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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)



|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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 of incorporation or organization) |  | (IRS Employer Identification 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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##### Table of Contents

TABLE OF CONTENTS



|        |  |                                                             |  |   
|------- |  | ----------------------------------------------------------- |  | --
|        |  | Part I  Financial Information                              |  |   
|        |  |                                                            
|Item 1. |  | Financial Statements                                        |  | 3 
|        |  |                                                            
|Item 2. |  | Managements Discussion and Analysis or Plan of Operations  |  | 14
|        |  |                                                            
|Item 3. |  | Controls and Procedures                                     |  | 26
|        |  |                                                            
|        |  | Part II  Other Information                                 |  |   
|        |  |                                                            
|Item 1. |  | Legal Proceedings                                           |  | 27
|        |  |                                                            
|Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | 27
|        |  |                                                            
|Item 3. |  | Defaults Upon Senior Securities                             |  | 27
|        |  |                                                            
|Item 4. |  | Submission of Matters to a Vote of Security Holders         |  | 27
|        |  |                                                            
|Item 5. |  | Other Information                                           |  | 28
|        |  |                                                            
|Item 6. |  | Exhibits and Reports on Form 8-K                            |  | 28



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##### Table of Contents

PART I  FINANCIAL INFORMATION



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

Satellite Security
Corporation and Subsidiary

Consolidated Balance Sheet

(Unaudited)



|                                                                        |  |               |            |  
|----------------------------------------------------------------------- |  | ------------- | ---------- | -
|                                                                        |  | June 30, 2006 |           
|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                              |  |               | 1,462,219  |  
|                                                                        |  |               |            |  
|Total Current Liabilities                                               |  |               | 3,862,189  |  
|                                                                        |  |               |            |  
|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                                                       |  |               | 5,085,812  |  
|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                                              |  |               | 5,427,470  |  
|Accumulated deficit                                                     |  |               | (9,528,760 | )
|                                                                        |  |               |            |  
|Total Shareholders Deficit                                             |  |               | (4,002,153 | )
|                                                                        |  |               |            |  
|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, |  
|                                 |  | 2006                               |            |   | 2005                             |   |            | 2006 |  |   | 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              |  |                                    | 154,561    |   |                                  |   | 73,799     |      |  |   | 287,556    |   |  |   | 148,366    |  
|General and administrative       |  |                                    | 838,062    |   |                                  |   | 253,131    |      |  |   | 1,434,408  |   |  |   | 623,047    |  
|                                 |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total Expenses                   |  |                                    | 1,055,257  |   |                                  |   | 405,040    |      |  |   | 1,859,131  |   |  |   | 924,686    |  
|                                 |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Operating Loss                   |  |                                    | (993,856   | ) |                                  |   | (246,656   | )    |  |   | (1,765,426 | ) |  |   | (582,840   | )
|Other Expense                    |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Interest expense                 |  |                                    | 156,836    |   |                                  |   | 26,583     |      |  |   | 932,935    |   |  |   | 47,672     |  
|                                 |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net Loss                         |  | $                                  | (1,150,692 | ) |                                  | $ | (273,239   | )    |  | $ | (2,698,361 | ) |  | $ | (630,512   | )
|                                 |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted loss per share |  | $                                  | (0.01      | ) |                                  | $ | (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, |           
|                                                                            |  | 2006                             |            |   | 2005 |  
|Cash flows from operating activities:                                       |  |                                  |            |   |      |   |          |  
|Net loss                                                                    |  | $                                | (2,698,361 | ) |      | $ | (630,512 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                  |            |   |      |   |          |  
|Share-based compensation expense                                            |  |                                  | 17,361     |   |      |   |         |  
|Common stock issued for services                                            |  |                                  | 180,000    |   |      |   |         |  
|Depreciation                                                                |  |                                  | 31,968     |   |      |   | 22,672   |  
|Non-cash interest expense                                                   |  |                                  | 799,614    |   |      |   |         |  
|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 the Black-Scholes option pricing model, the estimated fair value of the options was zero; accordingly no compensation expense was recorded in connection with the repricing 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



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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, a compensation expense of $152,947 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 and consultants incentive and non-statutory stock options to purchase up to 1,500,000 and 500,000 shares, respectively, of its common
stock at prices per share ranging from $0.09 to $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 $162,439 will be recognized under the Black-Scholes option pricing model in connection with the option grants over the three year vesting period for the grants.

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 three monthsended June 30,
2006 |   |  | For the six months ended June 30, 2006 |  
|Expected option life (years) |  | 1.77                                    |   |  | 1.77                                   |  
|Risk-free interest rate      |  | 4.95                                    | % |  | 4.95                                   | %
|Expected dividend yield      |  | None                                    |   |  | None                                   |  
|Expected volatility          |  | 64.64                                   | % |  | 64.64                                  | %

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



|                           |  |                                         |        |                                       |   |       
|-------------------------- |  | --------------------------------------- | ------ | ------------------------------------- | - | ------
|                           |  | For the three monthsended
June 30, 2006 |        | For the six monthsended
June 30, 2006
|Research and development   |  | $                                       |       |                                       | $ |      
|Marketing and sales        |  |                                         | 5,126  |                                       |   | 5,126 
|General and administrative |  |                                         | 12,235 |                                       |   | 12,235
|                           |  |                                         |        |                                       |   |       
|Share-based compensation   |  | $                                       | 17,361 |                                       | $ | 17,361
|                           |  |                                         |        |                                       |   |       



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##### Table of Contents

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                                  |  | 7,923,077  |   |  | $                             | 0.125 |                                                     | 2.09
|Exercised                                |  |           |   |  |                               |      |                                                     |    
|Forfeited, cancelled or expired          |  | (1,923,077 | ) |  | $                             | 0.31  |                                                     |    
|                                         |  |            |   |  |                               |       |                                                     |     
|Outstanding at June 30, 2006             |  | 7,923,077  |   |  | $                             | 0.125 |                                                     | 2.09
|                                         |  |            |   |  |                               |       |                                                     |     
|Exercisable at June 30, 2006             |  | 1,923,077  |   |  | $                             | 0.15  |                                                     |    
|                                         |  |            |   |  |                               |       |                                                     |     

The weighted average grant-date fair values of options granted during the six months ended
June 30, 2006 was $0.125 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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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, borrowings by the Company aggregate to $916,500, payments made to other parties on behalf of the Company total $87,652, and interest accrued on the promissory note is in the amount of $28,943. |  |   | 1,033,095  |  
|Loan payable-shareholder-unsecured, due in 228 installments of $7,000, imputed interest of 7%.                                                                                                                                                                                                                                               |  |   | 864,276    |  
|                                                                                                                                                                                                                                                                                                                                             |  |   |            |  
|Total related party debt                                                                                                                                                                                                                                                                                                                     |  |   | 2,302,226  |  
|Less: short-term portion of related-party debt                                                                                                                                                                                                                                                                                               |  |   | (1,462,219 | )
|                                                                                                                                                                                                                                                                                                                                             |  |   |            |  
|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.

