and shareholder deficiencies indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the
recoverability of assets, the amounts of liabilities, and their classifications that might be necessary should the Company be unable to continue as a going concern. The Companys continuation as a going concern is dependent on its ability to
generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability.



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Management funded its operations for the first six months of fiscal year 2006 through borrowings under a
$2,000,000 credit facility from a related party (see Note 5 of the Notes to Consolidated Financial Statements) as well borrowings under a $540,000 Secured Note Agreement (see Note 4 of the Notes to Consolidated Financial Statements) with an
unrelated third party investor.

Subsequent to the quarters end, on July 13, 2006, the Company entered into a financing
transaction with a group of unrelated accredited investors in which the Company issued an aggregate of (i) $3.3 million of secured, convertible promissory notes; (ii) 21,607,465 Series A Warrants exercisable at $0.13 per share; and
(iii) 18,006,221 Series B Warrants exercisable at $0.143 per share (see Note 8 of the Notes to Consolidated Financial Statements). The financing resulted in net proceeds to the Company of $2,947,500 after deducting finders fees and
expenses. In connection with this financing transaction all the outstanding principal, accrued and unpaid interest under the $2,000,000 credit facility was converted into common stock. Additionally, the Company repaid all amounts due under the
$540,000 Secured Note Agreement by repaying $40,000 in cash and converting the remaining $500,000 into a subscription in the July 13thfinancing transaction of convertible notes and warrants.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated
financial statements are prepared using accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiary, Satellite. All significant intercompany balances and
transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Significant estimates made by management include revenue recognition estimates, the viability of recognizing deferred tax assets, valuation of equity instruments, and the allowance for doubtful accounts. Significant changes in
these estimates may have a material impact on the financial statements.

Inventories

Inventories, which consist primarily of purchased parts and supplies, are stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method.

Property and Equipment

Property and equipment is recorded at cost and depreciated using the straight-line method over estimated useful lives of the assets, generally ranging from three to five years. Expenditures for ordinary repairs and
maintenance are expensed as incurred while major additions and improvements are capitalized.

Revenue Recognition

The Companys revenues are derived from two sources, the sale of hardware that uses Global Positioning System (GPS) and ReFLEX paging
technology, and the provisioning of asset tracking and related monitoring services. Revenue related to the sale of hardware products is recognized upon delivery if no significant vendor obligations remain, the price is fixed or determinable and
collection is reasonably assured. Monthly billings for services are presented in advance of rendering the related services. Deferred revenue consists of advanced payments of these billings and are recognized as revenues in the month that the
services are rendered.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments, requires management to disclose the estimated fair value of certain assets and
liabilities defined by SFAS No. 107 as cash or a contractual obligation that both conveys to one entity a right to receive cash or other financial instruments to the first entity. At June 30, 2006 management believes that the carrying
amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of



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these financial instruments. The Company believes that the carrying value of its loans approximate their fair values based on current market rates of
interest, except related party debt. Management believes it is impracticable to determine the fair value of related party debt because of the related party attributes of that debt.

Concentration of Credit Risk

The Company provides products and services to customers in a variety of
industries worldwide, including local and federal governments, utilities, and transportation. Concentration of credit risk with respect to trade receivables is limited due to the geographic and industry dispersion of the Companys customer
base. One customer accounted for 78% of trade accounts receivable, net, at June 30, 2006.

A small number of customers have typically
accounted for a large percentage of the Companys revenues. Those customers were approximately 67% and 48% of total revenues for the three months ended June 30, 2006 and 2005, and 57% and 52% for the six months ended June 30, 2006 and
2005, respectively.

Share-Based Compensation

On April 19, 2006, the shareholders of the Company adopted the 2006 Equity Incentive Plan to provide stock awards to eligible employees, Directors, and consultants of the Company and its affiliates. Shares reserved for issuance under
the plan shall not exceed 20,000,000 shares. The 2006 Equity Incentive Plan is administered by the Board of Directors or a committee designated by the Board. Available stock awards under the plan include (i) incentive stock options,
(ii) non-statutory stock options, (iii) stock bonuses, and (iv) rights to acquire restricted stock.

In December 2004, the
Financial Accounting Standards Board (FASB) revised SFAS No. 123, Share-Based Payment, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of
these awards over the requisite employee service period. On April 14, 2005, the U.S. Securities and Exchange Commissions adopted a new rule amending the effective dates for SFAS No. 123(R). In accordance with the new rule, the accounting
provisions of SFAS No. 123(R) are effective for the Company beginning in the quarter ended March 31, 2006.

Under SFAS
No. 123(R), share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employees requisite service period. The Company adopted the provisions of
SFAS No. 123(R) effective January 1, 2006, using a modified prospective application, which provides for certain changes to the method for valuing share-based compensation. Under the modified prospective application, prior periods are not
revised for comparative purposes. The valuation provisions of SFAS No. 123(R) apply to new awards and to awards that are outstanding at the effective date and subsequently modified, repurchased or cancelled. Estimated compensation expense for
awards outstanding at the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under SFAS No. 123.

