**Table
          of Contents**





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-QSB**




x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      quarterly period ended: **August
      31, 2006**




o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT





For
      the
      transition period from __________ to ___________





Commission
      file number: 000-32475





**ASTRATA
      GROUP INCORPORATED**


(Name
      of
      small business issuer in its charter)






NEVADA
            
            84-1408762(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)1801
                CENTURY PARK EAST, SUITE 1830, LOS ANGELES, CALIFORNIA
            
            90067-2320(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number (310) 282-8646





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, par value $0.0001


(Title
      of
      class)





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 x No o





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





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of September 30 2006: 13,781,818





Transitional
      Small Business Disclosure Format (Check One): Yes o No x





**Table
        of Contents**









**TABLE
      OF CONTENTS**





PagePart
                I - Financial InformationItem
                1
            Financial
                Statements (Unaudited)Condensed
                Consolidated Balance Sheet as of August 31,
                2006
            F-1Condensed
                Consolidated Statements of Operations and
                Comprehensive Loss for the three and six months ended August 31,
                2006 and
                2005
            F-2Condensed
                Consolidated Statements of Cash Flows for the six
                months ended August 31, 2006 and 2005
            F-3Notes
                to Condensed Consolidated Financial
                Statements
            F-4Item
                2
            Management’s
                Discussion and Analysis or Plan of
                Operation
            1Item
                3
            Controls
                and Procedures
            10Part
                II - Other InformationItem
                1
            Legal
                Proceedings
            11Item
                1A
            Risk
                Factors
            11Item
                2
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            13Item
                3
            Defaults
                upon Senior Securities
            13Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            13Item
                5
            Other
                Information
            13Item
                6
            Exhibits
            14




-i-
 **Table
          of Contents**




**PART
      I - FINANCIAL INFORMATION**





**Item
      1: Condensed Consolidated Financial Statements
      (Unaudited)**





These
      unaudited condensed consolidated financial statements have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and the Securities and Exchange
      Commission (the “SEC”) instructions to Form 10-QSB. In the opinion of
      management, all adjustments considered necessary for a fair presentation, which
      (except where stated otherwise) consisted only of normal recurring adjustments,
      have been included. Operating results for the interim period ended August 31,
      2006 are not necessarily indicative of the results anticipated for the entire
      fiscal year ending February 28, 2007. This report should be read in conjunction
      with the Company’s February 28, 2006 annual report on Form 10-KSB filed with the
      SEC on July 18, 2006.


-ii-
 **Table
          of Contents**


ASTRATA
                  GROUP INCORPORATED AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED BALANCE SHEET(UNAUDITED)AUGUST
                  31, 2006


ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            71,480Trade
                and other receivables, net
            
            
            919,112Inventories
            
            
            173,523Deferred
                financing costs, net
            
            
            79,410Other
                assets
            
            
            173,470Current
                assets held for sale
            
            
            204,308Total
                current assets
            
            
            1,621,303Property
                and equipment, net
            
            
            670,608Goodwill
            
            
            300,000Investment
                in and advances to affiliate
            
            
            88,146Total
                assets
            
            $
            2,680,057LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                liabilities:Accounts
                payable
            
            $
            4,862,269Salaries
                and benefits payable to officers and directors
            
            
            1,723,743Registration
                rights penalties
            
            
            885,500Derivative
                warrant liability
            
            
            423,600Interest
                payable
            
            
            738,535Income
                taxes payable
            
            
            6,401Notes
                payable to stockholders
            
            
            1,884,000Advances
                from stockholders
            
            
            603,860Liabilities
                related to assets held for sale
            
            
            644,273Current
                portion of long-term liabilities
            
            
            1,124,139Other
                current liabilities
            
            
            302,306Total
                current liabilities
            
            
            13,198,626Debenture,
                net
            
            
            412,142Long-term
                liabilities
            
            
            19,122Other
                liabilities related to assets held for sale
            
            
            36,449Total
                liabilities
            
            
            13,666,339Minority
                interest
            
            
            33,579Commitments
                and contingenciesStockholders'
                deficit:Preferred
                stock, $0.0001 par value, 10,000,000 sharesauthorized,
                none issued or outstanding
            
            
            —Common
                stock, $0.0001 par value, 40,000,000 sharesauthorized,
                13,343,707 shares issued and outstanding
            
            
            1,332Additional
                paid-in capital, net
            
            
            14,670,765Deferred
                compensation cost
            
            
            (152,625
            )Accumulated
                deficit
            
            
            (25,506,656
            )Accumulated
                other comprehensive loss
            
            
            (32,677
            )Total
                stockholders' deficit
            
            
            (11,019,861
            )Total
                liabilities and stockholders' deficit
            
            $
            2,680,057


See
      accompanying notes to these condensed consolidated financial
      statements.


F-1
 **Table
          of Contents**


ASTRATA
                  GROUP INCORPORATED AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                  (LOSS)FOR
                  THE THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005(UNAUDITED)




THREE
                MONTHS
            
            SIX
                MONTHS2006
            
            2005
            
            2006
            
            2005Net
                sales
            
            $
            912,868
            
            $
            954,632
            
            $
            1,339,206
            
            $
            1,409,870Cost
                of goods sold
            
            
            670,888
            
            
            791,352
            
            
            975,576
            
            
            1,047,879Gross
                profit
            
            
            241,980
            
            
            163,280
            
            
            363,630
            
            
            361,991Other
                selling, general and administrative expenses
            
            
            1,696,873
            
            
            1,786,635
            
            
            3,237,889
            
            
            3,766,869Research
                and development
            
            
            —
            
            
            280,401
            
            
            —
            
            
            284,965Stock-based
                compensation
            
            
            265,238
            
            
            —
            
            
            728,946
            
            
            —Operating
                (loss)
            
            
            (1,720,131
            )
            
            (1,903,756
            )
            
            (3,603,205
            )
            
            (3,689,843
            )Other
                income (expense):Interest
                expense
            
            
            (206,699
            )
            
            (100,865
            )
            
            (435,589
            )
            
            (595,507
            )Change
                in fair value of derivative warrant liability
            
            
            22,000
            
            
            —
            
            
            306,996
            
            
            —Loss
                on sale of assets
            
            
            (2,346
            )
            
            —
            
            
            (2,346
            )
            
            —Other
                income (expense)
            
            
            32,789
            
            
            (21,938
            )
            
            33,105
            
            
            (21,295
            )Total
                other (expense)
            
            
            (154,256
            )
            
            (122,803
            )
            
            (97,834
            )
            
            (616,802
            )(Loss)
                before minority interest and provision for income taxes
            
            
            (1,874,387
            )
            
            (2,026,559
            )
            
            (3,701,039
            )
            
            (4,306,645
            )Income
                tax provision
            
            
            —
            
            
            —
            
            
            —
            
            
            —(Loss)
                before minority interest
            
            
            (1,874,387
            )
            
            (2,026,559
            )
            
            (3,701,039
            )
            
            (4,306,645
            )Minority
                interest
            
            
            335
            
            
            (12,863
            )
            
            —
            
            
            6,774Equity
                in net (loss) of affiliate
            
            
            (7,067
            )
            
            —
            
            
            (18,828
            )
            
            —Net
                (loss) from continuing operations
            
            
            (1,881,119
            )
            
            (2,039,422
            )
            
            (3,719,867
            )
            
            (4,299,871
            )Income
                (loss) on discontinued operations, net of tax
            
            
            1,420,370
            
            
            (515,974
            )
            
            489,196
            
            
            (1,039,261
            )Net
                (loss)
            
            $
            (460,749
            )
            $
            (2,555,396
            )
            $
            (3,230,671
            )
            $
            (5,339,132
            )Comprehensive
                (loss) andits
                components consist of the following:Net
                (loss)
            
            $
            (460,749
            )
            $
            (2,555,396
            )
            $
            (3,230,671
            )
            $
            (5,339,132
            )Foreign
                currency translationadjustment,
                net of tax
            
            
            (50,843
            )
            
            (62,448
            )
            
            (32,677
            )
            
            (227,504
            )Comprehensive
                (loss)
            
            $
            (409,906
            )
            $
            (2,617,844
            )
            $
            (3,263,348
            )
            $
            (5,566,636
            )(Loss)
                per common share basic and diluted:Continuing
                operations
            
            $
            (0.14
            )
            $
            (0.17
            )
            $
            (0.29
            )
            $
            (0.36
            )Discontinued
                operations
            
            
            0.11
            
            
            (0.04
            )
            
            0.04
            
            
            (0.09
            )$
            (0.03
            )
            $
            (0.21
            )
            $
            (0.25
            )
            $
            (0.45
            )Weighted
                average common shares outstanding:Basic
                and diluted
            
            
            13,080,970
            
            
            12,284,492
            
            
            12,920,103
            
            
            11,999,048


See
      accompanying notes to these condensed consolidated financial
      statements.


F-2
 **Table
          of Contents**


ASTRATA
                  GROUP INCORPORATED AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF CASH
                  FLOWSFOR
                  THE SIX MONTHS ENDED AUGUST 31, 2006 AND 2005(UNAUDITED)


2006
            
            2005CASH
                FLOW FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (2,940,399
            )
            $
            (5,339,130
            )Adjustments
                to reconcile net loss to netcash
                provided by (used in) operating activities:Gain
                on sale of property and equipment
            
            
            (7,394
            )
            
            (4,814
            )Gain
                on forgiveness of debt
            
            
            (2,645,536
            )
            
            —Depreciation
                and amortization
            
            
            266,270
            
            
            459,999Impairment
                of assets
            
            
            930,998
            
            
            —Amortization
                of deferred compensation cost
            
            
            200,250
            
            
            187,500Amortization
                of deferred finance costs and debt discount
            
            
            (58,383
            )
            
            416,025Issuance
                of stock for services
            
            
            38,252
            
            
            74,375Issuance
                of stock options for compensation
            
            
            728,945
            
            
            —Equity
                in net loss of affiliate
            
            
            18,828
            
            
            (3,669
            )Minority
                interest
            
            
            —
            
            
            (6,774
            )Deferred
                income taxes
            
            
            —
            
            
            (39,706
            )Unrealized
                foreign currency exchange gain
            
            
            (16,922
            )
            
            (69,690
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            753,061
            
            
            (1,822,417
            )Inventories
            
            
            1,712,370
            
            
            174,690Other
                assets
            
            
            84,951
            
            
            129,753Accounts
                payable and accrued liabilities
            
            
            1,722,244
            
            
            2,032,438Taxes
                payable
            
            
            6,401
            
            
            —Deferred
                tax liability
            
            
            (14,893
            )
            
            —Net
                cash provided by and (used in) operating activities
            
            
            779,043
            
            
            (3,811,420
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property and equipment
            
            
            4,295
            
            
            (394,114
            )Proceeds
                from sale of assets
            
            
            36,978
            
            
            14,899Investment
                in affiliates
            
            
            (142,026
            )
            
            47,419Cash
                of acquired company
            
            
            (47,592
            )
            