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. 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 $799,614 in connection with the beneficial conversion feature of the Aston Note, with a corresponding increase into paid in capital. Subsequent to the quarters end, the Company repaid all
amounts outstanding under the Aston Note (see Note of Notes to Consolidated Financial Statements).

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 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 1,923,076 shares previously granted to Mr. Phillips on November 4, 2005 from an exercise price
of $0.312 per share to $0.15



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##### Table of Contents

per share; and (iii) to remove certain performance-based restrictions on the previously granted 1,923,076 shares of restricted common stock. The
1,923,076 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, 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



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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
750,000 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.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|------- | ---------------------------------------------------------

FORWARD LOOKING STATEMENTS

In addition to historical information, this discussion of our results of operation and
financial condition contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. As contained herein, the words
expects, anticipates, believes, intends, will, and similar types of expressions identify forward-looking statements, which are based on information that is currently available to the
Company, speak only as of the date hereof, and are subject to certain risks and uncertainties. Please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated
by us in forward-looking statements. We have attempted to identify, in context, certain factors that we currently believe may cause actual future experiences and results to differ from our current expectations which are set forth below under the
heading Risk Factors below. The difference may be caused by a variety of factors, including, but not limited to, the need for additional capital to execute the Companys business plan, the failure to develop significant demand for
our products and services, competition, including entry of new competitors, unexpected costs, lower revenues and net income than forecast, price increases for supplies, inability to raise prices, the risk of litigation and administrative proceedings
involving us and our employees, higher than anticipated labor costs, the possible fluctuation and volatility of our operating results and financial condition, adverse publicity and news coverage, inability to carry out marketing and sales plans,
loss of key executives, changes in interest rates, inflationary factors, and other specific risks that may be alluded to in this report.

OVERVIEW

We entered into a Merger Agreement with Satellite Security Systems, Inc. on December 9, 2005 pursuant to which Satellite was
merged with and into a wholly owned subsidiary of the Company effective December 31, 2005, as discussed in further detail in Note 1 to the Consolidated Financial Statements. In accordance with generally accepted accounting principles, the
merger was accounted for as a public shell merger. Accordingly the financial statements included in this report contain the historical results of operations of Satellite, except for the statements of changes in shareholders deficit, which has
been converted to shares of the Company based on the above merger ratios.

Since the merger, our primary business has been the operations
conducted by our subsidiary Satellite in the development and sale of asset tracking and monitoring solutions and services. We generate one-time revenues through direct and OEM sales of our GPS tracking devices which we market under the name
GlobalGuard. We



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then offer and supply stealth and covert monitoring systems with two-way communications capabilities linked to a Monitoring and Support Center (the
MSC) with trained staff on duty 24 hours a day, seven days a week. The monitoring services are provided under the terms of service contracts which provide monthly recurring revenue to the Company. Typically these contracts have an
initial period of one to five years. The amount of revenues derived from monitoring services is based on customer options for monitoring and control functions, such as monitoring movement of vehicles in a fleet, remotely initiating operation of a
generator, valve or other piece of equipment.

Our products have the potential for broad-scale applications for law enforcement, homeland
security, fleet tracking and management, utility applications and fixed point monitoring. We have initially focused our solutions on applications and services for law enforcement, and we have several programs currently under way with Federal, state
and local law enforcement agencies. These programs allow law enforcement officials to utilize our solutions to track suspects or convicted felons (e.g., sexual predators) covertly. We also offer a Bait Car solution for law enforcement to
deploy in aiding the fight against auto thefta car with an integrated tracking device can be left unattended and we can notify law enforcement in the event the vehicle moves. We are beginning applications for school transportation and student
safety, including monitoring the location of school buses in transit.

During the quarter ended June 30, 2006 we addressed four
primary operating issues relating to business development, management, working capital and enhancing financial controls and procedures, as follows:

On April 11, 2006, we entered into an OEM relationship with Blue Bird Corporation, a leading manufacturer of school buses, to offer our GlobalGuard GPS solutions in the buses and an OEM option and to offer a variety of service
options. During the quarter we procured and tested the initial GPS devices to be deployed under that arrangement and developed marketing and sales collateral for the OEM arrangement. Initial sales to Blue Bird Corporation were made under this
arrangement before the end of the quarter and we expect to increase deliveries of hardware and recognize additional revenue from this client in the second half of 2006.

On May 2, 2006, John L. Phillips was appointed our Chief Executive Officer and interim Chief Financial Officer. Mr. Phillips succeeded Mr. Kenneth Dixon who resigned as our Chief Executive Officer
effective May 1, 2006 and Mr. Randall Smith who resigned as our Chief Financial Officer effective April 27, 2006. Subsequent to the end of quarter, we appointed Mr. Aidan Shields as our new Chief Financial Officer.

We entered the quarter with limited cash and a substantial working capital deficit. On May 19, 2006 the Company entered into a $540,000 Secured Note
Agreement with an unrelated third party investor, resulting in net proceeds to the Company of $447,500. The amounts outstanding under the Promissory Note were due and payable on August 31, 2006. The amounts outstanding and other obligations
under the $540,000 Secured Note Agreement were 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 $.25 per share. The warrants are exercisable on or before May 19, 2009. Subsequent to the quarters end, on
July 13, 2006, the Company entered into a Convertible Note and Warrant financing transaction described below, resulting in net proceeds to the Company of $2,947,500 after deducting finders fees and expenses. In connection with the
Convertible Note and Warrant financing, we repaid the $540,000 Secured Note Agreement and secured the agreement of The Aston Organization, Ltd., an entity owned and controlled by two of our directors, Zirk Engelbrecht and Steven Hallock, to convert
$1,035,200 of convertible debt into 9,410,909 shares of the Companys common stock.

During the quarter ended June 30, 2006, we
also completed a review of the Companys financial records, implemented new accounting procedures and updated the Companys public filings with the Securities and Exchange Commission. On May 22, 2006 we filed our Quarterly Report on
form 10-QSB for the period ended March 31, 2006, but noted that the report did not contain complete information for the Companys prior year operations because our subsidiary Satellite had not conducted regular quarterly closes of its
financial records and it was therefore impractical to produce those records in a timely manner. During the quarter the Company reviewed those historical records, completed quarterly closes and amended its Quarterly Report to include the complete
information on July 13, 2006.