On November 10, 2005, the FASB issued FASB Staff Position No. SFAS 123(R)-3, Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards. The Company has elected to adopt the alternative transition method provided in this FASB Staff Position for calculating the tax effects of share-based compensation pursuant to SFAS No. 123(R). The alternative
method includes a simplified method to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee share-based compensation, which is available to absorb tax deficiencies recognized
subsequent to the adoption of SFAS No. 123(R).

On November 4, 2005, the Company granted its CEO a non-statutory stock option to
purchase up to 1,923,077 shares of its common stock at a price per share of $0.31, subject to meeting certain revenue and earnings performance targets. This option was issued prior to, and was not issued under, the 2006 Equity Incentive Plan. On
May 19, 2006, the Company entered into an employment agreement with its CEO amending certain terms of employment, including a repricing of the non-qualified stock option to purchase 1,923,077 shares from an exercise price of $0.312 to $0.15 per
share of its common stock. In addition, certain performance-based restrictions on the options were removed, with the options vesting immediately. The options expire November 9, 2015. See Note 5 of the Notes to Consolidated Financial Statements.
Under FAS No. 123(R), a modification of the terms or conditions of an equity award shall be treated as an exchange of the original award determined in accordance with the provisions of FAS 123(R) over the fair value of the original award
immediately before its terms are modified, measured based on the share price and other pertinent factors at the date of the modification. Based on the Black- Scholes



9



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##### Table of Contents

option pricing model, the Company recognized total compensation expense of $30,767 for the period ended June 30, 2006 in connection with the
modification of the options. On May 19, 2006 the Company also granted its CEO, a non-qualified option to purchase 4,000,000 shares of its common stock at an exercise price equal to $0.09 per share under the terms of the 2006 Equity Incentive
Plan. The options vest over two years and expire May 19, 2016. Using the Black Scholes option pricing model and a current fair market value of $0.09 per share on date of grant, total compensation expense of $227,714 will be recognized in
connection with the option grant over the two year vesting period.

During the three months ended June 30, 2006, the Company granted
employees incentive stock options to purchase up to 1,500,000 shares of its common stock at a price per share of $0.20 under the terms of the 2006 Equity Incentive Plan. The options expire in 2016 and vest over a period of three years from the date
of grant. Based on the current fair market value of the Companys common stock on dates of grant, total compensation expense of $164,733 will be recognized under the Black-Scholes option pricing model in connection with the option grants over
the three year vesting period.

Option valuation models require the input of highly subjective assumptions, including the expected life of
the option and stock price volatility. Because of these changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure
of the fair value of its options. The adoption of SFAS No. 123(R)s fair value method may have a negative impact on the Companys results of operations if the Company grants share-based payments to its employees in the future. The
impact of adopting SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current accounting literature. The requirement will reduce net operating cash flows and increase net financing cash flows in periods
of adoption.

The following weighted average assumptions were used for grants at June 30, 2006:



|                             |  |                                                           |   |  |                                               |   |  |                                                         |   |  |                                               |  
|---------------------------- |  | --------------------------------------------------------- | - |  | --------------------------------------------- | - |  | ------------------------------------------------------- | - |  | --------------------------------------------- | -
|                             |  | For the threemonths endedJune 30, 2006 PreviouslyReported |   |  | For the threemonths endedJune 30,2006Restated |   |  | For the sixmonths endedJune 30, 2006 PreviouslyReported |   |  | For the sixmonths endedJune 30, 2006 Restated |  
|Expected option life (years) |  | 1.77                                                      |   |  | 5                                             |   |  | 1.77                                                    |   |  | 5                                             |  
|Risk-free interest rate      |  | 4.95                                                      | % |  | 4.95                                          | % |  | 4.95                                                    | % |  | 4.95                                          | %
|Expected dividend yield      |  | None                                                      |   |  | None                                          |   |  | None                                                    |   |  | None                                          |  
|Expected volatility          |  | 64.64                                                     | % |  | 64.65                                         | % |  | 64.64                                                   | % |  | 64.65                                         | %

The share-based compensation expense calculated using the Black-Scholes model for grants at
June 30, 2006 is as follows:



|                           |  |                                                           |        |                                               |   |                                                         |  |                                               |        |  |   |       
|-------------------------- |  | --------------------------------------------------------- | ------ | --------------------------------------------- | - | ------------------------------------------------------- |  | --------------------------------------------- | ------ |  | - | ------
|                           |  | For the threemonths endedJune 30, 2006 PreviouslyReported |        | For the threemonths endedJune 30,2006Restated |   | For the sixmonths endedJune 30, 2006 PreviouslyReported |  | For the sixmonths endedJune 30, 2006 Restated
|Research and development   |  | $                                                         |       |                                               | $ |                                                        |  | $                                             |       |  | $ |      
|Marketing and sales        |  |                                                           | 5,126  |                                               |   | 6,516                                                   |  |                                               | 5,126  |  |   | 6,516 
|General and administrative |  |                                                           | 12,235 |                                               |   | 46,815                                                  |  |                                               | 12,235 |  |   | 46,815
|                           |  |                                                           |        |                                               |   |                                                         |  |                                               |        |  |   |       
|Share-based compensation   |  | $                                                         | 17,361 |                                               | $ | 53,331                                                  |  | $                                             | 17,361 |  | $ | 53,331
|                           |  |                                                           |        |                                               |   |                                                         |  |                                               |        |  |   |       