            —Net
                cash used in investing activities
            
            
            (148,345
            )
            
            (331,796
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Repayment
                of bridge loan
            
            
            —
            
            
            (1,500,000
            )Repayment
                of long term liabilities
            
            
            (279,298
            )
            
            (35,013
            )Proceeds
                from long term liabilities
            
            
            —
            
            
            54,012Lines
                of credit, net
            
            
            (1,149,790
            )
            
            1,305,774Proceeds
                from note payable to stockholders
            
            
            —
            
            
            200,000Proceeds
                from advances by stockholders
            
            
            731,017
            
            
            333,655Proceeds
                from issuance of common stock
            
            
            —
            
            
            3,073,234Net
                cash (used in) and provided by financing activities
            
            
            (698,071
            )
            
            3,431,662Effect
                  of foreign currency exchange rate changeson cash and cash
                  equivalents
            
            
            (297,679
            )
            
            (75,025
            )Net
                (decrease) in cash and cash equivalents
            
            
            (365,052
            )
            
            (786,579
            )Cash
                and cash equivalents at beginning of period
            
            
            436,532
            
            
            1,281,064Cash
                and cash equivalents at end of period
            
            $
            71,480
            
            $
            494,485Cash
                paid during the period for:Interest
            
            $
            —
            
            $
            140,194Income
                taxes
            
            $
            —
            
            $
            —




See
                the accompanying notes for information on non-cash investing and
                financing
                activities.See
                accompanying notes to these condensed consolidated financial
                statements




F-3
 **Table
          of Contents**




ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**1.
      ORGANIZATION AND NATURE OF OPERATIONS**





***Organization***




Astrata
      Group Incorporated (“Astrata Group”) and subsidiaries (sometimes hereinafter
      collectively referred to as the “Company,” “we,” and “our”) currently operates
      exclusively in the Telematics sector of the
      Global Positioning System (“GPS”) industry. Until June 2006, the Company also
      operated in the Geomatics sector of the GPS industry; see Note 8 for additional
      information regarding this segment. Our expertise is focused on advanced location-based IT products and services that
      combine positioning, wireless communications, and information technologies
      and
      add measurable
      value to location-based information . Telematics
      comprises the remote monitoring of assets in real-time (including tracking
      and
      tracing) whereby location, time and sensor status are communicated. We
      provide advanced
      positioning products, as well as monitoring and airtime services to commercial
      and governmental entities in a number of markets including homeland security,
      public safety, transportation services and construction.





Examples
      of our products and services include positioning and IT technology for remote
      asset management and associated telematics products, field data collection
      equipment, and products and airtime communications services for high volume
      track and trace applications. Positioning technologies employed by us include
      GPS and inertial navigation systems. Communication techniques employed by us
      include GSM (“Global System for Mobile Telecommunications”) cellular and
      satellite communications.





Telematics
      products often focus on people and assets in hostile and demanding environments
      such as monitoring the movement of hazardous materials for homeland security
      purposes. This business also addresses the market for fleet management,
      workforce management, remote asset management and tracking, and emergency
      services by providing hardware for GPS information and data collection, as
      well
      as the software needed to access and analyze the data through the Internet.
      We
      offer airtime to communicate data from the vehicle or field location to the
      customer’s data center or provide access over the Internet to the data and
      application software. This allows critical real-time performance and monitoring
      data to be accessed and analyzed by supervisory, maintenance, or financial
      users
      and make real-time decisions for productivity improvement, cost reductions,
      safety improvement, or other critical decisions to be fed to the
      field.





***Liquidity
      and Going Concern Considerations***





For
      the
      six months ended August 31, 2006, we had a net loss of approximately $3.2
      million and positive cash flow from operating activities of approximately $0.2
      million. In addition, we had an accumulated deficit and negative working capital
      of approximately $25.5 million and $11.6 million, respectively, as of August
      31,
      2006. Because of the Company’s financial condition, our independent public
      accountants included a going concern paragraph in their audit report on our
      February 28, 2006 consolidated financial statements. The going concern paragraph
      states that there is substantial doubt about the Company’s ability to continue
      as a going concern. Such financial statements and the accompanying condensed
      consolidated financial statements have been prepared assuming that the Company
      will continue as a going concern (based upon management’s plans discussed
      herein) which contemplates, among other things, the realization of assets and
      satisfaction of liabilities in the ordinary course of business. Accordingly,
      the
      aforementioned financial statements do not include any adjustments related
      to
      the recoverability and classification of asset carrying amounts or the amount
      and classification of liabilities that might result, should the Company be
      unable to continue as a going concern.





In
      the
      first quarter of fiscal 2007, management revised our business plan to focus
      on
      the more developed markets in Europe, South East Asia and North America. As
      our
      core strategic direction is now to focus on the telematics market rather than
      the geomatics market, the Company entered into discussions regarding the sale
      of
      the geomatics business. The sale of this business and the winding down of our
      remaining South African operations (see Note 10 for additional information
      regarding these two events) will yield annual savings of approximately $5.8
      million, or 41% of the Company’s annual selling, general and administrative
      expenses with an associated headcount reduction of over 120 members of staff,
      a
      Company-wide reduction of about 60%. The
      Company has recently concluded a convertible preference share offering that
      has
      yielded $4 million in equity disclosed elsewhere herein the condensed
      consolidated financial statement Note 11.


F-4
 **Table
          of Contents**


ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**1.
      ORGANIZATION AND NATURE OF OPERATIONS** (continued)





The
        Company’s capital requirements depend on numerous factors, including the rate of
        market acceptance of the Company’s products and services, the Company’s ability
        to service its customers, the ability to maintain and expand our customer
        base,
        the level of resources required to expand the Company’s marketing and sales
        organization, finance research and development activities and other factors.
        As
        more fully explained elsewhere herein, management presently believes that
        cash
        generated from operations, the October 2006 equity transaction (which yielded
        net proceeds of approximately $1.6 million, and reduced debt by $1.5 million),
        the October 2006 restructuring and partial repayment of other notes payable
        (see
        Note 11 for additional information regarding these two transactions), the
        Company’s current credit facilities, and the debt and/or equity financing
        proposals now under consideration, will be sufficient to meet the Company’s
        anticipated liquidity requirements for the near future.




Management
      is projecting growth in telematics sales during fiscal 2007, and has announced
      a
      single sales order in this sector valued at approximately $17 million.
      Additional major contracts are under negotiation (see Note 11), but at this
      time
      there can be no assurances regarding the ultimate success of these negotiations.
      In order for us to fund our operations and continue this growth plan,
      substantial additional funding will be required from external sources.





**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES**




The
      significant accounting policies presented below are designed to assist in
      understanding the Company’s condensed consolidated financial statements. Such
      financial statements and these notes are the representation of the Company’s
      management, who is responsible for their integrity and objectivity. In the
      opinion of management, these accounting policies conform to accounting
      principles generally accepted in the United States of America (“GAAP”) in all
      material respects, and have been consistently applied in preparing the
      accompanying condensed consolidated financial statements.





The
      accounting policies described in the following paragraphs should be read in
      conjunction with the Company’s February 28, 2006 annual report on Form 10-KSB
      (filed with the SEC on July 18, 2006), which includes all of the Company’s
      significant accounting policies.




***Principles
      of Consolidation***





The
      condensed consolidated financial statements include the accounts of Astrata
      Group and its majority-owned subsidiaries in which it has a controlling
      financial interest. All significant intercompany transactions and balances
      have
      been eliminated in consolidation. For reasons explained in the “Deconsolidation
      and Effective Disposition of Astrata Systems” section of Note 10, management
      deconsolidated the accounts of Astrata Systems (Pty) Limited (“Astrata Systems”)
      from the Company’s condensed consolidated financial statements effective June
      2006.




***Use
      of Estimates***





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Significant estimates made by management include
      current and deferred income taxes, the deferred tax asset valuation allowance,
      allowance for doubtful accounts, and realization of inventories and long-lived
      assets. Actual results could differ from these estimates.





***Concentrations***





The
      financial instrument that potentially exposes the Company to a concentration
      of
      credit risk principally consists of cash. The Company deposits its cash with
      high credit financial institutions, principally in Europe and Asia. These
      countries do not have any institutional depository insurance comparable to
      the
      United States, which insures bank balances up to $100,000 per bank. At August
      31, 2006, the Company’s bank balances approximated $71,000. The Company had
      approximately $12,000 in bank accounts in the U.S., which is covered by the
      Federal Deposit Insurance Corporation limit of $100,000.





The
      Company does not require collateral from its customers, but performs ongoing
      credit evaluations of its customers’ financial condition. Credit risk with
      respect to the accounts receivable is limited because of the large number of
      customers included in the Company’s customer base and the geographic dispersion
      of those customers. The Company also performs periodic reviews of collectability
      and provides an allowance for doubtful accounts receivable. Management considers
      the allowance for doubtful accounts receivable at August 31, 2006 of
      approximately $19,000 to be adequate.


F-5
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Inventories***





Inventories
      are stated at the lower of cost (first-in, first-out) or estimated market,
      and
      consist of only finished goods at August 31, 2006. Market is determined by
      comparison with recent sales or estimated net realizable value. Net realizable
      value is based on management’s forecasts for sales of the Company’s products and
      services in the ensuing years and/or consideration and analysis of any change
      in
      the customer base, product mix, or other factors that may impact the estimated
      net realizable value. Should the demand for the Company’s products and/or
      services prove to be significantly less than anticipated, the ultimate
      realizable value of the Company’s inventories could be substantially less than
      reflected in the accompanying condensed consolidated balance sheet.




***Property
      and Equipment***





Property
      and equipment are stated at cost, and are being depreciated using the
      straight-line method over the estimated useful lives of the assets, which
      generally range from three to seven years. Leasehold improvements are amortized
      on a straight-line basis over the shorter of the estimated useful lives of
      the
      assets or the remaining lease terms. Maintenance and repairs are charged to
      expense as incurred. Significant renewals and betterments are capitalized.
      At
      the time of retirement, other disposition of property and equipment or
      termination of a lease, the cost and accumulated depreciation or amortization
      are removed from the accounts and any resulting gain or loss is reflected in
      results of operations.





***Deferred
      Financing Costs***





Direct
      costs of securing debt financing are capitalized and amortized over the term
      of
      the related debt using the straight-line method. When a loan is paid in full,
      any unamortized financing costs are removed from the related accounts and
      charged to operations. During the quarter ended August 31, 2006, the Company
      recorded approximately $9,000 of finance charges in relation to the unamortized
      portion of deferred financing costs for certain debt that was
      refinanced.




***Goodwill
      and Other Intangible Assets***





Statement
      of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other
      Intangible Assets”, addresses how intangible assets that are acquired
      individually or with a group of other assets should be accounted for upon their
      acquisition and after they have been initially recognized in the financial
      statements. SFAS No. 142 requires that goodwill and identifiable intangible
      assets that have indefinite lives not be amortized but rather be tested at
      least
      annually for impairment, and intangible assets that have finite useful lives
      be
      amortized over their estimated useful lives. SFAS No. 142 provides specific
      guidance for testing goodwill and intangible assets that will not be amortized
      for impairment, and expands the disclosure requirements about intangible assets
      in the years subsequent to their acquisition.