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RESULTS OF OPERATIONS

Revenues

Revenues were $449,409 for the three months ended June 30, 2006, compared to $325,230 for the same period in
2005, Revenues increased for the three months ended June 30, 2006 by $124,179 or 38% primarily as a result of increased hardware sales. Revenues were $655,297 for the six months ended June 30, 2006 as compared to $708,795 for the same
period in 2005. Revenues decreased for the six months ended June 30, 2006 by $53,498 or 8% primarily due to decreased service revenue from the Companys Monitoring Support Center (the MSC).

On April 11, 2006, we entered into an OEM Agreement with Blue Bird Corporation under which we sell Blue Bird Corporation our hardware for
installation on school buses. We then hope to secure service contracts with the customers that purchase those school buses. Our limited working capital and absence of inventory restricted us from shipping orders to this customer during the first
half of 2006. We expect to increase deliveries and recognize additional revenue from relationship in the second half of 2006.

Cost of Revenues

Cost of revenues includes hardware, wireless airtime expense and personnel-related costs for the MSC. Costs of revenues were $388,008
or 86% of revenues for the three months ended June 30, 2006, compared to $166,846 or 51% of revenues for the same period in 2005. Costs of revenues were $561,592 or 86% of revenues for the six months ended June 30, 2006, compared to and
$366,949 or 52% of revenues for the same period in 2005. Cost of revenues increased $221,162, or 132%, for the three month period ended June 30, 2006 compared to the same period in 2005. For the six month period ended June 30, 2006 cost of
revenues increased $194,643, or 53%, compared to the same period in 2005. The increase in cost of revenues is primarily attributable to product mix, as a higher percentage of our revenues were derived from hardware sales during the period, combined
with higher hardware costs from third party manufacturers, and reduced leverage on fixed costs at the MSC.

Research and Development

Research and development expenses include payroll, and costs associated with software development, product design and outsourcing. Research and
development expenses were $62,634 for the three months ended June 30, 2006, compared to $78,110 for the same period in 2005. Research and development expenses were $137,167 for the six months ended June 30, 2006, as compared to $153,273
for the same period in 2005. Research and development decreased $15,476, or 19%, for the three months ended June 30, 2006 compared to the same period a year ago. For the six months ended June 30, 2006, research and development expenses
decreased $16,106, or 10% compared to the same period in 2005. The decreases were primarily due to reductions in research and development related payroll.

We expect to continue to invest in our ongoing research and development efforts of integrating customer applications and introducing new hardware devices for sale. We believe that continued investment in research and
development is a critical factor in maintaining our competitive position. However, our ability to maintain research and development spending may be adversely impacted by our limited cash flow and liquidity.

Marketing and Sales Expenses

Marketing and sales
expenses include payroll, and costs associated with advertising, promotions, trade shows, seminars, and similar programs, as well and travel expenses. Marketing and sales expenses were $154,561 for the three months ended June 30, 2006, compared
with $73,799 for the same period in 2005. Marketing and sales expenses were $287,556 for the six months ended June 30, 2006 compared to $148,366 for the same period in 2005. Marketing and sales expenses increased $80,762, or 109% for the three
months ended June 30, 2006 compared to the same period a year ago. For the six months ended June 30, 2006, marketing and sales expenses increased $ 139,190 or 94% compared to the same period in 2005. The increases were primarily due to
additional payroll to support our channel and OEM sales programs.

We expect marketing and sales expenses to increase in absolute dollar
amounts and as a percentage of total revenues for the remainder of the year in connection with our marketing support to distribution channels.



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General and Administrative

General and administrative expenses include payroll and costs associated with the finance, facilities, and legal and other administrative functions of the Company. General and administrative costs were $838,062 for
the three months ended June 30, 2006 compared with $253,131 for the same period in 2005. General and administrative costs were $1,434,408 for the six months ended June 30, 2006, compared with $623,047 for the same period in 2005. General
and administrative expenses increased $584,931 or 231%, for the three months ended June 30, 2006 compared to the same period a year ago. For the six months ended June 30, 2006, general and administrative expenses increased $811,361, or
130% compared to the same period in 2005. The increases in General and Administrative expenses were primarily due to increased audit and legal fees, partly as a result of our becoming a public company, as well as additional payroll to support the
administrative and finance functions.

We believe that our general and administrative expenses are adequate to support current needs and
some growth. However, given the size of our operations, small changes, such as the addition of a single payroll position, has a substantial impact on the general and administrative expenses.

Interest Expense

Interest expenses were $156,836 for
the three months ended June 30, 2006 compared to $26,583 for the same period in 2005. Interest expenses were $932,935 for the six months ended June 30, 2006, compared to $47,672 for the same period in 2005. The increase in interest expense
was primarily due to the issuance of the convertible promissory note to the Aston Organization Ltd, which included a beneficial conversion feature which, under generally accepted accounting principals, resulted in an interest expense of $799,614.

We completed a $3,300,000 Convertible Debt and Warrant financing subsequent to the end of the quarter ended June 30, 2006. Interest
on the $3.3 of Secured Convertible Notes issued in that transaction accrues at the rate of ten percent per annum. In connection with that transaction, the convertible promissory note held by the Aston Organization was converted into shares of common
stock. Consequently, we will not be receiving further advances under that convertible promissory note.

Net Loss

Net loss includes loss from operations and interest expense. We recorded a net loss of $1,150,692 for the three months ended June 30, 2006 compared
to a net loss of $273,239 for the same period in 2005. We recorded a net loss of $2,698,361 for the six months ended June 30, 2006 compared to a net loss of $630,512 for the same period in 2005. The increase in net loss for the six months ended
June 30, 2006 as compared to the same period of 2005 was due to a reduction in revenue of $53,498, an increase in operating costs of $1,129,088 and increased interest expense of $885,263 primarily from the issuance of a convertible promissory
note.

Liquidity and Capital Resources

On June 30, 2006, we had cash of $18,629 and accounts receivable, net of allowance for doubtful accounts, of $302,674. Our working capital deficit as of June 30, 2006 was $3,065,131 compared to a deficit of $1,248,299 at
December 31, 2005.

Net cash used in operating activities during the six months ended June 30, 2006 was $1,447,537. The primary
use of cash from operating activities was the net loss of $2,698,361, an increase of $433,692 in inventory and an increase of $201,138 in accounts receivable. The primary sources of cash from operating activities were a non-cash interest expense of
$799,614 in connection with a beneficial conversion feature on the promissory note issued to the Aston Organization, Ltd., common stock issued for services in the amount of $180,000 and an increase in accounts payable of $845,067.