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A summary of option activity as of June 30, 2006 is as follows:



|                                         |  |            |   |  |                               |       |                                                    |     
|---------------------------------------- |  | ---------- | - |  | ----------------------------- | ----- | -------------------------------------------------- | ----
|Options                                  |  | Shares     |   |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractualTerm(in years)
|Outstanding Options at December 31, 2005 |  | 1,923,077  |   |  | $                             | 0.31  |                                                    |    
|Granted                                  |  | 7,423,077  |   |  | $                             | 0.128 |                                                    | 9.87
|Exercised                                |  |           |   |  |                               |      |                                                    |    
|Forfeited, cancelled or expired          |  | (1,923,077 | ) |  | $                             | 0.31  |                                                    |    
|                                         |  |            |   |  |                               |       |                                                    |     
|Outstanding at June 30, 2006             |  | 7,423,077  |   |  | $                             | 0.128 |                                                    | 9.87
|                                         |  |            |   |  |                               |       |                                                    |     
|Exercisable at June 30, 2006             |  | 1,923,077  |   |  | $                             | 0.114 |                                                    |    
|                                         |  |            |   |  |                               |       |                                                    |     

The weighted average grant-date fair values of options granted during the six months ended
June 30, 2006 was $0.128 per share. There were no options exercised for the six months ended June 30, 2006.

Issuance of Stock for Non-cash
Consideration

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

On April 14, 2006, the Company granted 600,000 shares of common stock from the 2006
Equity Incentive Plan to an independent contractor in exchange for consulting services rendered to the Company. In connection with the grant, the Company recorded consulting expense of $180,000 based on the then current market price of $.30 per
share for the common stock.

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

Basic and Diluted Net Loss Per Share

The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. SFAS No. 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period, if any, including stock options, using the treasury
stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or
warrants. There are no potentially dilutive shares; therefore diluted net loss per share has not been calculated.



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Note 3 - Property and, Equipment

Property and equipment as of June 30, 2006 consists of the following:



|                               |  |   |          |  
|------------------------------ |  | - | -------- | -
|Furniture and equipment        |  | $ | 277,995  |  
|Purchased software costs       |  |   | 144,374  |  
|                               |  |   |          |  
|Total property and equipment   |  |   | 422,369  |  
|Less: Accumulated depreciation |  |   | (210,768 | )
|                               |  |   |          |  
|Net property and equipment     |  | $ | 211,601  |  
|                               |  |   |          |  

Depreciation expense was $16,147 and $11,473 for the three months ended June 30, 2006 and
2005, respectively. For the six months ended June 30, 2006 and 2005, deprecation expense was $31,968 and $22,672, respectively.

Note 4 - Debt

As of June 30, 2006, debt consisted of the following obligations:



|                                                                                                                                                                                                                            |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Note payable Promissory note, due by August 31, 2006 with an 8% original issue discount of $40,000, secured by a lien on
substantially all of the Companys assets including a pledge of the Companys share in Satellite. |  | $ | 540,000  |  
|Note payablesoftware purchase, due by December 2007, payable in 48 monthly installments of $1,885, bearing interest at 9%, secured by
related software and guaranteed by a shareholder.                                    |  |   | 34,796   |  
|                                                                                                                                                                                                                            |  |   |          |  
|Total debt                                                                                                                                                                                                                  |  |   | 574,796  |  
|Less: short-term                                                                                                                                                                                                            |  |   | (560,658 | )
|                                                                                                                                                                                                                            |  |   |          |  
|Long-term debt                                                                                                                                                                                                              |  | $ | 14,138   |  
|                                                                                                                                                                                                                            |  |   |          |  

On May 19, 2006 the Company entered into a $540,000 Secured Note Agreement with Double U
Master Fund, L.P., an unrelated third party investor. The $540,000 Secured Note Agreement was issued with an original issue discount fee of 8%, or $40,000. In addition, the Company paid finders fees totaling $50,000 to an investment banking
firm in connection with the issuance of the $540,000 Secured Note Agreement. After the issue discount fee, finders fee and expenses, the Company received total proceeds of $447,500. The $540,000 Secured Note Agreement matures on
August 31, 2006, with maturity to be automatically accelerated upon receipt of proceeds from subsequent financing of not less than $2,000,000. The repayment of amounts outstanding and other obligations under the $540,000 Secured Note Agreement
are secured by a lien on substantially all of the Companys assets, including a pledge of the Companys shares in Satellite. In connection with the issuance of the $540,000 Secured Note Agreement, the Company issued to the investor
warrants to purchase an aggregate of 540,000 shares of common stock at an exercise price of $0.25 per share. The warrants are exercisable on or before May 19, 2009. The noteholder has been granted piggyback registration rights entitling it to
have any shares issuable to it by the Company included in any registration statement filed by the Company. Under APB 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, the Company determined that the relative
fair value of the detachable warrants at date of issuance was $19,951, which amount has been recorded as a non-cash operating expense. Subsequent to the end of the quarter, the Company repaid all amounts due under the $540,000 Secured Note Agreement
(see Note 8 of Notes to Consolidated Financial Statements).