For
      additional information, see the discussion in “Long-Lived Assets” immediately
      below.




***Long-Lived
      Assets***





SFAS
      No.
      144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to be Disposed of” addresses financial accounting and reporting for the
      impairment or disposal of long-lived assets. SFAS 144 requires that long-lived
      assets be reviewed for impairment whenever events or changes in circumstances
      indicate that their carrying amount may not be recoverable. If the cost basis
      of
      a long-lived asset is greater than the projected future undiscounted net cash
      flows from such asset, an impairment loss is recognized. Impairment losses
      are
      calculated as the difference between the cost basis of an asset and its
      estimated fair value.





As
      of
      August 31, 2006, management has determined that no new impairment indicators
      exist and therefore, no adjustments have been made to the carrying values of
      long-lived assets held for sale or held and used. There can be no assurance,
      however, that market conditions will not change or demand for the Company’s
      services and products will continue which could result in impairment of
      long-lived assets in the future.





Long-lived
      assets (including goodwill) that have not been reported as “held for sale” at
      August 31, 2006 are being held and used as of that date.


F-6
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Discontinued
      Operations***





In
      accordance with SFAS No. 144, the Company accounts for the results of operations
      of a component of an entity that has been disposed of or that meets all of
      the
“held for sale” criteria as discontinued operations if (a) the component’s
      operations and cash flows have been (or are to be) eliminated from the ongoing
      operations of the entity as a result of the disposal transaction and (b) the
      Company did not have any significant continuing involvement in the operations
      of
      the component after the disposal transaction. When the applicable criteria
      are
      met, the component is classified as “held for sale” and its operations are
      reported as discontinued operations (See Note 10).





The
      accompanying condensed consolidated statements of operations for the quarter
      and
      six months ended August 31, 2005 have been reclassified to separately report
      the
      discontinued operations discussed above.




***Revenue
      Recognition***





*General*





Except
      as
      described in "Contract Accounting" below, the Company's revenues are recorded
      in
      accordance with the SEC’s Staff Accounting Bulletin No. 104, "Revenue
      Recognition." The Company recognizes revenue when persuasive evidence of an
      arrangement exists, delivery has occurred, the fee is fixed or determinable,
      and
      collectability is reasonably assured. In instances where final acceptance of
      the
      product is specified by the customer or is uncertain, revenue is deferred until
      all acceptance criteria have been met.





*Sales
      as a Distributor*





Contracts
      and customer purchase orders are generally used to determine the existence
      of an
      arrangement. Shipping documents (and customer acceptance criteria, when
      applicable) are used to verify delivery. The Company assesses whether the fee
      is
      fixed or determinable based on the payment terms associated with the
      transaction, and whether the sales price is subject to refund or adjustment.
      The
      Company assesses collectability based primarily on the creditworthiness of
      the
      customer as determined by credit checks and analysis, as well as the customer's
      payment history.





In
      the
      Company’s Telematics operations, orders are generally shipped free-on-board
      shipping point, which means that such orders are recognized as revenue when
      the
      product is delivered to the carrier (shipped). Free-on-board shipping point
      also
      means that the customer bears all costs and risks of loss or damage to the
      goods
      prior to their receipt.





*Contract
      Accounting*





The
      Company accounted for the government contract described in Note 7 under AICPA
      Statement of Position ("SOP") 81-1 using the percentage-of-completion method.
      Product delivery and installation were separate deliverables under the terms
      of
      the contract, and the related revenue was not recognized until the necessary
      activities were completed. Under SOP 81-1 accounting, the stage of completion
      is
      estimated by whichever of the following methods is considered most indicative
      of
      the physical completion under the circumstances of the specific transaction:
      a
      survey of the work performed, services completed as a percentage of total
      services required by the agreement, or costs incurred to date as a percentage
      of
      management's most recent estimate of total costs to be incurred under the
      related contract or other agreement. Amounts which are billable under the terms
      of a contract may not reflect earned revenue under this accounting policy.
      Thus,
      invoiced amounts that have not been earned are reported as a liability in the
      Company's consolidated balance sheet.





** *Services
      Revenue*





Our
      Telematics business has a technical team responsible for effecting installations
      and upgrades, and training clients on installation and supporting them on an
      ongoing basis. We do not earn revenue for training or software/firmware
      upgrades, but we do charge for non-warranty repairs and installation; however,
      this revenue is not material.


F-7
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)




***Revenue
      Recognition*** **** (continued)





*Other
      Matters*





Revenue
      from distributors and resellers is recognized upon delivery, assuming that
      all
      other criteria for revenue recognition have been met. Distributors and resellers
      do not have the right of return.





Customer
      incentive bonuses and other consideration received or receivable directly from
      a
      vendor for which the Company acts as a reseller are accounted for as a reduction
      in the price of the vendor's products or services. When such incentive is
      pursuant to a binding arrangement, the amount received or receivable is deferred
      and amortized on a systematic basis over the life of the
      arrangement.





***Research
      and Development Costs***





Research
      and development costs relating to GPS positioning hardware and software systems
      (including the Astrata “Geo-Location Platform”) to be sold or otherwise marketed
      that are incurred before technological feasibility of the product has been
      established and after general release of the product to customers are expensed
      as incurred. Management believes that technological feasibility is not
      established until a beta version of the software product exists. Historically,
      costs incurred during the period from when a beta version is available until
      general release to the public have not been material. Accordingly, the Company
      has not capitalized any software development costs.





The
      Company did not incur any research and development expenses during the quarter
      ended August 31, 2006.




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





Effective
      March 1, 2006, the Company adopted the provisions of SFAS No. 123-R,
“Share-Based Payment,” (“SFAS No. 123-R”). SFAS No. 123-R
      requires employee stock options and rights to purchase shares under stock
      participation plans to be accounted for under the fair value method and requires
      the use of an option pricing model for estimating fair value. Accordingly,
      share-based compensation is measured at the grant date, based on the fair value
      of the award. The Company previously accounted for awards granted under its
      equity incentive plan under the intrinsic value method prescribed by Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to
      Employees,” and related interpretations, and provided the required pro forma
      disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based
      Compensation,” as amended. The exercise price of options is equal to the market
      price of the Company’s common stock (defined as the closing price as quoted on
      the Over-the-Counter Bulletin Board administered by Nasdaq) on the date of
      grant. Accordingly, no share-based compensation was recognized in the financial
      statements prior to March 1, 2006.




Under
      the
      modified prospective method of adoption for SFAS No. 123-R, the
      compensation cost recognized by the Company beginning March 1, 2006 includes
      (a) compensation cost for all equity incentive awards granted prior to, but
      not yet vested as of March 1, 2006, based on the grant-date fair value
      estimated in accordance with the original provisions of SFAS No. 123, and
      (b) compensation cost for all equity incentive awards granted subsequent to
      February 28, 2006, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS No. 123-R.




Options
      granted by the Company generally expire five years from the grant date. Options
      granted to existing and newly hired employees generally vest over a three-year
      period from the date of grant. The effects of share-based compensation resulting
      from the application of SFAS No. 123-R to options granted under the
      Company’s equity incentive plan resulted in an expense of approximately $265,000
      for the quarter ended August 31, 2006 and $729,000 for the six months ended
      August 31, 2006. This expense was recorded as stock compensation in the
      accompanying August 31, 2006 condensed consolidated statements of
      operations.





Share-based
      compensation recognized as a result of the adoption of SFAS No. 123-R as
      well as pro forma disclosures according to the original provisions of SFAS
      No. 123 for periods prior to the adoption of SFAS No. 123-R use the
      Black-Scholes option pricing model for estimating fair value of options granted
      under the Company’s equity incentive plan.


F-8
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)




***Stock-Based
      Compensation*** (continued)





The
      following table summarizes the effect of share-based compensation resulting
      from
      the application of SFAS No. 123-R to options granted under the Company’s
      equity incentive plan:




**Three
                  Months Ended**
              
              **Six
                  Months Ended****August
                  31, 2006**
              
              **August
                  31, 2006**General
                  and administrative
              
              $
              (265,239
              )
              $
              (728,946
              )Net
                  share-based compensation effect on net loss fromcontinuing
                  operations
              
              $
              (265,239
              )
              $
              (728,946
              )Basic
                  and diluted loss per common share
              
              $
              (0.02
              )
              $
              (0.06
              )


In
      accordance with SFAS No. 123-R, the Company adjusts share-based
      compensation on a quarterly basis for changes to the estimate of expected award
      forfeitures based on actual forfeiture experience. The effect of adjusting
      the
      forfeiture rate for all expense amortization after February 28, 2006 is
      recognized in the period the forfeiture estimate is changed. The effect of
      forfeiture adjustments in the second quarter of fiscal 2007 was
      insignificant.





Pro
      forma
      information required under SFAS No. 123 for periods prior to fiscal 2007 as
      if the Company had applied the fair value recognition provisions of SFAS No.
      123
      to options granted under the Company’s equity incentive plan was as
      follows:




**Three
                  Months Ended**
              
              **Six
                  Months Ended****August
                  31, 2005**
              
              **August
                  31, 2005**Net
                  loss as reported
              
              $
              (2,555,396
              )
              $
              (5,339,130
              )Stock-based
                  employee compensation expense determinedunder
                  the Black-Scholes option pricing model, net of tax
              
              
              —
              
              
              (59,767
              )Pro
                  forma net loss
              
              $
              (2,555,396
              )
              $
              (5,398,897
              )Basic
                  and diluted loss per common share:As
                  reported
              
              $
              (0.21
              )
              $
              (0.44
              )Pro
                  forma
              
              $
              (0.21
              )
              $
              (0.45
              )


The
      table
      immediately above includes compensation expense related to stock options granted
      to employees during fiscal 2006 and 2005. Pro forma compensation expense
      reported in the above table is generally based on the vesting provisions in
      the
      related stock option grants.




The
      following weighted average assumptions were used as applicable in the above
      tables:




**Six
                  Months Ended August 31,****2006**
              
              **2005**Annual
                  dividends
              
              
              Zero
              
              
              ZeroExpected
                  volatility
              
              
              133
              %
              
              140
              %Risk
                  free interest rate
              
              
              3.7
              %
              
              3
              %Expected
                  life
              
              
              3.5
                  years
              
              
              3.0
                  years


F-9
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)




***Stock-Based
      Compensation*** (continued)





The
      expected volatility is based on the historical volatility. The expected life
      of
      options granted is based on the “simplified method” described in the SEC’s Staff
      Accounting Bulletin No. 107 due to changes in the vesting terms and contractual
      life of current option grants compared to the Company’s historical
      grants.