Net cash used by investing activities during the three month period ended June 30, 2006 was $86,056 and was due to purchases of property and
equipment. There are no significant capital expenditures planned by the Company within the foreseeable future.

Since our inception, we
have financed our cash needs primarily through financing activities with related parties. Net cash from financing activities in 2005 was $1,435,856, primarily from the proceeds on the sale of common stock and issuance of debt to related parties. In
the six month period ended June 30, 2006, we entered into



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two significant financing transactions, under which we borrowed an aggregate of $1,671,973 on the basis of short-term debt instruments.

On February 16, 2006 we entered into a Convertible Promissory Note (the Aston Note) with The Aston Organization Ltd (Aston).
Aston is a significant shareholder of the Company and is controlled by Zirk Engelbrecht and Steven Hallock, each of whom are directors of the Company. Under the terms of the Aston Note, the Company has the right to request advances from Aston from
time to time up to an aggregate of $2,000,000. Borrowings under the Aston Note were due and payable on December 31, 2006. Our borrowings under the Aston Note totalled $1,033,095 at June 30, 2006.

On May 19, 2006 we entered into a $540,000 Secured Note Agreement with Double U Master Fund L.P., an unrelated third party investor, that resulted
in net proceeds to us of $447.500 The amounts outstanding under the $540,000 Secured Note Agreement were due and payable on August 31, 2006. The $540,000 Secured Note Agreement was secured by a lien on substantially all of our assets, including
a pledge of our shares in Satellite. In connection with the issuance of the $540,000 Secured Note Agreement, we issued to the investor warrants to purchase an aggregate of 540,000 shares of common stock at an exercise price of $.25 per share. The
warrants are exercisable on or before May 19, 2009.

Subsequent to the end of the quarter we entered into two additional significant
financing transactions:

On July 9, 2006 we entered into a Note Conversion and Lock-Up Agreement with Aston in which Aston agreed to
convert the $1,035,200 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 a conversion rate of $.11 per share, the current market price on
that date. In connection with the conversion the Company and Aston agreed to terminate the Aston Note.

On July 13, 2006 we 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 our assets, including a pledge of our 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, 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.

We anticipate that the
proceeds from the Convertible Note and Warrant financing transaction, together with cash flows from operations will be sufficient to meet our anticipated expenditures into calendar year 2007. However, if we fail to reach our operating goals, or if
we incur unanticipated expenses, we may be require additional capital to support our operations. We would plan to raise any additional capital from the sale of debt or equity securities. There are no commitments or arrangements for other offerings
in place. Furthermore, the terms and conditions of the Convertible Note and Warrant financing transaction place some restrictions on our ability to raise additional capital. There is no assurance that we will be able to raise additional funds, and
if we are unsuccessful, we will be forced to curtail operations or possibly be forced to evaluate a sale or liquidation of the Companys assets. Even if we are successful in raising additional funds, there is no assurance regarding the terms of
any additional investment. Any future financing may involve substantial dilution to existing shareholders.



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As emphasized in the Report of Independent Registered Public Accounting Firm on our December 31,
2005 financial statements, we have incurred recurring negative cash flows from operations, significant losses, working capital deficits and increasing shareholder deficiencies. Further, we have yet to establish profitable operations. These factors,
among others, raise substantial doubt about our ability to continue as a going concern.

RISK FACTORS

This Quarterly Report on Form 10-QSB contains statements that are forward-looking. These statements are based on current expectations and assumptions
that are subject to risks and uncertainties. Actual results could differ materially because of issues and uncertainties such as those listed below and elsewhere in this report, which, among others, should be considered in evaluating the
Companys financial outlook.

The sale of the shares of our common stock acquired in private placements could cause the price of our common
stock to decline.

On July 13, 2006, we completed a transaction in which we issued a total of $3,300,000 principal amount of
Secured Convertible Promissory Notes due July 13, 2009. Under the terms of the Secured Convertible Promissory Notes, they may be converted by the holder into shares of our common stock at any time. The transaction further included warrants to
purchase an aggregate of 39,613,686 shares of our common stock. As required under the terms of the transaction, we are required to file a registration statement with the United States Securities and Exchange Commission under which the investors may
resell to the public common stock acquired upon the conversion of the notes, as well as common stock acquired upon the exercise of the warrants.

The selling stockholders under the registration statement may sell none, some or all of the shares of common stock acquired from us, as well as common stock acquired upon the exercise of the warrants held by them. We have no way of knowing
whether the selling stockholders will sell the shares covered by the registration statement. Depending upon market liquidity at the time, a sale of shares covered by the registration statement at any given time could cause the trading price of our
common stock to decline. The sale of a substantial number of shares of our common stock under this prospectus, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales.

We have increased the amount of our secured indebtedness as a result of our recent private
placement of Convertible Secured Promissory Notes.

All of our material assets have been pledged as collateral for the $3,300,000 in
Secured Convertible Promissory Notes that we sold in our recent private placement. In addition to the security interest in our assets, the promissory notes carry substantial covenants that impose significant requirements on us, including, among
others, requirements that:



| |  |  | we pay interest and other charges on the promissory notes;
| | - |  | ----------------------------------------------------------



| |  |  | we use the proceeds from the sale of the promissory notes only for permitted purposes;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | while the promissory notes are outstanding, if we issue equity or equity linked securities at a price lower than the conversion price then the conversion price of the promissory
notes will be reduced to the same price. If we issue any variable priced equity securities or variable price equity linked securities, then the conversion price of the promissory notes will be reduced to the lowest issue price applied to those
securities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we keep reserved out of our authorized shares of common stock sufficient shares to satisfy our obligation to issue shares on conversion of the promissory notes and the exercise of
the related warrants issued in connection with the sale of the promissory notes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we file a registration statement with the SEC by August 28, 2006, registering the shares of common stock issuable upon the conversion of the promissory notes
and the exercise of the related warrants. If we fail to file the registration statement on a timely basis, or if it is not declared effective by the SEC within a maximum of 90 days from the closing date of the private placement (or 150 days if such
registration statement is reviewed by the SEC), we are required to pay to the investors liquidated damages equal to 2.0% of the aggregate principal amount of the notes remaining unconverted and the purchase price of the shares issued upon conversion
of the notes
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | and exercise of the warrants owned by such holders and shall pay to the investors such amount for each subsequent 30-day period; and
| | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we shall not, directly or indirectly, (i) redeem, purchase or otherwise acquire any capital stock or set aside any monies for such redemption, purchase or other acquisition or
(ii) issue any floating price security with a floor price below the conversion price.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our ability to comply with these
provisions may be affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants could result in a default under the promissory notes, permitting the holders of
the promissory notes to accelerate their maturity and to sell the assets securing them. Such actions by the holders of the promissory notes could cause us to cease operations or seek bankruptcy protection.