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##### Table of Contents

Note 5 - Related Party Transactions

Notes and Loans

As of June 30, 2006, the Company had notes and loans to related parties
consisting of the following:



|                                                                                                                                                                                                                                                                                 |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|Note payable  officer - unsecured, 12% interest, due June 1, 2006                                                                                                                                                                                                               |  | $ | 20,000     |  
|Loans payable  shareholders  unsecured, non-interest bearing, no terms for repayment.                                                                                                                                                                                          |  |   | 384,855    |  
|Note payable- shareholder, The Aston Organization Ltd., convertible promissory note, 8.5% interest, due Dec. 31, 2006. As of June 30,
2006, principal and accrued and unpaid interest amounted to $1,033,095, offset by an unamortized beneficial conversion feature of $66,567. |  |   | 966,528    |  
|Loan payable-shareholder-unsecured, due in 228 installments of $7,000, imputed interest of 7%.                                                                                                                                                                                   |  |   | 864,276    |  
|                                                                                                                                                                                                                                                                                 |  |   |            |  
|Total related party debt                                                                                                                                                                                                                                                         |  |   | 2,235,659  |  
|Less: short-term portion of related-party debt                                                                                                                                                                                                                                   |  |   | (1,395,652 | )
|                                                                                                                                                                                                                                                                                 |  |   |            |  
|Total long-term portion of related party debt                                                                                                                                                                                                                                    |  | $ | 840,007    |  
|                                                                                                                                                                                                                                                                                 |  |   |            |  

Interest

The Company paid $10,162 in interest payments to a shareholder for the three months ended June 30, 2006, and $20,369 and $2,752 the six months ended June 30 2006 and 2005, respectively.

Aston Note

On February 14, 2006, the Company
entered into a $2,000,000 credit arrangement with The Aston Organization, Ltd. (Aston) and Zirk Engelbrecht, Chairman of the Board of Directors. Mr. Engelbrecht and Mr. Stephen Hallock, also a member of the Board of Directors,
are the sole shareholders of Aston. Pursuant to the terms and conditions set forth in a Convertible Promissory Note (the Aston Note) between Aston and the Company, Aston agreed to make loans to the Company from time to time, up to an
aggregate amount of $2,000,000. Amounts outstanding under the Aston Note bear interest at the rate of 8.5% per annum. Aston has the right to convert the aggregate amount of principal and interest outstanding under the Aston Note at any time
into shares of the Companys common stock at a conversion rate of $0.20 per share. The Aston Note matures on December 31, 2006. On May 11, 2006 Aston elected to convert $96,000 of the Aston Note into 480,000 shares of common stock.
The amount outstanding under the note at June 30, 2006 was $1,033,095, offset by an unamortized beneficial conversion feature of $66,567.

In accordance with generally accepted accounting principles, the difference between the conversion price and the Companys stock price on the date of issuance of each advance under the terms of the Aston Note is a beneficial conversion
feature and considered to be interest expense with a like amount recorded as an adjustment to paid in capital. The amount of the beneficial conversion feature is amortized over, and the interest expense is recognized over, the term of the note. For
the quarterly period ended March 31, 2006, the beneficial conversion feature was amortized on the basis of the Aston Notes maturity date of December 31, 2006. The Aston Note was converted on July 9, 2006 (see Note 8 of Notes to
Consolidated Financial Statements). Accordingly, the amortization was calculated for the quarter ended June 30, 2006 on the basis of a term ending July 9, 2006. This resulted in $658,438 being amortized for the three months ended
June 30, 2006. The unamortized amount of $66,567 was offset against the convertible promissory note and an increase to paid in capital of $757,047 was recorded. For the three and six months ended June 30, 2006 the Company incurred total
interest expense of $21,603 and $28,943, respectively under the terms of the Aston Note. As of June 30, 2006, the Company has recognized interest expense totaling of $757,047 in connection with the beneficial conversion feature of the Aston
Note, with a corresponding increase into paid in capital.

Employment Agreement

On May 19, 2006, the Company entered into an employment agreement with John Phillips, its CEO (the Employment Agreement), calling for
payment of (i) an annual base salary of $225,000; (ii) an annual bonus opportunity in the amount of $35,000 payable in cash for each subsidiary or operating division of the Company that meets its operating budget goal for each year during
the term of the Employment Agreement; (iii) an additional annual bonus opportunity in an amount to be determined by the Board of Directors; and (iv) an automobile



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##### Table of Contents

allowance of $1,500 per month. Mr. Phillips will also be eligible to participate in our employee benefit programs. Under the Employment Agreement, we
also agreed (i) to grant to Mr. Phillips, effective May 16, 2006, a non-statutory option to purchase 4,000,000 shares of our common stock at an exercise price equal to $0.09 per share, the closing price of our common stock on the date
of grant; (ii) to re-price non-qualified stock options of 1,923,077 shares previously granted to Mr. Phillips on November 4, 2005 from an exercise price of $0.312 per share to $0.15 per share; and (iii) to remove certain
performance-based restrictions on the previously granted 1,923,076 shares of restricted common stock. The 1,923,077 options became 100% vested on May 19, 2006.