Options
      outstanding that have vested and are expected to vest as of August 31, 2006
      are
      as follows:




**Weighted****Weighted**
              
              **Average****Average**
              
              **Remaining**
              
              **Aggregate****Number
                  of**
              
              **Exercise**
              
              **Contractual**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **Term
                  in Years**
              
              **Value
                  (a)**Vested
              
              
              391,583
              
              $
              3.19
              
              
              3.6
              
              $
              18,333Expected
                  to vest
              
              
              833,167
              
              
              3.19
              
              
              3.6
              
              
              41,667Total
              
              
              1,224,750
              
              
              
              
              
              
              
              $
              60,000


*(a)*
            *These
                amounts represent the difference between the exercise price and $1.40,
                the
                closing market price of the Company’s common stock on August 31, 2006
                as quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the
                symbol “ATTG” for all in-the-money options
                outstanding.*





Options
      outstanding that are expected to vest are net of estimated future forfeitures
      in
      accordance with the provisions of SFAS No. 123-R, which are estimated when
      compensation costs are recognized. Additional information with respect to stock
      option activity is as follows:




**Outstanding Options****Shares**
                
                
                
                **Weighted**
                
                **Aggregate****Available for**
                
                **Number of**
                
                **Average**
                
                **Intrinsic****Grant**
                
                **Shares**
                
                **Exercise Price**
                
                **Value (b)****February
                    28, 2006**
                
                
                602,850
                
                
                1,797,150
                
                $
                3.76
                
                $
                450,000Grants
                
                
                
                
                
                —
                
                
                —Exercises
                
                
                
                
                
                —
                
                
                —Cancellations
                
                
                572,400
                
                
                (572,400
                )
                
                5.00**August 31,
                    2006**
                
                
                1,175,250
                
                
                1,224,750
                
                $
                3.19
                
                $
                60,000Options
                    exercisable at:February
                    28, 2006
                
                
                
                
                
                482,383
                
                $
                3.76August 31,
                    2006
                
                
                
                
                
                391,583
                
                $
                3.19





*(b)*
            *Represents
                the difference between the exercise price and the February 28, 2006
                or
                August 31, 2006 market price of the Company’s common stock.*





***Recently
      Issued Accounting Pronouncements***





Except
      as
      described below, in the opinion of management neither the Financial Accounting
      Standards Board (including its Emerging Issues Task Force), the American
      Institute of Certified Public Accountants nor the SEC have issued any accounting
      pronouncements since the Company filed its February 28, 2006 Form 10-KSB that
      are believed by management to have a material impact on the Company’s present or
      future consolidated financial statements.





In
      June
      2006, the Financial Accounting Standards Board (the “FASB”) issued FASB
      Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109.” This interpretation clarifies the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements in accordance with SFAS No. 109,


F-10
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**2.**
            **CERTAIN
                SIGNIFICANT ACCOUNTING POLICIES**(continued)





***Recently
      Issued Accounting Pronouncements*** **** (continued)





“Accounting
      for Income Taxes.” FIN No. 48 prescribes a more-likely-than-not recognition
      threshold and a measurement attribute for the financial statement recognition
      and measurement of tax positions taken (or expected to be taken) in an income
      tax return. It also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition. The
      requirement to assess the need for a valuation allowance on net deferred tax
      assets is not affected by FIN No. 48. This pronouncement is effective for fiscal
      years beginning after December 31, 2006. Management is in the process of
      evaluating this guidance, and therefore has not yet determined the impact (if
      any) that FIN No. 48 will have on the Company’s financial position or results of
      operations upon adoption.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
      defines fair value, establishes a framework for measuring fair value in GAAP,
      and expands disclosures about fair value measurements. SFAS No. 157 simplifies
      and codifies related guidance within GAAP, but does not require any new fair
      value measurements. The guidance in SFAS No. 157 applies to derivatives and
      other financial instruments measured at estimated fair value under SFAS No.
      133,
      (“Accounting for Derivative Instruments and Hedging Activities”) and related
      pronouncements. SFAS No. 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years. Management does not expect the adoption of SFAS No. 157 to have
      a
      significant effect on the Company’s financial position or results of
      operations.





**3.** **INVENTORY**





Inventories
      consisted of the following as of August 31, 2006:




Europe
            
            Asia
            
            TotalRaw
                materials
            
            $
            —
            
            $
            —
            
            $
            —Work
                in progress
            
            
            —
            
            
            —
            
            
            —Finished
                goods
            
            
            3,682
            
            
            169,841
            
            
            173,523Totals
            
            $
            3,682
            
            $
            169,841
            
            $
            173,523




**4.
      NOTES PAYABLE TO STOCKHOLDERS**





During
      the quarter ended May 31, 2006, the Company received working capital loans
      from
      a stockholder of approximately $351,000. The loans are repayable on demand
      and
      carry an annual interest rate of 15%.





During
      the quarter ended August 31, 2006, the Company received a working capital loan
      from a stockholder of approximately $10,000. The loan is repayable on demand
      and
      carries an annual interest rate of 15%.





During
      the quarter ended August 31, 2006, the Company received a working capital loan
      from a stockholder of approximately $391,000. The loan is repayable on demand
      and carries an annual interest rate of 15%.





**5.
      OTHER DEBT TRANSACTIONS**





***Debt
      Financing Transaction***




In
      October 2005, the Company completed a private placement financing transaction
      and agreed to issue secured convertible notes payable to a group of accredited
      investors in the total amount of $2,170,000. The Company received $700,000
      in
      cash on October 7, 2005, and $500,000 on November 22, 2005. The remaining
      $550,000 of net proceeds were placed in an escrow account; in connection with
      the transaction described in the “10/13/06 Equity Financing Transaction” section
      of Note 11, these funds have been returned to the investors. These notes
      payable, which were due in October and November 2008, were convertible into
      shares of the Company’s common stock at the holder's option at a price of not
      less than $0.78 per share. In connection with the October 2005 transaction,
      the
      Company also issued five-year warrants to purchase a total of 480,000 shares
      of
      its common stock at an initial exercise price of $3.00 per
      share.


F-11
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**5.
      OTHER DEBT TRANSACTIONS** (continued)





***Debt
      Financing Transaction*** (continued)





In
      connection with the above, the creditors/warrant holders (hereinafter
      collectively referred to as "the investors") in the October 2005 debt financing
      transaction (the "debt financing transaction") had certain registration rights
      for the common stock underlying both the warrants and the convertible debt.
      See
      Note 7 for a discussion of accounting for the contractual financial penalties
      associated with the investors' registration rights.





As
      more
      fully described in Note 11, the debt financing transaction was restructured
      in
      October 2006.





***Redeemable
      Preferred Stock of Subsidiary***





In
      a
      prior year, Astrata South Africa (Pty) Limited (sometimes hereinafter referred
      to as “Astrata SA”) issued redeemable preferred stock as part of the purchase
      price in acquiring Astrata Systems. Management concluded that, for accounting
      purposes, such stock was considered “mandatorily” redeemable; as a result, the
      aforementioned preferred stock has been reported as a liability in the Company’s
      consolidated financial statements since February 28, 2005. Because of their
      resignation as employees of Astrata SA, in fiscal 2006 the owners of the
      preferred stock described above forfeited preferred stock with a carrying value
      of approximately $443,000.




In
      August
      2006, in connection with the sale of Astrata SA’s Geomatics operations (see Note
      10), the preferred stockholders agreed to accept a lesser amount in full
      satisfaction of the remaining liability. As a result, the Company recorded
      a
      gain on debt extinguishment of approximately $323,000 during the quarter ended
      August 31, 2006. Such gain has been reported as an element of income from
      discontinued operations in the accompanying condensed consolidated statements
      of
      operations.





***Other
      Matters***




Because
      of the debt financing transaction referenced above and the transaction described
      in the “10/13/06 Equity Financing Transaction” section of Note 11, the exercise
      prices of certain warrants outstanding at February 28, 2006 have been reduced
      pursuant to anti-dilution contractual requirements. As a result of the same
      transaction, the conversion prices of the $1.5 million convertible note payable
      to a stockholder issued in September 2004 (as amended in November 2004) and
      a
      $384,000 convertible note payable issued to the same stockholder in December
      2004 have been reduced pursuant to anti-dilution contractual
      requirements.





The
      combined effect of the adjustments described in the preceding paragraph and
      of
      similar adjustments relating to previous transactions is summarized as
      follows:




**Exercise
                  or Conversion****Price
                  Per Share****Original**
              
              **Adjusted****Amount**
              
              **Amount**48,000
                  warrants outstanding at February 28, 2005
              
              $
              2.00
              
              $
              1.39580,148
                  warrants outstanding at February 28, 2005
              
              
              5.00
              
              
              2.991,043,106
                  warrants issued in April/May 2005
              
              
              3.50
              
              
              2.22Other
                  warrants issued after February 28, 2005:108,196
                  warrants
              
              
              5.00
              
              
              2.994,955
                  warrants
              
              
              3.50
              
              
              2.22$1,884,000
                  of convertible debt outstanding at February 28, 2006
              
              
              5.00
              
              
              2.99


F-12
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**6.
      EQUITY TRANSACTIONS**





During
      the quarter ended May 31, 2006, the Company issued 169,600 shares of its common
      stock to satisfy a liability for services provided by consultants. Such shares
      were valued at approximately $343,000 (estimated to be the fair value based
      on
      the trading price on the issuance date). The transaction described in this
      paragraph constituted an exempt offering under Section 4(2) of the Securities
      Act of 1933, as amended (the “Securities Act”).





During
      the quarter ended May 31, 2006, the Company issued 25,000 shares of its common
      stock in exchange for services provided by consultants. Such shares were valued
      at approximately $38,000 (estimated to be the fair value based on the trading
      price on the issuance date, with a 15% discount from the market price). Such
      amount was recorded as compensation expense and included in other selling,
      general and administrative expenses in the accompanying condensed consolidated
      statement of operations. The transaction described in this paragraph constituted
      an exempt offering under Section 4(2) of the Securities Act.




During
      the quarter ended August 31, 2006, the Company issued 273,902 shares of its
      common stock to satisfy a liability for services provided by consultants. Such
      shares were valued at approximately $437,000 (estimated to be the fair value
      based on the trading price on the issuance date). The transaction described
      in
      this paragraph constituted an exempt offering under Section 4(2) of the
      Securities Act.




During
      the quarter ended August 31 2006, the Company also issued 198,210 shares of
      its
      common stock in exchange for services provided by consultants. Such shares
      were
      valued at approximately $165,000 (estimated to be the fair value based on the
      trading price on the issuance date, with a 15% discount from the market price).
      The transactions described in this paragraph constituted exempt offerings under
      Section 4(2) of the Securities Act.




**7.
      OTHER COMMITMENTS AND CONTINGENCIES**




***Legal
      Matters***





From
      time
      to time, the Company may be involved in various claims, lawsuits, disputes
      with
      third parties, actions involving allegations of discrimination or breach of
      contract incidental to the ordinary operations of the business. The Company
      is
      not currently involved in any litigation which management believes could have
      a
      material adverse effect on the Company's financial position or results of
      operations.