If we are required for any reason to repay the Secured Convertible Promissory Notes, we would be required to deplete our working capital, if available, or raise
additional funds. Our failure to repay the Secured Convertible Promissory Notes, if required, could result in legal action against us, which could require the sale of substantial assets.

The Secured Convertible Promissory Notes are due and payable on July 13, 2009 unless sooner converted into shares of our common stock. In addition,
the holders would have the right upon any event of default to demand the early repayment of the notes if the default is not cured with the specified grace period. If we are required to repay the promissory notes, we would be required to use our
limited working capital and raise additional funds. If we were unable to repay the promissory notes when required, the promissory noteholders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any
such action would require us to curtail or cease operations.

To satisfy our capital requirements, we may need to raise funds in the public or
private capital markets, which may not be given on terms favorable to us, or we may not be able to raise funds at all. In the event that we receive funds on undesirable terms, or are unable to raise additional funds, we may not be able to fund our
operations and will not be able to continue as a going concern. The additional funding may have terms which will dilute the value of your investment.

Our ability to raise additional funds in the public or private markets will be adversely affected if the results of our business operations are not favorable. We may seek additional funding through the sale of debt or
equity securities. We cannot assure you that any such funding will be available to us, or if available, that it will be available on terms favorable to us. If adequate funds are not available, we may not be able to continue our operations or
implement our planned additional research and development activities. As a result, we may be required to discontinue our operations or curtail our planned sales and research and development plans, thereby reducing or eliminating the value of our
equity. If we are successful in obtaining additional funds, the terms of the financing may have the effect of diluting your interest.

We have a
history of losses, and are unsure if we will become profitable in the future.

We have incurred losses since our inception and
cannot assure you that our future operations will be implemented successfully or that we will ever have profitable operations. We have yet to establish significant customer demand for our solutions and may not for a significant period of time, if
ever. If we are unable to establish demand for our solutions, we may be forced to cease operations entirely. Furthermore, we are experiencing the costs and uncertainties of an emerging business, including additional expenditures, unforeseen costs
and difficulties, complications, and delays, all of which must be resolved and/or paid without the benefit of a predictable revenue stream. Management can not be sure that we will be successful in meeting these challenges and addressing these risks
and uncertainties. If we are unable to do so, our business will not be successful.

As of June 30, 2006, a limited number of stockholders own
approximately 51% of the Companys stock and may act, or prevent certain types of corporate actions, to the detriment of other stockholders.

The Companys directors, officers and greater than 5% stockholders own, as of June 30, 2006, approximately 51 million shares the Companys common stock, constituting approximately 51% of our issued
and outstanding common stock. Accordingly, these stockholders may, if they act together, exercise control over all matters requiring stockholder approval, including the election of a majority of the directors and the determination of significant
corporate actions. This concentration could also have the effect of delaying or preventing a change in control that could otherwise be beneficial to our stockholders.



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We depend on a limited number of third parties to manufacture and supply certain components of our solutions.

We rely on a limited number of sole suppliers for certain components of our solutions. We do not have long-term agreements with
these suppliers. If these parties do not perform their obligations, or if they cease to supply the components needed for our solutions, we may be unable to find other suppliers and our business would be seriously harmed. We cannot be sure that
alternative sources for these components will be available when needed, or if available, that these components will be available on commercially reasonable terms. These sole suppliers include Smart Synch, Skytel, and USA Mobility all of which supply
ReFLEX modem boards and/or ReFLEX network data for use in our remote sensor integration and monitoring services.

Although we believe that
we have access to sufficient quantities of such components as well as access to the respective networks, we have to be aware that if our agreements with these or other suppliers and manufacturers are terminated or expire, if we are unable to obtain
sufficient quantities of these products or components critical for our solutions, if the quality of these products or components is inadequate, or if the terms for supply of these products or components become commercially unreasonable, our search
for additional or alternate suppliers and manufacturers could result in significant delays, added expense and our inability to maintain or expand our customer base. Any of these events could require us to take unforeseen actions or devote additional
resources to provide our products and services and could harm our ability to compete effectively.

If wireless communications providers on which we
depend for services decide to adopt new wireless technologies, or abandon or do not continue to expand their wireless networks, our operations may be disrupted, we may lose customers and our revenues could decrease.

Currently, our solutions function on ReFLEX, GPRS and Inmarsat networks. These protocols have various coverage footprints and are intermixed in order to
provide the best service based on each particular subscribers needs. The coverage for ReFLEX is primarily North America; GPRS is the United States, Europe and Canada, while Inmarsat has world wide coverage. If wireless communications providers
abandon the protocols upon which our solutions now function in favor of other types of wireless technology, we may not be able to provide services to customers, or it may be forced to incur considerable costs in order to adapt its solutions to new
protocols. In addition, if cellular carriers do not expand their coverage areas, we will be unable to meet the needs of customers who may wish to use the Companys services outside the current cellular coverage area.

If one or more of the agreements we have with wireless communications providers is terminated and as a result, we are unable to offer solutions to customers within
a wireless communications providers coverage area, we may be unable to deliver our solutions, may lose customers, and our revenues could decrease.

Our existing agreements with wireless communications providers may, in some cases be terminated immediately upon the occurrence of certain conditions or with prior written notice. If one or more of our wireless
communications providers decides to terminate or not to renew its contract with us, we may incur additional costs relating to obtaining alternate coverage from another wireless communications provider outside of our primary coverage area, or we may
be unable to replace coverage at all, causing a complete loss of services to customers in that coverage area.

Our success depends upon our ability
to develop new solutions and enhance our existing solutions. If we cannot deliver the features and functionality that customers demand, we will be unable to retain or attract new customers.

If we are unable to develop new solutions, are unable to enhance and improve our solutions successfully in a timely manner, or fail to position and/or
price our solutions to meet market demand, we may not attract new customers, existing customers may not expand their use of our solutions, and its business and operating results will be adversely affected. If enhancements to existing solutions do
not deliver the functionality that our customer base demands, its customers may choose not to renew their agreements when they reach the end of their initial contract periods, and our business and operating results will be adversely affected. If we
cannot effectively deploy, maintain and enhance our solutions, our revenues may decrease, we may not be able to recover costs, and our competitive position may be harmed.

We depend on GPS technology owned and controlled by others. If we do not have continued access to GPS technology or satellites, we will be unable to deliver a majority of our solutions and revenues will
decrease.