Legal Fees

The Company paid legal fees to a law firm in which a relative of an officer, shareholder
and director of the Company is a shareholder. Total legal fees paid to this law firm for the three months ended June 30, 2006 and 2005 were $45,213 and $8,310 respectively. For the six months ended June 30, 2006 and 2005, total legal fees
paid to this firm were $80, 213 and $10,810 respectively.

Note 6 - Commitments and Contingencies

In the course of business, the Company has been, and may continue to be, involved in various claims seeking monetary damages and other relief. The amount
of the ultimate liability, if any, from such claims cannot be determined. However, in the opinion of the Companys management, the ultimate liability for any legal claims currently pending against the Company will not have a material adverse
affect on the Companys financial position, results of operations or cash flows. Insofar as current legal claims against the Company that have been filed or are currently ongoing, see Part II, Item 1 below.

Note 7 - Recent Accounting Pronouncements

There have
not been any recent accounting pronouncements since the Companys last filing that would have a material effect on the financial statements of the Company.

Note 8 - Subsequent Events

On July 7, 2006, the Board of Directors approved and issued 534,088, shares of the
Companys common stock to all employees of the Company who had been employed with since October of 2005 as a stock grant under the terms of the Companys 2006 Equity Incentive Plan. In connection with the transaction, the Company will
record total compensation expense of $53,409 based on the closing price of its common stock on July 7, 2006, the award date.

On
July 9, 2006, the Company entered into a Note Conversion and Lock-Up Agreement with Aston in which Aston elected to convert $1,035,200 being the total amount of outstanding principal, accrued and unpaid interest and all other amounts due under
the Aston Note into 9,410,909 shares of the Companys common stock at the rate of $.11 per share, the market price on the date of the Note Conversion and Lock-Up Agreement. In connection with the conversion, the Company and Aston agreed to
terminate the Aston Note.

Also on July 9, 2006 the Company reached an agreement on a loan payable to a shareholder to accelerate
repayment of the note. Under the agreement, the shareholder agreed to waive the requirement in the original note which entitled him to 15% of the proceeds of the July 13, 2006 financing transaction in exchange for payment to the shareholder in
the amount of $300,000 to be applied as follows: $230,000 to reimburse shareholder for payment shareholder made in full of a note with bank for which the Company is the guarantor on the underlying note with the bank in the same amount, $10,000 for
prior year rent and $60,000 on the loan payable to the shareholder. All penalties and claims for missed payments were waived and payments on the loan payable to the shareholder will resume in the amount of $7,000 per month on August 15, 2006.

On July 13, 2006 the Company entered into a Convertible Note and Warrant financing transaction with a group of unrelated accredited
investors in which the Company issued an aggregate of: (i) $3.3 million of Secured Convertible Promissory Notes; (ii) 21,607,465 Series A Warrants exercisable at $0.13 per share and; (iii) 18,006,221 Series B Warrants exercisable at
$0.143 per share. The financing resulted in net proceeds to the Company of $2,947,500 after deducting finders fees and expenses. The amounts outstanding under the Secured Convertible Promissory Notes bear interest at the rate of ten percent
per annum, mature on July 13, 2009 and are secured by a lien on substantially all of the Companys assets, including a pledge of its shares in Satellite. The Series A and Series B warrants expire on July 13, 2011. The holders of the
Secured Convertible Promissory Notes have the right,



14



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##### Table of Contents

at their election, to convert outstanding interest and principal into shares of the Companys common stock at any time at a conversion price equal to
seventy-five percent (75%) of the Companys volume weighted average price as reported on the OTC Bulletin Board for the five (5) day period prior to the conversion. In addition, the Company has agreed to file a registration statement
with the Securities and Exchange Commission to register the resale of the shares of common stock underlying the Convertible Promissory Notes and the Series A and B Warrants. The Company will use of proceeds from this Convertible Note and Warrant
financing transaction for general working capital purposes.

In connection with the Convertible Note and Warrant financing transaction, the
Company repaid all amounts due under the $540,000 Secured Note Agreement with Double U Master Fund, L.P. by repaying $40,000 in cash and converting the remaining $500,000 into a subscription in the July 13thfinancing transaction of convertible notes and warrants. In connection with the transaction, the Company re-priced the 540,000 warrants issued to
Double U Master Fund, L.P. on May 19, 2006 from an exercise price of $0.25 per share to an exercise price of $0.13 per share, the market price on the date of the Convertible Note and Warrant financing transaction. The exercise date of the
540,000 warrants and the registration rights remain unchanged.

On July 14, 2006, the Company entered into an employment agreement
with its Chief Financial Officer. The employment agreement is at-will and calls for annual base salary of $160,000, plus a certain bonus provision if performance targets are met. In addition to a base salary, the Company also granted, pursuant to
the terms of the 2006 Equity Incentive Plan, an incentive stock option to purchase 1,250,000 shares of its common stock at an exercise price of $0.13 per share, which was the market price on the date of grant. The options vest over a three year
period from the date of grant and expire on July 14, 2016.