***Operating
      Leases***





The
      Company occupies facilities under operating lease agreements expiring on various
      dates through August 2011. Certain leases include future rental escalations
      and
      renewal options. As of August 31, 2006, minimum payments under operating leases
      approximated the following for the fiscal years ending February 28/29 listed
      below:




2008
              
              $
              61,7942009
              
              
              44,5602010
              
              
              42,1722011
              
              
              42,172Thereafter
              
              
              3,514$
              194,212


Rent
      expense approximated $59,000 and $409,000 for the six months ended August 31,
      2006 and August 31, 2005, respectively.


F-13
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**7.
      OTHER COMMITMENTS AND CONTINGENCIES** (continued)





***Government
      Contract***





In
      December 2004, a subsidiary of the Company was awarded a fixed-price contract
      to
      provide the Singapore government's Civil Defense Force (the "SCDF") with
      software and hardware in an integrated control system designed to provide
      real-time tracking (the "System") of vehicles that are authorized to transport
      hazardous materials within the country. The contract amount approximates 2.0
      million Singapore dollars, or about $1.2 million as of August 31, 2005 (the
      "Contract"). The Company recognized revenue on the Contract of approximately
      $0.3 million and $0.5 million, respectively, during the three and six- month
      periods ended August 31, 2005. The Company did not recognize any revenue on
      the
      Contract during the six months ended August 31, 2006.




In
      the
      opinion of management, the Contract was completed on or before September 30,
      2005 (the required contractual completion date) in accordance with its terms.
      Thus, it is not presently expected that the Company will be assessed any
      liquidated damages (which are limited to 10% of the Contract price) for late
      completion. SCDF has the right to withhold the final 10% of the Contract price
      (the “retention”) until approximately sixteen months after the System has
      completed certain acceptance tests specified in the Contract; such tests were
      successfully completed in late December 2005; as of August 31, 2006, the Company
      had not collected the retention. The Company is obligated to warrant the System
      for a one-year period beginning approximately fourteen weeks after the System
      has passed all of the aforementioned acceptance tests. The time frames described
      in the preceding two sentences assume that the "performance guarantee period"
      (as defined) is not extended beyond the original time specified in the
      Contract.





SCDF
      also
      has the right to audit all of the Company's subsidiaries which provided goods
      or
      services under the Contract in order to ensure that there was appropriate
      internal control and compliance with the terms of the Contract.





***Registration
      Rights Penalties***





The
      Company is contractually liable for certain penalties because its registration
      statement (on Form SB-2) was not declared effective by the SEC by the deadline
      dates. Based on the current estimate of the effective date of such registration
      statement and the effectiveness-date contractual deadline, as of August 31,
      2006
      the Company has accrued estimated penalties of approximately $885,500 relating
      to the October 2005 debt financing transaction discussed in Note 5 and the
      April/May 2005 sale of equity units.





See
      the
“Restructuring of the October 2005 Debt Financing Transaction” section of Note
      11 for additional information regarding certain matters discussed in the
      preceding paragraph.


**8.
      SEGMENT REPORTING AND GEOGRAPHIC INFORMATION**





Until
      June 2006, the Company operated in the following two reportable
      segments:





*Geomatics*





Products,
      accessories and services related to the business of measurement and setting
      out
      (i.e. Survey, Mapping and Geographic Information Systems) and precise position
      monitoring (such as scanning excavations and industrial plants). Also included
      within this segment are the machine guidance products, accessories and services
      related to the business of guiding, controlling and monitoring machinery,
      including mobile machinery such as graders, dump trucks and drills as well
      as
      agricultural products which have tractor and crop-spraying guidance in
      them.





The
      Company exited the Geomatics segment in June 2006; see Note 10 for information
      about assets held for sale and related liabilities in connection with
      discontinued operations.





*Telematics*





Products,
      accessories and services related to the business of remote monitoring of assets
      (including track-and-trace) whereby position, attributes, status and
      communication are involved.


F-14
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**8.
      SEGMENT REPORTING AND GEOGRAPHIC INFORMATION** (continued)





*Telematics* (continued)





Because
      of the discontinued operations described in the Note referenced in “Geomatics”
immediately above, revenues (from continuing operations) reported in the
      accompanying condensed consolidated statements of operations relate exclusively
      to the Company’s Telematics operations. Thus, management has not reported the
      segment information otherwise required by SFAS No. 131, “Disclosures about
      Segments of an Enterprise and Related Information.”





Certain
      condensed geographic information is presented below including property and
      equipment, revenues, gross profit (loss) and operating loss:




For
                  the three months ended August 31, 2006:Property
                  and
              
              
              
              Gross
              
              Operating
              
              OperatingEquipment,
                  net
              
              Revenue
              
              Profit
                  (Loss)
              
              Expenses
              
              (Loss)Asia
              
              $
              530,302
              
              $
              742,983
              
              $
              254,318
              
              $
              267,594
              
              $
              (13,276
              )United
                  States
              
              
              —
              
              
              —
              
              
              —
              
              
              912,480
              
              
              (912,480
              )Western
                  Europe
              
              
              140,306
              
              
              169,885
              
              
              (12,338
              )
              
              782,037
              
              
              (794,375
              )Total
              
              $
              670,608
              
              $
              912,868
              
              $
              241,980
              
              $
              1,962,111
              
              $
              (1,720,131
              )
  For
                the three months ended August 31, 2005:Property
                  and
              
              
              
              Gross
              
              Operating
              
              OperatingEquipment,
                  net
              
              Revenue
              
              Profit
              
              Expenses
              
              (Loss)Asia
              
              $
              416,439
              
              $
              758,616
              
              $
              158,467
              
              $
              395,911
              
              $
              (237,444
              )United
                  States
              
              
              4,106
              
              
              —
              
              
              —
              
              
              738,265
              
              
              (738,265
              )Western
                  Europe
              
              
              341,201
              
              
              196,016
              
              
              4,813
              
              
              932,860
              
              
              (928,047
              )Total
              
              $
              761,746
              
              $
              954,632
              
              $
              163,280
              
              $
              2,067,036
              
              $
              (1,903,756
              )
  For
                the six months ended August 31, 2006:Property
                  and
              
              
              
              Gross
              
              Operating
              
              OperatingEquipment,
                  net
              
              Revenue
              
              Profit
                  (Loss)
              
              Expenses
              
              (Loss)Asia
              
              $
              530,302
              
              $
              1,107,871
              
              $
              426,325
              
              $
              693,252
              
              $
              (266,927
              )United
                  States
              
              
              —
              
              
              —
              
              
              —
              
              
              2,050,067
              
              
              (2,050,067
              )Western
                  Europe
              
              
              140,306
              
              
              231,335
              
              
              (62,695
              )
              
              1,223,516
              
              
              (1,286,211
              )Total
              
              $
              670,608
              
              $
              1,339,206
              
              $
              363,630
              
              $
              3,966,835
              
              $
              (3,603,205
              )
  For
                the six months ended August 31, 2005:Property
                  and
              
              
              
              Gross
              
              Operating
              
              OperatingEquipment,
                  net
              
              Revenue
              
              Profit
              
              Expenses
              
              (Loss)Asia
              
              $
              416,439
              
              $
              1,208,722
              
              $
              359,311
              
              $
              970,721
              
              $
              (611,410
              )United
                  States
              
              
              4,106
              
              
              —
              
              
              —
              
              
              1,214,614
              
              
              (1,214,614
              )Western
                  Europe
              
              
              341,201
              
              
              201,148
              
              
              2,680
              
              
              1,866,499
              
              
              (1,863,819
              )Total
              
              $
              761,746
              
              $
              1,409,870
              
              $
              361,991
              
              $
              4,051,834
              
              $
              (3,689,843
              )


See
      Note
      3 for geographic information on inventory.


F-15
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**9.
      LOSS PER COMMON SHARE**





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted loss per common share computations for the three and six months
      ended August 31, 2006 and 2005:




Three
                  Months Ended August 31, 2006
              
              Three
                  Months Ended August 31, 2005
              
              Six
                  Months Ended August 31, 2006
              
              Six
                  Months Ended August 31, 2005Numerator
                  for basic and diluted lossper
                  common share:Net
                  loss from continuing operations charged tocommon
                  shareholders
              
              $
              (1,881,119
              )
              $
              (2,039,422
              )
              $
              (3,719,867
              )
              $
              (4,299,871
              )Total
                  net loss charged to common shareholders
              
              $
              (1,881,119
              )
              $
              (2,039,422
              )
              $
              (3,719,867
              )
              $
              (4,299,871
              )Denominator
                  for basic and diluted lossper
                  common share:Weighted
                  average number of common shares outstanding
              
              
              13,080,970
              
              
              12,284,492
              
              
              12,920,103
              
              
              11,999,048Basic
                  and diluted loss per common share:From
                  continuing operations
              
              $
              (0.14
              )
              $
              (0.17
              )
              $
              (0.29
              )
              $
              (0.36
              )Total
                  net loss
              
              
              (0.03
              )
              
              (0.21
              )
              
              (0.25
              )
              
              (0.45
              )


**10.
      DISCONTINUED OPERATIONS**





***Introduction***





In
      the
      opinion of management, the Company’s future opportunities in the GPS industry
      are principally in the Telematics sector in the Southeast Asia, Western Europe,
      and United States markets, with particular emphasis on the homeland security
      business. In combination with certain operational issues in South Africa, the
      desire to outsource manufacturing activities, and the intent to
      restructure/relocate the research and development function, management reached
      a
      decision in the first quarter of fiscal 2007 to sell the Company’s Geomatics
      operations. The Company consummated certain disposal transactions in the second
      quarter of fiscal 2007. As more fully discussed below, management placed Astrata
      Systems in liquidation during the quarter ended August 31, 2006.





Management
      believes that the Company has not incurred any material contingent liabilities
      in connection with the transactions and events described in the preceding
      paragraph or in the “Sale of Geomatics Business in South Africa” section of this
      Note. The Company did not recognize any losses for write-downs (to fair value,
      less cost to sell) of any assets related to discontinued operations during
      the
      six months ended August 31, 2006. As described in the following paragraph,
      operations reported as discontinued in the accompanying condensed consolidated
      statements of operations are not expected to generate any significant continuing
      cash flows after May 31, 2006.





Including
      “customer incentive bonuses” due from certain vendors, the Company had total
      receivables relating to discontinued Telematics operations (in South Africa)
      of
      approximately $310,000 at August 31, 2006. However, since these receivables
      have
      not been (and will not be) sold, they have been excluded from “assets held for
      sale” in the below table. Such assets have been reported as “Trade and other
      receivables, net” in the accompanying August 31, 2006 condensed consolidated
      balance sheet. While management expects to collect such receivables during
      the
      twelve months ending May 31, 2007, this does not involve any continuing
      operations; the business activity related thereto will be limited to the effort
      expended in the collection process. The collection of such receivables is a
      non-recurring event for the Company, and all of the cash will be used to pay
      liabilities that are not reported as related to assets held for sale at either
      May 31, 2006 or August 31, 2006. Thus, management has concluded that the Company
      will not have any active continuing involvement with the components that have
      been classified as discontinued operations in the accompanying condensed
      consolidated financial statements.