A majority of our solutions rely on signals from GPS satellites built and maintained by the United States Department of
Defense. GPS satellites and their ground support systems are subject to electronic and mechanical failures and sabotage. If one or more satellites malfunction, there could be a substantial delay before they are



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repaired or replaced, if at all, our products and services may cease to function, and customer satisfaction would suffer.

In addition, the United States government could decide to discontinue operation and maintenance of GPS satellites or to charge for the use of GPS.
Furthermore, because of ever-increasing commercial applications of GPS and international political unrest, United States government agencies may become increasingly involved in the administration or the regulation of the use of GPS signals in the
future. If factors such as the foregoing affect GPS, for example by affecting the availability, quality, accuracy or pricing of GPS technology, our business will suffer.

A disruption of our services or of our software applications due to accidental or intentional security breaches may harm our reputation, cause a loss of revenues and increase corporate expenses.

Unauthorized access, computer viruses and other accidental or intentional actions could disrupt information systems or
communications networks or could adversely impact the functionality and security of our software products. We expect to incur significant costs to protect against the threat of security breaches and to alleviate problems caused by any breaches.
Currently, the wireless transmission of customers proprietary information is not protected by encryption technology. If a third party were to misappropriate our customers proprietary information or adversely impact the operations of our
customers, we could be subject to claims, litigation or other potential liabilities that could seriously harm our revenues and result in the loss of customers.

System or network failures could reduce corporate sales, increase costs or result in liability claims.

Any
disruption to our services, information systems or communications networks or those of third parties could result in the inability of our customers to receive our services for an indeterminate period of time. Our hosted solutions and related
operations depend upon our ability to maintain and protect our computer systems at data centers located in San Diego, California, and our network operations center in San Diego, California. Our services may not function properly and we may not be
able to adequately support and maintain our software products if our systems fail, if there is an interruption in the supply of power, or if there is an earthquake, fire, flood or other natural disaster, or an act of war or terrorism. Within each of
our data centers, we have fully redundant systems; however, in the event of a system or network failure, the process of shifting access to customer data from one data center to the other would be performed manually, and could result in a further
disruption of our services and our ability to adequately support and maintain software products. Any disruption to our services could cause the loss of customers or revenue, or face litigation, customer service or repair work that would involve
substantial costs and could distract management from operating the core business.

Our success depends on our ability to maintain and expand our
direct and indirect sales channels.

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

Defects or errors in our solutions could result in the cancellation of or delays in the implementation of our solutions, which would damage our
reputation and harm our financial condition.

We must develop solutions quickly to keep pace with the rapidly changing remote sensor
integration and monitoring market. Solutions that address this market are likely to contain undetected errors or defects, especially when first introduced or when new versions are introduced. We may be forced to delay commercial releases of new
solutions or updated versions of existing solutions until such errors or defects are corrected, and in some cases, we may need to implement enhancements to correct errors that were not detected until after deployment of its solutions. Even after
testing and release, our solutions may not be free from errors or defects, which could result in the cancellation or disruption of services or dissatisfaction of customers. In some cases, customers may terminate their agreements with us, without
penalty, if the solution provided does not meet the specifications agreed upon by the parties. Such contract terminations or customer dissatisfaction would damage our reputation and result in lost revenues, diverted development resources, and
increased support and warranty costs.



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We face competition from internal development teams of potential customers and from existing and potential
competitors, and if we fail to compete effectively, our ability to acquire new customers could decrease, our revenues could decline and our business could suffer.

The market for remote sensor integration and monitoring is competitive and is expected to become even more competitive in the future. If we do not compete effectively, competition could harm our business and limit our
ability to acquire new customers and grow revenues, which in turn could result in a loss of market share and decline in revenues. We believe that our solutions face competition from a number of business productivity solutions, including:



| |  |  | solutions developed internally by our prospective customers information technology staff, particularly by large customer prospects;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | discrete means of communication with mobile workers, such as pagers, two-way radios, handheld devices and cellular telephones;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | solutions designed to help companies schedule and route their mobile workers; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | solutions offered by smaller market entrants, many of which are privately held and operate on a regional basis.
| | - |  | ---------------------------------------------------------------------------------------------------------------

In addition, we believe that our solutions face competition from manufacturing companies that seek to enter the mobile resource management market, such as Trimble
Navigation and @Road.

We may also face potential competition from our current and potential alliances, such as wireless carriers, that may
develop their own solutions, develop solutions with captive and other suppliers or support the marketing of solutions of other competitors.

We also face numerous challenges associated with overcoming the following competitive factors:



| |  |  | Size and resources. Many of our current and potential competitors have access to substantially greater financial, marketing, distribution, engineering and manufacturing resources
than we do, which may enable them to react more effectively to new market opportunities and customer requirements. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer more attractive terms than we can.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Name recognition. Many of our current and potential competitors have greater name recognition and market presence than we do, which may allow them to more effectively market and
sell solutions to our current and potential customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limits of product and service offerings. Although we offer a broad range of mobile resource management solutions, a customer prospect may require functionality that we do not offer,
which may enable current and potential competitors to exploit the areas in which we do not develop solutions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer relationships. Many of our current and potential competitors have pre-existing relationships with our large customer prospects, which may allow them to more effectively
market and sell competitive remote sensor integration and monitoring solutions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As we seek to serve larger customers, we face
competition from businesses with greater financial resources and may be unable to compete effectively with these businesses.

The
existing market is competitive. Competition is particularly vigorous for larger customers, which is a customer segment we have worked to serve. We expect competition to increase further as companies develop new products and/or modify their existing
products to compete directly with our products. In addition, competitors may reduce prices to customers and seek to obtain customers through cost-cutting and other measures. To the extent these companies compete effectively with us, our business
could be adversely affected by extended sales cycles, fewer sales, and lower prices, revenue and margins.

Claims that we infringe third-party
proprietary rights could result in significant expenses or restrictions on our ability to provide our solutions.

Third parties may
claim that our current or future solutions infringe their proprietary rights or assert other claims against us. As the number of entrants into our market increases, the possibility of an intellectual property or other claim against us grows. Any
intellectual property or other claim, with or without merit, would be time-consuming and expensive to litigate or settle and could divert managements attention from our core business. As a result of such a dispute, we may have to pay damages,
incur substantial legal fees, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at



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all. Any of these results would increase our expenses and could decrease the functionality of our solutions, which would make our solutions less attractive
to current or potential customers. We have agreed in some of our agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties.

If our customers do not have access to sufficient capacity on reliable wireless networks, we may be unable to deliver services, our customers
satisfaction could decline and revenues could decrease.