On July 21, 2006, the Board of Directors approved a stock grant under
the terms of the 2006 Equity Incentive Plan and issued 1,900,000, shares of the Companys common stock to two consultants of the Company in exchange for past services rendered. In connection with the transaction, the Company will record total
consulting expense of $266,000 based on the closing price of its common stock on July 21, 2006, the award date.

Note 9  Restatement

On September 26, 2006, the Company filed an amendment on Form 10-QSB/A for the quarter ended June 30, 2006 in connection with
its condensed consolidated financial statements to correct an error in the calculation of interest expense arising out of the beneficial conversion feature associated with a convertible promissory note issued to the Aston Organization, Ltd. (the
Note); and an error in the calculation of compensation expenses related to certain stock option repricing and grants. Subsequently we determined it was necessary to file a second amendment on Form 10-QSB/A for the quarter ended
June 30, 2006 to label each of our financial statements for the period ended June 30, 2006 as being restated and to provide additional footnote disclosures as required by SFAS No. 154.

The following table summarizes the effects of the restatement on (1) the notes and loans payable to related parties, additional paid in capital, and
accumulated deficit that the Company previously reported on its Consolidated Balance Sheet at June 30, 2006 and (2) the marketing and sales expense, administration expense, interest expense, net loss and loss per share that the Company
previously reported on the Consolidated Statement of Operations for the six months ended June 30, 2006:



|                                                                                 |  |                      |        |  
|-------------------------------------------------------------------------------- |  | -------------------- | ------ | -
|                                                                                 |  | Increase /(Decrease) |       
|(1) Consolidated Balance Sheet at June 30, 2006                                  |  |                      |        |  
|Discount on notes and loans payable to related parties                           |  | ($                   | 66,567 | )
|Additional paid-in capital                                                       |  | $                    | 35,970 |  
|                                                                                 |  |                      |        |  
|Accumulated deficit                                                              |  | $                    | 30,597 |  
|(2) Consolidated Statements of Operations for the six months ended June 30, 2006 |  |                      |        |  
|Marketing and sales                                                              |  | $                    | 1,390  |  
|General and administrative                                                       |  | $                    | 34,580 |  
|Interest expense                                                                 |  | ($                   | 66,567 | )
|                                                                                 |  |                      |        |  
|Net loss                                                                         |  | $                    | 30,597 |  
|Basic and diluted loss per share                                                 |  |                      | None   |  



15



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##### Table of Contents

The following tables detail the effects of the restatement on the Companys Consolidated Balance
Sheets, Consolidated Statements of Earnings and Consolidated Statements of Cash Flows as of the period ending June 30, 2006:

Satellite Security Corporation and Subsidiary

Consolidated Balance Sheet

(Unaudited)



|                                                                        |  |                                       |            |   |          |   |            |  
|----------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | -------- | - | ---------- | -
|                                                                        |  | For the six months endedJune 30, 2006 |           
|                                                                        |  | PreviouslyReported                    |            |   | Restated |  
|Assets                                                                  |  |                                       |            |   |          |   |            |  
|Current Assets                                                          |  |                                       |            |   |          |   |            |  
|Cash                                                                    |  | $                                     | 18,629     |   |          | $ | 18,629     |  
|Accounts receivable, net of allowance for doubtful accounts of $204,840 |  |                                       | 302,674    |   |          |   | 302,674    |  
|Inventories, net of allowance for obsolete inventory of $45,370         |  |                                       | 467,392    |   |          |   | 467,392    |  
|Other current assets                                                    |  |                                       | 8,363      |   |          |   | 8,363      |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Current Assets                                                    |  |                                       | 797,058    |   |          |   | 797,058    |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Property and equipment, net                                             |  |                                       | 211,601    |   |          |   | 211,601    |  
|Other Assets                                                            |  |                                       |            |   |          |   |            |  
|Restricted cash for letter of credit                                    |  |                                       | 75,000     |   |          |   | 75,000     |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Other Assets                                                      |  |                                       | 75,000     |   |          |   | 75,000     |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Assets                                                            |  | $                                     | 1,083,659  |   |          | $ | 1,083,659  |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Liabilities and Shareholders Deficit                                   |  |                                       |            |   |          |   |            |  
|Current Liabilities                                                     |  |                                       |            |   |          |   |            |  
|Accounts payable                                                        |  | $                                     | 1,342,949  |   |          | $ | 1,342,949  |  
|Accrued expenses                                                        |  |                                       | 427,908    |   |          |   | 427,908    |  
|Deferred revenue - current portion                                      |  |                                       | 68,455     |   |          |   | 68,455     |  
|Short-term debt                                                         |  |                                       | 560,658    |   |          |   | 560,658    |  
|Notes and loans payable to related parties                              |  |                                       | 1,462,219  |   |          |   | 1,395,652  |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Current Liabilities                                               |  |                                       | 3,862,189  |   |          |   | 3,795,622  |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Non-Current Liabilities                                                 |  |                                       |            |   |          |   |            |  
|Long-term debt, net of current portion                                  |  |                                       | 14,138     |   |          |   | 14,138     |  
|Long-term debt payable to related parties, net of current portion       |  |                                       | 840,007    |   |          |   | 840,007    |  
|Deferred revenue, net of current portion                                |  |                                       | 369,478    |   |          |   | 369,478    |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Non-Current Liabilities                                           |  |                                       | 1,223,623  |   |          |   | 1,223,623  |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Liabilities                                                       |  |                                       | 5,085,812  |   |          |   | 5,019,245  |  
|                                                                        |  |                                       |            |   |          |   |            |  
|Commitments and Contingencies                                           |  |                                       |            |   |          |   |            |  
|Shareholders Deficit                                                   |  |                                       |            |   |          |   |            |  
|Common stock, $0.001 par value                                          |  |                                       |            |   |          |   |            |  
|Authorized - 250,000,000 shares                                         |  |                                       |            |   |          |   |            |  
|Issued and outstanding - 99,136,563 shares                              |  |                                       | 99,137     |   |          |   | 99,137     |  
|Additional paid-in capital                                              |  |                                       | 5,427,470  |   |          |   | 5,463,440  |  
|Accumulated deficit                                                     |  |                                       | (9,528,760 | ) |          |   | (9,498,163 | )
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Shareholders Deficit                                             |  |                                       | (4,002,153 | ) |          |   | (3,935,586 | )
|                                                                        |  |                                       |            |   |          |   |            |  
|Total Liabilities and Shareholders Deficit                             |  | $                                     | 1,083,659  |   |          | $ | 1,083,659  |  
|                                                                        |  |                                       |            |   |          |   |            |  