F-16
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**10.
      DISCONTINUED OPERATIONS** (continued)





The
      income from discontinued operations reported by the Company for the quarter
      and
      six months ended August 31, 2006 is summarized as follows:




Income
                  (Loss)From
                  DiscontinuedOperationsDisposal
                  and other non-operating transactions:Income
                  from sale of Astrata SA’s Geomatics business (see below)
              
              $
              1,484,000Gain
                  on extinguishment of liability for redeemable preferred stock of
                  subsidiary (see Note 5)
              
              
              332,000Gain
                  on relief from net liabilities resulting from the liquidation of
                  Astrata
                  Systems (see below)
              
              
              326,000Income
                  from discontinued operations for the quarter ended August 31, 2006
              
              
              2,142,000Loss
                  from discontinued operations
              
              
              (1,653,000
              )Income
                  from discontinued operations for the six-month period ended August
                  31,
                  2006
              
              $
              489,000


Over
      90%
      of Astrata SA’s revenues for the six months ended August 31, 2006 (which totaled
      approximately $3.4 million) relate to the Company’s former Geomatics operations.
      The above loss from discontinued operations incurred during the quarter ended
      May 31, 2006 includes interest expense of approximately $60,000 and severance
      pay of approximately $210,000.





***Sale
      of Geomatics Business in South Africa***





In
      a Form
      8-K filed with the SEC on June 23, 2006, the Company announced the
      following:





Astrata
      South Africa (Pty) Ltd (sometimes hereinafter referred to as the "Subsidiary")
      is a wholly owned subsidiary of the Company. The Subsidiary's primary activity
      was the marketing, sale, and service of products for the Geomatics industry,
      which the Company did not sell or support outside of Africa. As an extension
      to
      the strategic growth plan announced earlier this year, the Company has elected
      to divest the Subsidiary's Geomatics business and re-allocate its resources
      to
      the Telematics business only. This decision is supported by the Company's
      announcement on June 14, 2006 of a sales order for $17 million of Telematics
      products to a single European customer.




In
      connection with the above, as of March 28, 2006, the Subsidiary was indebted
      to
      Chesterfin (Pty) Ltd ("Chesterfin") under a line of credit in the amount of
      approximately $455,000, used primarily to support Geomatics products and sales.
      The financial obligations thereunder were secured under a general notarial
      bond
      by the Subsidiary's assets, including the assets of the Geomatics business.
      On
      March 28, 2006, Chesterfin, with the Company's concurrence, executed its
      interests in the general notarial bond and, on March 31, 2006, sold its claims
      against the Subsidiary under the bond to Trimble Navigation Limited
      ("Trimble").




Trimble
      was the Subsidiary's largest supplier of Geomatics products, and the Subsidiary
      was Trimble's largest distributor of Geomatics products in Africa.




On
      April
      24, 2006, Trimble registered its interest in the general notarial bond and
      subsequently, through a court order, affirmed its rights under such bond. As
      part of exercising those rights, Trimble agreed to transfer the Subsidiary's
      Geomatics business and certain moveable assets to Astrata Geomatics (Pty) Ltd,
      a
      newly established entity that is not affiliated with the Company.


F-17
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**10.
      DISCONTINUED OPERATIONS** (continued)





***Sale
      of Geomatics Business in South Africa*** (continued)




In
      consideration of these transactions, the Subsidiary received: (i) a credit
      in
      the amount of the outstanding balance under the Chesterfin line of credit of
      approximately $455,000 plus interest at 12.5% per annum from August 12, 2006;
      (ii) a credit of approximately $3,350,000 plus interest at 1% per month from
      the
      due date of each invoice due to Trimble; and, (iii) an assumption by the
      purchaser of all liabilities with respect to the Subsidiary's Geomatics business
      as of May 31, 2006, including trade creditors and all other obligations, but
      excluding liabilities that relate to any form of tax.





The
      transaction described immediately above was consummated on June 19,
      2006.





***Closure
      of South African Operations and Related Events***





Effective
      May 31, 2006, all of the remaining employees of Astrata Systems and Astrata
      SA
      who did not become employees of Astrata Geomatics (Pty) Limited (see above)
      were
      terminated. As more fully discussed below, on June 27, 2006 management commenced
      the formal process of liquidating Astrata Systems. Subsequent to May 31, 2006,
      the Company's then existing Telematics business operated by Astrata SA was
      sold
      (subject to certain closing conditions) to two unrelated entities. Subsequent
      to
      May 31, 2006, the Company also sold the subcontract manufacturing business
      operated by Astrata Systems to an unrelated party.





Management
      considered the transactions and events described in the preceding paragraph
      and
      in the "Sale of Geomatics Business in South Africa" section of this Note in
      (a)
      measuring the adjustment to reduce inventory to its estimated net realizable
      value and (b) reviewing the Company's intangible and other long-lived assets
      for
      possible impairment as of February 28, 2006. The matters described in the
      preceding sentence resulted in total fiscal 2006 expense of approximately $3.1
      million. See the Company’s February 28, 2006 Form 10-KSB (filed July 18, 2006)
      for additional information.





***Deconsolidation
      and Effective Disposition of Astrata Systems***





Effective
      May 31, 2006, Astrata Systems was closed and its continuing operations
      terminated. Management then voluntarily placed the entity in liquidation when
      a
      winding-up order (a “statement of affairs”) was filed in June 2006 with the
      appropriate agency in South Africa. When the statement of affairs was filed,
      Astrata Systems had an excess of liabilities to outsiders over assets (“excess
      liabilities”) with a carrying value of approximately $475,000. Based on advice
      of local counsel, management has determined that (1) Astrata Systems is no
      longer responsible for the excess liabilities and (2) neither the assets of
      Astrata Group nor any of its other subsidiaries are available to the creditors
      of Astrata Systems. Therefore, management concluded that the Company had
      effectively disposed of Astrata Systems, and the Company recorded a gain on
      debt
      extinguishment of approximately $475,000 during the quarter ended August 31,
      2006. Such gain has been reported as an element of income from discontinued
      operations in the accompanying condensed consolidated statements of
      operations.




For
      reasons explained in the preceding paragraph, the accounts of Astrata Systems
      were deconsolidated from the Company’s condensed consolidated financial
      statements effective June 2006.





***Other
      Matters***





The
      major
      classes of assets and liabilities related to discontinued operations as of
      August 31, 2006 are as follows:


F-18
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**10.
      DISCONTINUED OPERATIONS** (continued)





***Other
      Matters*** (continued)




Assets
                  Held for SaleCurrent
                  Assets
              
              Other
                  AssetsTrade
                  and other receivables
              
              $
              170,007Other
                  current assets
              
              
              34,301Other
                  assets
              
              
              
              
              $
              —Totals
              
              $
              204,308
              
              $
              —
 
 Liabilities
                  Related to Assets
                Held
                  for SaleCurrent
                  Liabilities
              
              Other
                  LiabilitiesTrade
                  and accrued payables
              
              $
              574,789Other
                  current liabilities
              
              
              69,484Long-term
                  liabilities
              
              
              
              
              $
              36,449Totals
              
              $
              644,273
              
              $
              36,449


**11.
      SUBSEQUENT EVENTS**





During
      September 2006, the Company issued 273,589 shares of its registered common
      stock
      to satisfy liabilities for services provided by suppliers and employees. Such
      shares were valued at approximately $320,000 (estimated to be the fair value
      based on the trading price on the issuance date).




During
      September 2006, the Company also issued 111,197 shares of its unregistered
      common stock in exchange for services provided by an employee. Such shares
      were
      valued at approximately $109,000 (estimated to be the fair value based on the
      trading price on the issuance date, with a 15% discount from the market price).
      The transactions described in this paragraph constituted exempt offerings under
      Section 4(2) of the Securities Act.




Subsequent
      to August 31, 2006, the Company also issued 83,325 shares of registered common
      stock (valued at approximately $108,000 based on the trading price on the
      issuance date) for the exercise of employee stock options.





***The
      10/13/06 Equity Financing Transaction***





As
      more
      fully described below, on October 13, 2006 the Company entered into certain
      equity transactions with an unrelated entity (which has represented itself
      as an
“accredited investor” as that term is defined in Regulation D of the Securities
      Act) and certain creditors. In the opinion of management - based in part on
      advice of counsel, such transactions are exempt from registration under the
      Securities Act.


F-19
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**11.
      SUBSEQUENT EVENTS** (continued)





***The
      10/13/06 Equity Financing Transaction*** (continued)





The
      Company has agreed to sell a maximum of 5.5 million shares of its Series A
      convertible preferred stock (with a par value of $0.0001 per share) and certain
      warrants to purchase its common stock for a maximum purchase price of $5.5
      million. Such preferred stock is hereinafter referred to as the “Preferred
      Stock,” which is convertible into shares of the Company’s common stock based on
      a formula (see the next paragraph) set forth in the Series A Convertible
      Preferred Stock Purchase Agreement Dated October 13, 2006 (the “Agreement”). The
      Preferred Stock has a liquidation preference of $1.00 per share (the
“Liquidation Preference Amount”), and a cumulative annual cash dividend of 8% of
      the Liquidation Preference Amount; such dividend is payable only in the event
      of
      the dissolution, liquidation or winding up of Astrata Group.





Each
      share of Preferred Stock is convertible into a number of shares of the Company’s
      common stock equal to the quotient that results from dividing $1.00 by the
      “Conversion Price.” As defined in the October 12, 2006 Certificate of
      Designation of the Relative Rights and Preferences of the Series A Convertible
      Preferred Stock of Astrata Group Incorporated (the “Certificate of
      Designation”), the Conversion Price is a maximum of $0.50 per share except for
      adjustments relating to stock splits and stock combinations. The Conversion
      Price is also subject to downward adjustment for reorganizations, mergers,
      consolidations, certain dividends and other corporate events set forth in the
      Certificate of Designation. Issuances of the Company’s common stock for reasons
      other than those described in the preceding sentence at a per-share price less
      than the then-current Conversion Price will generally trigger a downward
      adjustment of the Conversion Price, with a minimum adjusted price of $0.40
      per
      share.





Under
      the
      terms of the Agreement, the Company issued warrants to the holders of the
      Preferred Stock and agreed to issue additional warrants under certain
      conditions. Each warrant entitles the holder to purchase Company common stock
      based on a percentage of the shares of common stock issuable upon conversion
      of
      the Preferred Stock (the “Conversion Shares”). The Series A and B warrants each
      entitle the holder to purchase 75% of the Conversion Shares at an exercise
      price
      of $1.00 and $1.50 per share, respectively; such warrants vested and became
      exercisable upon issuance. The Series J Warrant permits the holder to acquire
      100% of the Conversion Shares at an exercise price of $0.50 per share, provided
      that the warrant holder has purchased Preferred Stock in a minimum amount of
      $2
      million. If the Series J warrant is exercised, the Series C and D warrants
      become exercisable and would each permit the holder to purchase 75% of the
      Conversion Shares at an exercise price of $1.00 and $1.50 per share,
      respectively. Except as explained below, these warrants expire as follows:
      the
      Series J Warrants expire in October 2007, and the other warrants expire in
      October 2011.