Part of the Companys ability to grow and obtain profitability depends
on the ability of wireless carriers to provide sufficient network capacity, reliability and security to customers. Even where wireless carriers provide coverage to entire metropolitan areas, there are occasional lapses in coverage, for example due
to tunnels blocking the transmission of data to and from wireless modems used with our solutions. These effects could make our services less reliable and less useful, and customer satisfaction could suffer.

Under the terms of our customer contracts for our hosted solutions, once the contract period expires, a customer may terminate our services with little or no
notice.

Our customer contracts for hosted solutions typically provide for a contract period of one to five years. Under the terms
of a typical contract, a customer will often be subject to a termination fee if it chooses to terminate the contract before the contract period expires. Once the contract period has expired, and unless a customer has executed a new contract, the
terms of the contract will remain in force on a month-to-month basis, allowing the customer to terminate the contract by giving very short notice and without incurring any termination fee. The termination of a significant number of customer
contracts or customer contracts providing a material portion of our revenues could cause its business to suffer and adversely affect its financial results.

The production or reporting of inaccurate information could cause the loss of customers and expose us to legal liability.

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

We depend on recruiting and retaining qualified personnel, and our inability to do so may result in a loss in sales, impair our ability to effectively manage core operations or impair our ability to develop and support corporate
solutions.

Because of the technical nature of our solutions and the market in which we compete, our success depends on the
continued services of our current executive officers and our ability to attract and retain qualified personnel with expertise in wireless communications, GPS technologies, hosted software applications, transaction processing and the Internet.
Competitors and others have recruited our employees in the past and may attempt to do so in the future. In addition, new employees generally require substantial training, which requires significant resources and management attention. Even if we
invest significant resources to recruit, train and retain qualified personnel, there can be no assurances that we will be successful in our efforts.

From time to time, we may be subject to litigation that could result in significant costs.

From time to time, we may
be subject to litigation in the ordinary course of business relating to any number or type of claims, including claims for damages related to errors and malfunctions of products and services or their deployment. A securities, product liability,
breach of contract, or other claim could seriously harm our business because of the costs of defending the lawsuit, diversion of employees time and attention, and potential damage to our reputation. Some of our agreements with customers,
suppliers and other third parties contain provisions designed to limit exposure to potential claims. Limitation of liability provisions contained in our agreements may not be enforceable under the laws of some jurisdictions. As a result, we could be
required to pay substantial amounts of damages in settlement or upon the determination of any of these types of claims. Although we carry general liability and directors and officers insurance, corporate insurance may not cover potential claims or
may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liabilities that may be imposed.

Government regulations and standards could subject us to increased regulation, increase our costs of operations or reduce our opportunities to earn revenue.

In addition to regulations applicable to businesses in general, we may also be subject to direct regulation by United States governmental agencies,
including the Federal Communications Commission, Department of Defense,



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Department of Commerce or the State Department. These regulations may impose licensing requirements, privacy safeguards relating to certain subscriber
information, or safety standards, for example with respect to human exposure to electromagnetic radiation and signal leakage. A number of legislative and regulatory proposals under consideration by federal, state, provincial, local and foreign
governmental organizations may lead to laws or regulations concerning various aspects of the Internet, wireless communications and GPS technology, including on-line content, user privacy, taxation, access charges and liability for third-party
activities. Additionally, it is uncertain how existing laws governing issues such as taxation on the use of wireless networks, intellectual property, libel, user privacy and property ownership will be applied to our solutions. The adoption of new
laws or the application of existing laws may expose us to significant liabilities and additional operational requirements, which could decrease the demand for its solutions and increase its cost of doing business. Wireless communications providers
who supply us with airtime are subject to regulation by the Federal Communications Commission, and regulations that affect them could also increase our costs or limit its ability to provide solutions.

Geopolitical, economic and military conditions, including terrorist attacks and other acts of war, may materially and adversely affect the markets on which our
common stock trades, the markets in which we operate, our operations and our profitability.

Terrorist attacks and other acts of
war, and any response to them, may lead to armed hostilities and such developments would likely cause instability in financial markets. Armed hostilities and terrorism may directly impact our facilities, personnel and operations which are located in
the United States as well as those of our customers and suppliers. Furthermore, severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for solutions.
These developments could have a material adverse affect on our business and the trading price of our common stock.

Our stock price is volatile,
which may cause you to lose money and could lead to costly litigation against us and management that could divert corporate resources.

From time to time, stock markets experience dramatic price and volume fluctuations, particularly for shares of technology companies. These fluctuations can be unrelated to the operating performance of these companies. Broad market
fluctuations may reduce the market price of our common stock and cause you to lose some or all of your investment. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive
nature and growth rate of our business and the remote sensor integration and monitoring market, the market price of our common stock may rise and fall in response to:



| |  |  | quarterly variations in operating results;
| | - |  | ------------------------------------------



| |  |  | failure to achieve operating results anticipated by securities analysts and investors;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | changes in estimates of the Companys financial performance or changes in recommendations by securities analysts;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | announcements of technological or competitive developments;
| | - |  | -----------------------------------------------------------



| |  |  | the gain or loss of a significant customer or order;
| | - |  | ----------------------------------------------------



| |  |  | disposition of shares of the Companys common stock held by large investors; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | acquisitions or strategic alliances by us or the Companys competitors.
| | - |  | -----------------------------------------------------------------------

When the market price of a companys stock drops significantly, stockholders often institute securities class action lawsuits against that company. A lawsuit against us could cause us to incur substantial costs
and could divert the time and attention of the Companys management and other corporate resources from general business operations.

Our
quarterly operating results are subject to fluctuations, and our stock price may decline if we do not meet the expectations of investors and analysts.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside its control. These factors include,
but are not limited to:



| |  |  | changes in the market for remote sensor integration and monitoring solutions;
| | - |  | -----------------------------------------------------------------------------



| |  |  | delays in market acceptance or implementation of the Companys solutions by customers;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | changes in length of sales cycles of, or demand by, the Companys customers for existing and additional solutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in the productivity of the Companys distribution channels;
| | - |  | -------------------------------------------------------------------



| |  |  | introduction of new solutions by us or the Companys competitors;
| | - |  | -----------------------------------------------------------------



| |  |  | changes in the Companys pricing policies or those of its competitors or suppliers;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | changes in the Companys mix of sources of revenues;
| | - |  | ----------------------------------------------------



| |  |  | general economic and political conditions;
| | - |  | ------------------------------------------



| |  |  | wireless networks, positioning systems and Internet infrastructure owned and controlled by others; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | any need to migrate to new wireless networks, which could cause the Companys solutions to be incompatible with new wireless networks or become out of date.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys expense levels are based, in part, on its expectation of future revenues. Additionally, a substantial
portion of its expenses are relatively fixed. As a result, any shortfall in revenues relative to the Companys expectations could cause significant changes in its operating results from quarter to quarter. Because of the size of our operations,
the presence or absence of a single large order or expense can have a significant result on quarterly results. As a result, you should not rely on the Companys quarterly revenues and operating results to predict the Companys future
performance. Its operating results have been, and in some future quarters operating results may be, below the expectations of public market analysts and investors and, as a result, the price of the Companys common stock may fall.