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Satellite Security Corporation and Subsidiary

Consolidated Statement of Operations

(Unaudited)



|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|-------------------------------- |  | --------------------------------------- | ----------- | - | ------------------------------------- | - | ----------- | ------------------ |  | - | ----------- | - |  | - | ----------- | -
|                                 |  | For the three months endedJune 30, 2006 |             |   | For the six months endedJune 30, 2006 |  
|                                 |  | PreviouslyReported                      |             |   | Restated                              |   |             | PreviouslyReported |  |   | Restated    |  
|Revenues                         |  | $                                       | 449,409     |   |                                       | $ | 449,409     |                    |  | $ | 655,297     |   |  | $ | 655,297     |  
|Cost of revenues                 |  |                                         | 388,008     |   |                                       |   | 388,008     |                    |  |   | 561,592     |   |  |   | 561,592     |  
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Gross Profit                     |  |                                         | 61,401      |   |                                       |   | 61,401      |                    |  |   | 93,705      |   |  |   | 93,705      |  
|Operating Expense                |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Research and development         |  |                                         | 62,634      |   |                                       |   | 62,634      |                    |  |   | 137,167     |   |  |   | 137,167     |  
|Marketing and sales              |  |                                         | 154,561     |   |                                       |   | 155,951     |                    |  |   | 287,556     |   |  |   | 288,946     |  
|General and administrative       |  |                                         | 838,062     |   |                                       |   | 872,642     |                    |  |   | 1,434,408   |   |  |   | 1,468,988   |  
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Total Expenses                   |  |                                         | 1,055,257   |   |                                       |   | 1,091,227   |                    |  |   | 1,859,131   |   |  |   | 1,895,101   |  
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Operating Loss                   |  |                                         | (993,856    | ) |                                       |   | (1,029,826  | )                  |  |   | (1,765,426  | ) |  |   | (1,801,396  | )
|Other Expense                    |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Interest expense                 |  |                                         | 156,836     |   |                                       |   | 740,525     |                    |  |   | 932,935     |   |  |   | 866,368     |  
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Net Loss                         |  |                                         | ($1,150,692 | ) |                                       |   | ($1,770,351 | )                  |  |   | ($2,698,361 | ) |  |   | ($2,667,764 | )
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Basic and diluted loss per share |  |                                         | ($0.01      | ) |                                       |   | ($0.02      | )                  |  |   | ($0.03      | ) |  |   | ($0.03      | )
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  
|Weighted average common shares   |  |                                         | 98,841,178  |   |                                       |   | 98,841,178  |                    |  |   | 98,451,038  |   |  |   | 98,451,038  |  
|                                 |  |                                         |             |   |                                       |   |             |                    |  |   |             |   |  |   |             |  



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Satellite Security Corporation and Subsidiary