The
      Company has granted registration rights (the “Registration Rights Agreement”)
      for the common stock underlying both the aforementioned warrants and the
      Preferred Stock; such common stock is sometimes hereinafter collectively
      referred to as the “Registrable Securities.” Under the terms of the Registration
      Rights Agreement, the Company is required to file with the SEC a registration
      statement providing for the resale of all Registrable Securities on a continuous
      basis pursuant to Rule 415 of the Securities Act. Until such registration
      statement is declared effective by the SEC, the Registrable Securities, the
      Preferred Stock, and the related warrants are restricted securities under Rule
      144 of the Securities Act. The Registration Rights Agreement also provides
      that
      the Company will incur liquidated damages in the form of a cash penalty if
      (a)
      the aforementioned registration statement is not filed by November 12, 2006
      or
      (assuming that the registration statement receives a “full review” by the SEC)
      is not declared effective by the SEC by approximately February 12, 2007, or
      (b)
      the effectiveness of such registration statement is not continuously maintained
      until the earlier of when all the Registrable Securities have been sold or
      the
      Rule 144 restrictions relating to such securities have lapsed. Such penalty
      would also be triggered if the Company’s common stock was delisted or no longer
      quoted by the OTCBB. The penalty is 2% per month (or any portion thereof) of
      the
      holder’s initial investment in the Preferred Stock, with a maximum penalty of
      10% of the base amount.





The
      Company has also agreed to amend its Articles of Incorporation (the “Amended
      Articles”) to increase the number of shares of its authorized common stock to a
      minimum of 150% of that required to effect the conversion/exercise of all the
      Preferred Stock and related warrants. If the Amended Articles have not been
      effected by approximately January 12, 2007, the term of the warrants described
      above will increase by one year.


F-20
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**11.
      SUBSEQUENT EVENTS** (continued)





***The
      10/13/06 Equity Financing Transaction*** (continued)





On
      October 13, 2006, the Company sold 2.5 million shares of its Preferred Stock
      under the terms of the Agreement and issued Series A and B warrants for total
      consideration of $2.5 million; the net proceeds approximated $1.6 million.
      The
      Company incurred a finder’s fee of $250,000 related to this transaction; in
      addition, approximately $550,000 of the gross proceeds was used to partially
      repay the debt described in the “Debt Financing Transaction” section of Note 5.
      In connection with the October 2006 transaction, certain creditors exchanged
      $1.5 million of Company notes payable for 1.5 million shares of Preferred Stock.
      One such creditor was the Company’s chief executive officer/chief financial
      officer, who held a promissory note payable by the Company in the amount of
      $250,000. Conversion of the Preferred Stock described in this paragraph and
      exercise of all the related Series A and B warrants would result in the issuance
      of 20 million additional shares of the Company’s common stock. Based on the
      number of common shares outstanding at September 30, 2006, this would result
      in
      ownership by the current holders of Preferred Stock and the related warrants
      of
      approximately 60% of the Company’s common stock. .





***Restructuring
      of the October 2005 Debt Financing Transaction***





In
      connection with the matters described in the “October 13, 2006 Equity Financing
      Transactions” section of this Note, the Company restructured certain elements of
      its October 2005 debt financing transaction (as amended, the “debt financing
      transaction”) on October 12, 2006. As noted above, $550,000 of the proceeds from
      the aforementioned equity financing transactions was paid to the creditors
      in
      the debt financing transaction. The other significant provisions of the
      aforementioned October 2006 restructuring (the “Restructuring”) are summarized
      below.





The
      Restructuring provides that all of the original agreements documenting the
      debt
      financing transaction are terminated, and thus are no longer binding on any
      of
      the parties to such transaction. As part of the Restructuring, the Company
      issued four non-interest-bearing unsecured promissory notes payable dated
      October 12, 2006 (the “2006 notes payable”) to the creditors in the total amount
      of $1,200,000; such notes are due in three quarterly installments of $400,000
      each beginning January 15, 2007. In lieu of the $1.2 million, the
      creditors/warrant holders in the debt financing transaction (hereinafter
      collectively referred to as “the investors”) granted the Company an option to
      (a) pay $950,000 prior to December 31, 2006 and (b) issue warrants to purchase
      a
      total of 500,000 shares of the Company’s common stock with an exercise price
      equal to 120% of the five-day volume-weighted average price of the Company’s
      common stock as quoted on the OTCBB. There is no penalty for prepayment of
      the
      2006 notes payable after December 30, 2006.





In
      consideration for the investors’ waiver of any and all defaults by the Company
      relating to the debt financing transaction, the Restructuring provides that
      the
      Company will issue 500,000 shares (the “default shares”) of its restricted
      common stock to the investors.





As
      a
      result of the Restructuring (including the waiver referenced in the preceding
      paragraph), accrued registration rights penalties of approximately $390,000
      described in
      Note 7
      relating to the debt financing transaction have been extinguished. On October
      12, 2006, the Company filed a Form RW with the SEC to withdraw its registration
      statement on Form SB-2 covering the common stock underlying the warrants
      described below and the convertible notes payable issued in the debt financing
      transaction.





The
      investors have retained the five-year warrants to purchase 480,000 shares of
      the
      Company’s common stock issued in the original transaction; see the “Debt
      Financing Transaction” section of Note 7 to the Company’s February 28, 2006
      consolidated financial statements included in its Form 10-KSB for the year
      then
      ended (filed with the SEC on July 18, 2006) for additional information regarding
      such warrants.





The
      Company has also executed an agreement whereby the investors have been given
      “piggyback” registration rights (the “Agreement”) for the common stock
      underlying the warrants described in the preceding paragraph and for the default
      shares; such rights do not become effective until mid-April 2007. The Company
      will not be liable for any penalties if the registration statement filed
      pursuant to the Agreement is not filed or declared effective by any particular
      date.


F-21
 **Table
          of Contents**




ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005
 (UNAUDITED)


**11.
      SUBSEQUENT EVENTS** (continued)





**Letter
      of Intent Regarding Sales Contract**





Effective
      October 16, 2006, the Company entered into an exclusive letter of intent (“LOI”)
      valued at approximately $85 million with a Singapore-based entity for the supply
      of Astrata’s intelligent tracking systems and the associated command and control
      centers. This equipment is intended to satisfy a homeland security requirement;
      as a result, the identity of the ultimate end-user will remain confidential.





The
      buyer
      has requested that the initial shipments begin during the first quarter of
      calendar 2007, with the entire order being delivered within twelve to eighteen
      months. There can be no assurance at this time that a contract will in fact
      be
      executed as a result of the LOI. However, if and when such contract is executed,
      the Company expects to receive a significant down payment to fund the
      manufacturing requirements. Hardware manufacturing for this contract will be
      outsourced, and the Company is now in discussion with a number of major
      subcontractor manufacturers.





The
      Company has previously provided Singapore’s countrywide hazardous materials
      (“hazmat”) vehicle tracking system, which is expected to play a prominent role
      in their expanded homeland security program. As part of Singapore’s civil
      defense program, Astrata has fitted almost 1000 vehicles transporting hazardous
      materials in that country with its advanced intelligent tracking
      device.





**Settlement
      of Disputed Liability**





In
      September 2006, Astrata SA accepted an offer from a South African entity (which
      was formerly a major supplier) to settle a disputed liability with an August
      31,
      2006 balance of approximately $341,000. Under the terms of the settlement,
      except as described in the next paragraph, the vendor has agreed to accept
      the
      following in full satisfaction of such liability: (a) cash of approximately
      $42,000 (which was paid in September 2006), (b) the June 2006 sale (which was
      consummated in October 2006) of certain assets associated with Astrata SA’s
      Solaris distributorship business, including the customer list, to a third party
      (financed by the supplier and applied to Astrata SA’s liability) for
      approximately $75,000, and (c) other non-cash consideration (including the
      transfer by Astrata SA of certain MT2000 data terminal inventory, and Astrata
      SA’s acceptance of the rental fees owed to the vendor) with a total agreed-upon
      value of approximately $31,000.





If
      and
      when Astrata SA is dissolved and all of its assets are sold, the settlement
      described above is subject to upward adjustment (on a pro rata basis) to the
      extent of any cash remaining after paying all of Astrata SA’s other
      creditors.


F-22
 **Table
          of Contents**




**Item
      2: Management’s Discussion and
      Analysis**





***Overview***





The
      following discussion should be read in conjunction with the condensed unaudited
      consolidated financial statements and notes thereto of the Company appearing
      elsewhere in this report. Such financial statements have been prepared to
      reflect the Company's financial position as of August 31, 2006, together with
      the results of operations for the three and six months ended August 31, 2006
      and
      2005, and cash flows for the six months ended August 31, 2006 and 2005,
      respectively.





***Forward-Looking
      Statements***





Historical
      results and trends should not be taken as indicative of future operations.
      Management's statements contained in this report that are not historical facts
      are forward-looking statements within the meaning of Section 27A of the
      Securities Act and Section 21E of the Securities Exchange Act of 1934, as
      amended or the "Exchange Act". Actual results may differ materially from those
      included in the forward-looking statements. We intend such forward-looking
      statements to be covered by the safe-harbor provisions for forward-looking
      statements contained in the Private Securities Litigation Reform Act of 1995,
      and are including this statement for purposes of complying with those
      safe-harbor provisions. Forward-looking statements, which are based on certain
      assumptions and describe our future plans, strategies and expectations, are
      generally identifiable by use of the words "believe," "expect," "anticipate,"
      "estimate," "project," "prospects," or similar expressions. Our ability to
      predict results or the actual effect of future plans or strategies is inherently
      uncertain. Factors which could have a material adverse affect on our operations
      and future prospects on a consolidated basis include, but are not limited to:
      changes in economic conditions generally in the United States of America and
      the
      other countries in which we operate, legislative/regulatory changes, the
      political climate in the foreign countries in which we operate, the availability
      of capital, interest rates, competition, and changes in U.S. generally accepted
      accounting principles. These risks and uncertainties should be considered in
      evaluating forward-looking statements and undue reliance should not be placed
      on
      any such statements. Further information concerning us and our business,
      including additional factors that could materially affect our financial results,
      are included herein and in our other filings with the SEC.





**Company
      Overview**





***Strategic
      Direction***





Astrata's
      core objective is to be a major service provider and supplier in the Telematics
      market sector. This objective has been further refined with emphasis being
      placed on the Homeland Security and Business to Business sectors where the
      demand for complex integrated solutions is driving market growth in North
      America, Europe and South East Asia.





***Structural
      Adjustments***





During
      the six months ended August 31, 2006, a number of core structural changes were
      implemented.