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

(a) 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.

Under
the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2006, the design and operation of such disclosure controls and procedures were effective.

(b) Changes In Internal Controls Over Financial Reporting. No changes were made in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.

(c) Limitations On Disclosure Controls And Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with



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policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.

PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In the course of our business,
we have 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 our management, the ultimate
liability for any legal claims currently pending or threatened against us will not have a material adverse affect on our financial position, results of operations or cash flows.

In our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 as filed with the Securities and Exchange Commission on
April 19, 2006 and our Quarterly Report on Form 10-QSB for the period ended March 31, 2006, as amended and filed with the Securities and Exchange Commission on July 13, 2006, we reported that prior to being acquired by the Company,
Satellite filed suit against a former supplier, Manconix, Inc. f/k/a Arrow Manufacturing, Inc. for breach of contract and conversion and Manconix, Inc. brought a countersuit against the Company. We have reached a Confidential Settlement Agreement
with Manconix providing for the resolution of both cases and the disputes that gave rise to the litigation. The Confidential Settlement Agreement will result in our making payments to Manconix. The full amount of these payments has been accrued as
an accrued liability in our balance sheet for the period ended June 30, 2006.

In our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2005 as filed with the Securities and Exchange Commission on April 19, 2006 and our Quarterly Report on Form 10-QSB for the period ended March 31, 2006, as amended and filed with the Securities and Exchange
Commission on July 13, 2006, we reported that a suit was filed by Jay B. Ross and Protocol Electronics, Inc. against Celtron International, Inc, (now known as Satellite Security Corporation) its former officers and directors, former
independent accountants and attorneys. During the quarter ended June 30, 2006, the Company answered the complaint. Management believes this action to be without merit, and the Company intends to vigorously defend the action.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

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. Aston is an accredited investor as such term is defined
in Rule 501 of Regulation D of the Securities Act of 1933, as amended (the Act) the conversion and sale of the is a transaction exempt from registration pursuant to Rule 506 of Regulation D of the Act.

On May 19, 2006 we entered into a $540,000 Promissory Note with Double U Master Fund L.P., an unrelated third party investor. In connection with the
issuance of the Promissory Note, we issued to the investor warrants to purchase an aggregate of 540,000 shares of common stock at an exercise price of $.25 per share. The warrants are exercisable on or before May 19, 2009. Double U Master Fund,
L.P. has represented to the Company that it qualifies as an accredited investor as such term is defined in Rule 501 of Regulation D of the the Act, and the offer and sale of the $540,000 Promissory Note and Warrants to Double U Master Fund L.P. is a
transaction exempt from registration pursuant to Rule 506 of Regulation D of the Act.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None



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

On April 19, 2006 a Written Consent in Lieu of an Annual Meeting of Stockholders was executed with holders of 53% of the outstanding common stock voting in favor of the following actions: (i) electing a board of four directors to
hold the office during the ensuing year or until their respective successors are elected and qualified, (ii) changing the Companys name to Satellite Security Corporation, (iii) increasing the Companys authorized shares of
common stock from 100,000,000 shares to 250,000,000, (iv) authorize 10,000,000 shares of blank check preferred stock, (v) adopting the Companys 2006 Equity Incentive Plan. An Information Statement on Schedule 14-C
containing additional information with respect to each of these proposals was filed with the Securities and Exchange Commission on May 1, 2006.



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|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K
|------- | --------------------------------

Each exhibit
identified below is filed as a part of this report.



|           |  |                                                                                                                                                      
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                          
|4.1        |  | Form of Class A Common Stock Purchase Warrant for July 2006 private placement.(1)                                                                    
|           | 
|4.2        |  | Form of Class B Common Stock Purchase Warrant for July 2006 private placement.(1)                                                                    
|           | 
|4.3        |  | Form of Secured Convertible Promissory Note for July 2006 private placement.(1)                                                                      
|           | 
|4.4        |  | Form of Subscription Agreement for July 2006 private placement.(1)                                                                                   
|           | 
|4.5        |  | Form of Security Agreement for July 2006 private placement.(1)                                                                                       
|           | 
|4.6        |  | Form of Guaranty for July 2006 private placement.(1)                                                                                                 
|           | 
|4.7        |  | Form of Escrow Funds for July 2006 private placement.(1)                                                                                             
|           | 
|4.8        |  | Form of Collateral Agent Agreement for July 2006 private placement.(1)                                                                               
|           | 
|10.1       |  | Employment Agreement dated as of May 19, 2006 between the Company and John Phillips regarding Mr. Phillips engagement as Chief Executive Officer.(2)
|           | 
|10.2       |  | Note Conversion and Lock Up Agreement dated as of July 9, 2006 between the Company and The Aston Organization, Ltd.                                  
|           | 
|10.3       |  | Employment Agreement dated as of July 14, 2006 between the Company and Aidan Shields regarding Mr. Shields engagement as Chief Financial Officer.(1)
|           | 
|31.1       |  | Certification of Periodic Report by the Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                          
|           | 
|31.2       |  | Certification of Periodic Report by the Principal Accounting Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                     
|           | 
|32.1       |  | Certification of Periodic Report by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                           
|           | 
|32.2       |  | Certification of Periodic Report by the Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      



|(1) | Previously filed with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on July 18, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(2) | Previously filed with the Companys Quarterly Report on Form 10-QSB for the period ended March 31, 2006, filed with the Securities and Exchange Commission on May 22,
2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the three month period ended June 30, 2006, we filed the following current reports on Form 8-K with the
Securities and Exchange Commission:

On June 9, 2006, we filed a report on Form 8-K with respect to the voluntary resignation of
Kenneth Dixon from our Board of Directors.



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On May 22, 2006, we filed an amendment to a report on Form 8-K/A to update our Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 6, 2006 related to the public shell merger with Satellite Security Systems, Inc. The amendment was filed to provide the information required by Form 10-SB applicable to
shell companies, and to include financial statements for Satellite Security Systems, Inc.

On May 2, 2006, we filed a report on Form
8-K with respect to the appointment of John Phillips as Chief Executive Officer of the Company effective May 1, 2006 and the resignation of Ken Dixon as Chief Executive Officer effective May 1, 2006, and the resignation of Randall Smith as
Chief Financial Officer effective April 27, 2006.



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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: August 11, 2006



30