Consolidated Statement of Cash Flows

(Unaudited)



|                                                                            |  |                                       |             |   |          |   |             |  
|--------------------------------------------------------------------------- |  | ------------------------------------- | ----------- | - | -------- | - | ----------- | -
|                                                                            |  | For the six months endedJune 30, 2006 |            
|                                                                            |  | PreviouslyReported                    |             |   | Restated |  
|Cash flows from operating activities:                                       |  |                                       |             |   |          |   |             |  
|Net loss                                                                    |  |                                       | ($2,698,361 | ) |          |   | ($2,667,764 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                       |             |   |          |   |             |  
|Share-based compensation expense                                            |  |                                       | 17,361      |   |          |   | 53,331      |  
|Common stock issued for services                                            |  |                                       | 180,000     |   |          |   | 180,000     |  
|Depreciation                                                                |  |                                       | 31,968      |   |          |   | 31,968      |  
|Non-cash interest expense                                                   |  |                                       | 799,614     |   |          |   | 733,047     |  
|Original issue discount amortization                                        |  |                                       | 40,000      |   |          |   | 40,000      |  
|Other non-cash items                                                        |  |                                       | 19,951      |   |          |   | 19,951      |  
|Changes in operating assets and liabilities:                                |  |                                       |             |   |          |   |             |  
|Accounts receivable, net                                                    |  |                                       | (201,138    | ) |          |   | (201,138    | )
|Inventories                                                                 |  |                                       | (433,692    | ) |          |   | (433,692    | )
|Accounts payable                                                            |  |                                       | 845,067     |   |          |   | 845,067     |  
|Accrued liabilities                                                         |  |                                       | (54,796     | ) |          |   | (54,796     | )
|Deferred revenues                                                           |  |                                       | 7,836       |   |          |   | 7,836       |  
|Other                                                                       |  |                                       | (1,347      | ) |          |   | (1,347      | )
|                                                                            |  |                                       |             |   |          |   |             |  
|Net cash used in operating activities                                       |  |                                       | (1,447,537  | ) |          |   | (1,447,537  | )
|                                                                            |  |                                       |             |   |          |   |             |  
|Cash flows from investing activities:                                       |  |                                       |             |   |          |   |             |  
|Purchases of property and equipment                                         |  |                                       | (86,056     | ) |          |   | (86,056     | )
|                                                                            |  |                                       |             |   |          |   |             |  
|Net cash (used in) investing activities                                     |  |                                       | (86,056     | ) |          |   | (86,056     | )
|                                                                            |  |                                       |             |   |          |   |             |  
|Cash flows from financing activities:                                       |  |                                       |             |   |          |   |             |  
|Repayment of long-term debt                                                 |  |                                       | (9,681      | ) |          |   | (9,681      | )
|Proceeds from short-term loan                                               |  |                                       | 500,000     |   |          |   | 500,000     |  
|Proceeds from related party loan                                            |  |                                       | 1,171,973   |   |          |   | 1,171,973   |  
|Repayment of related party loan                                             |  |                                       | (50,000     | ) |          |   | (50,000     | )
|Shareholder advances                                                        |  |                                       | 105,000     |   |          |   | 105,000     |  
|Shareholder repayments                                                      |  |                                       | (181,512    | ) |          |   | (181,512    | )
|                                                                            |  |                                       |             |   |          |   |             |  
|Net cash provided by financing activities                                   |  |                                       | 1,535,780   |   |          |   | 1,535,780   |  
|                                                                            |  |                                       |             |   |          |   |             |  
|Net increase in cash                                                        |  |                                       | 2,187       |   |          |   | 2,187       |  
|                                                                            |  |                                       |             |   |          |   |             |  
|Cash at beginning of period                                                 |  |                                       | 16,442      |   |          |   | 16,442      |  
|                                                                            |  |                                       |             |   |          |   |             |  
|Cash at end of period                                                       |  | $                                     | 18,629      |   |          | $ | 18,629      |  
|                                                                            |  |                                       |             |   |          |   |             |  



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|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------

Disclosure Controls and
Procedures. Disclosure controls and procedures are controls and other procedures that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed in the reports that a company files or submits under the Exchange Act is accumulated and communicated to the companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

We maintain disclosure controls and procedures designed to ensure that material information
related to our company is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Based
on an evaluation performed by the Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures, the Chief
Executive Officer and Chief Financial Officer initially concluded that the Companys disclosure controls and procedures were effective as of June 30, 2006. However, management, with the participation of the Chief Executive Officer and
Chief Financial Officer, re-evaluated the effectiveness of the Companys disclosure controls and procedures, in light of the restatement of the Companys financial statements filed in the amended Quarterly Report on form 10-QSB/A dated
August 11, 2006, and concluded that the disclosure controls and procedures were not effective as of June 30, 2006. This conclusion was based on the Companys identification of a weakness with regard to its calculation of compensation
expenses related to certain stock option repricing and grants and the calculation of interest expense arising out of the beneficial conversion feature associated with a convertible promissory note issued to the Aston Organization, Ltd. (the
Note) in the first half of 2006.

As of the filing of this amended Quarterly Report on Form 10-Q/A, management, including the
Companys Chief Executive Officer and Chief Financial Officer, believes that the weakness in internal control over financial reporting relating to its calculation of compensation expenses related to certain stock option repricing and grants and
the calculation of interest expense arising out of the beneficial conversion feature associated with a convertible promissory note issued to the Aston Organization, Ltd. (the Note) in the first half of 2006 has been remediated and the
Companys disclosure controls and procedures are effective as of the date of this filing.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



SATELLITE SECURITY CORPORATIONBy:

/s/ Mr. John L. PhillipsMr. John L. PhillipsChief Executive OfficerBy:

/s/ Mr. Aidan ShieldsMr. Aidan ShieldsChief Financial Officer


Dated: November 16, 2006



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