These
      included decisions to:





o
            Withdraw
                from Geomatics and focus exclusively on
                Telematics;





o
            Restructure
                research and development operationally by increased outsourcing and
                geographically by transferring this function to South East
                Asia;





o
            Outsource
                all manufacturing activities;





·
            Withdraw
                from the South African telematics market where the primary demand
                related
                to "stolen vehicle recovery" as opposed to more demanding and complex
                integrated solutions.





·
            Restructure
                our Indonesian distribution arrangements with a view to minimizing
                costs.





In
      combination, these decisions also allowed Astrata to make further significant
      headcount and overhead savings by eliminating the South African selling, general
      and administrative expenses which, in fiscal 2006, amounted to $5.8 million
      or
      approximately 40% of total selling, general and administrative expenses. The
      associated headcount reductions will exceed 120 members of staff, a reduction
      of
      over 60%.


-1-
 **Table
          of Contents**




***Operational
      Considerations***





Astrata's
      Telematics operations were strengthened during the prior fiscal year by the
      addition of a number of key distribution partners in Western Europe (North
      Security; Motive Geeks) and an increased presence in South East Asia, based
      primarily on the successful delivery of the previously announced Hazmat
      ( Haz ardous Mat erials)
      Tracking Project to the Singapore Civil Defense Force.




In
      line
      with our structural realignment during the quarter ended August 31, 2006,
      Astrata entered into a number of agreements to dispose of its South African
      operations. The effective date for these transactions is June 1, 2006. South
      African based operations that were not sold by this date were closed effective
      May 31, 2006 and on June 27, 2006 Astrata Systems (Pty) Ltd was placed in
      voluntary liquidation.





***Major
      Sales Orders***





In
      June
      2006 Astrata announced the award of a sales order valued at approximately $17
      million from AST Europe Group AB for the delivery of 50,000 telematics units.
      The Company now expects this order to commence delivery during the last quarter
      of fiscal 2007.





**Homeland
      Security - Letter of Intent**





In
      an 8K
      filed with the Securities and Exchange Commission on October 18, 2006, the
      Company disclosed that:





Effective
      October 16, 2006, Astrata Group Incorporated has entered into an exclusive
      Letter of Intent valued at $85 Million from a Singapore based Company for the
      supply of Astrata's Intelligent Tracking Systems and the associated Command
      and
      control Centers. This equipment is intended to meet a Homeland Security
      requirement and as a result the ultimate end user will remain
      confidential.




The
      ultimate end user has requested that initial deliveries begin during the first
      calendar quarter of 2007 with the entire order being delivered in between twelve
      & eighteen months. Upon signature of the contract the Company expects to
      receive a significant down payment to fund the manufacturing requirements.
      Hardware manufacturing for this contract will be outsourced and the Company
      is
      now in discussions with a number of major sub-contract
      manufacturers.




**Results
      of Operations for the Three Months Ended August 31, 2006 and
      2005**





As
      disclosed elsewhere herein (see Note 10), the Company is discontinuing its
      operations and exiting South Africa. Accordingly, all South African operations
      are being reported as discontinued operations effective for the May 31, 2006
      quarter.





***Revenues***





Net
      sales
      were approximately $913,000 for the three months ended August 31, 2006; a
      decrease of approximately $42,000 compared to the three months ended August
      31,
      2005 of approximately $955,000. This reflects a 5% decline quarter to quarter.
      Astrata's core objective is to be a major service provider and supplier in
      the
      Telematics market sector. This objective has been further refined by exiting
      the
      South African based geomatics segment and focusing on the Homeland Security
      and
      Business to Business sectors where the demand for complex integrated telematics
      solutions is driving market growth in North America, Europe and South East
      Asia.





***Gross
      profits***




Gross
      profit increased approximately $79,000 to approximately $242,000 for the three
      months ended August 31, 2006 compared to the three months ended August 31,
      2005
      of approximately $163,000. Gross profits as a percentage of revenue increased
      from 17% to 27%


-2-
 **Table
          of Contents**




***Selling,
      general and administrative expenses***




Selling
      general and administrative expenses for the three months ended August 31, 2006
      were approximately $1.7 million, a decrease of approximately $0.1 million
      compared to the three months ended August 31, 2005 of approximately $1.8
      million.





In
      Asia,
      expenses for the three months ending August 31, 2006 were approximately $0.3
      million, compared to the three months ended August 31, 2005 of approximately
      $0.4 million. These expenses are primarily related to staffing, facilities
      and
      travel costs.





In
      Europe, expenses for the three months ending August 31, 2006 were approximately
      $0.6 million, a decline of approximately $0.2 million compared to the three
      months ended August, 2005 of approximately $0.8 million. These expenses are
      primarily related to staffing, facilities and travel costs. The London offices
      leased by Astrata Europe Ltd were released in May 2006.





Corporate
      expenses for the three months ending August 31, 2006 were approximately $ 0.8
      million, compared to the three months ending August 31, 2005 of approximately
      $0.6 million. Corporate expenses include public company expenses of
      approximately $0.4 million (in respect of accounting, auditing, legal fees
      and
      director fees) and administrative expenses of approximately $0.4 million
      (primarily in respect of marketing, salaries, facilities and travel
      expenses).





Research
      and Development expenses for the three months ending August 31, 2006 were nil,
      compared to the three months ending August 31, 2005 of approximately $0.3
      million.





As
      explained in Note 2 to the financial statements included elsewhere herein,
      the
      adoption of SFAS 123-R "Share-Based Payments" from March 1, 2006 resulted in
      recording a non-cash expense of approximately $0.3 million in the quarter ending
      August 31, 2006.





***Net
      Results of Operations***




Our
      operating loss was approximately $1.7 million for the three months ended August
      31, 2006 and approximately $1.9 million for the three months ended August 31,
      2005. Underlying these results the impact of SFAS No.123-R of approximately
      $0.3
      million was offset by principally by savings in research and development
      overheads.




***Interest
      expense***





Interest
      expense for the three months ended August 31, 2006 was approximately $0.2
      million as compared to $0.1 million for the quarter ended August 31,
      2005.





***Net
      Results***




We
      are
      reporting a net loss of approximately $0.5 million or $0.03 per common share
      for
      the three months ended August 31, 2006 compared to a net loss of approximately
      $2.6 million or $0.21 per common share for the three months ended August 31,
      2005. Our continuing operations resulted in a net loss of approximately $1.9
      million or $0.14 per common share for the three months ended August 31, 2006
      and
      approximately $2.0 million or $0.17 per common share for the three months ended
      August 31, 2005. Our discontinued operations resulted in a net gain of
      approximately $1.4 million or $0.11 per common share for the three months ended
      August 31, 2006 and a loss of approximately $0.5 million or $0.04 per common
      share for the three months ended August 31, 2005.


-3-
 **Table
          of Contents**




**Results
      of Operations for the Six Months Ended August 31, 2006 and
      2005**





As
      disclosed elsewhere herein (see Note 10), the Company is discontinuing its
      operations and exiting South Africa. Accordingly, all South African operations
      are being reported as discontinued operations effective for the three and six
      months ended August 31, 2006.





***Revenues***





Net
      sales
      were approximately $1.3 million for the six months ended August 31, 2006; a
      decrease of approximately $0.1 million compared to the six months ended August
      31, 2005 of approximately $1.4 million. This reflects a 7% decline quarter
      to
      quarter.





***Gross
      profits***




Gross
      profit increased approximately $2,000 to approximately $364,000 for the six
      months ended August 31, 2006 compared to the six months ended August 31, 2005
      of
      approximately $362,000. Gross profits as a percentage of revenue increased
      from
      26% to 27%.




***Selling,
      general and administrative expenses***




Selling
      general and administrative expenses for the six months ended August 31, 2006
      were approximately $3.2 million, a decrease of approximately $0.6 million
      compared to the six months ended August 31, 2005 of approximately $3.8
      million.





In
      Asia,
      expenses for the six months ending August 31, 2006 were approximately $0.7
      million, compared to the six months ended August 31, 2005 of approximately
      $1.0
      million. These expenses are primarily related to staffing, facilities and travel
      costs.





In
      Europe, expenses for the six months ending August 31, 2006 were approximately
      $1.0 million, a decline of approximately $0.9 million compared to the six months
      ended August, 2005 of approximately $1.9 million. These expenses are primarily
      related to staffing, facilities and travel costs. The London offices leased
      by
      Astrata Europe Ltd were released in May 2006.





Corporate
      expenses for the six months ending August 31, 2006 were approximately $ 1.5
      million, compared to the six months ending August 31, 2005 of approximately
      $0.9
      million. Corporate expenses include public company expenses of approximately
      $0.8 million (in respect of accounting, auditing, legal fees and director fees)
      and administrative expenses of approximately $0.7 million (primarily in respect
      of marketing, salaries, facilities and travel expenses).





Research
      and Development expenses for the six months ending August 31, 2006 were nil,
      compared to the three months ending August 31, 2005 of approximately $0.3
      million.





As
      explained in Note 2 to the financial statements included elsewhere herein,
      the
      adoption of SFAS 123-R "Share-Based Payments" from March 1, 2006 resulted in
      recording a non-cash expense of approximately $0.7 million in the six months
      ending August 31, 2006.





***Net
      Results of Operations***




Our
      operating loss was approximately $3.6 million for the six months ended August
      31, 2006 and approximately $3.7 million for the six months ended August 31,
      2005. Underlying these results, the impact of SFAS No.123-R of approximately
      $0.7 million was offset by reductions in selling, general and administrative
      overheads of approximately $0.5 million, research overheads of approximately
      $0.2 million.


***Other
        income (expense)***
 
 Interest
        expense for the six months ended August 31, 2006 was approximately $0.4 million
        as compared to $0.6 million for the six months ended August 31, 2005. Fair
        value
        adjustment for warrant liability amounted to a benefit of $0.3 million for
        the
        six months ended August 31, 2006 as compared to nil for the six months ended
        August 31, 2005.


-4-
 **Table
          of Contents**




***Net
      Results***




We
      are
      reporting a net loss of approximately $3.2 million or $0.25 per common share
      for
      the six months ended August 31, 2006 compared to a net loss of approximately
      $5.3 million or $0.45 per common share for the six months ended August 31,
      2005.
      Our continuing operations resulted in a net loss of approximately $3.7 million
      or $0.29 per common share for the six months ended May 31, 2006 and
      approximately $4.3 million or $0.36 per common share for the six months ended
      August 31, 2005. Our discontinued operations resulted in a net gain of
      approximately $0.5 million or $0.04 per common share for the six months ended
      August 31, 2006 and a loss of approximately $1.0 million or $0.09 per common
      share for the six months ended August 31, 2005.


***Liquidity
        and Capital Resources***
 
 *Balance
        Sheet Comparison of August 31, 2006 to February 28, 2006*
 
 During
        the three months ended August 31, 2006, the Company determined it would withdraw
        from Geomatics and focus exclusively on Telematics. The Geomatics business
        represents the vast majority of the revenue of Astrata South Africa (Pty)
        Ltd.
        (“ASA”). On August 31, 2006, the Company closed its subsidiary, Astrata Systems
        (Pty) Ltd., (“Systems”) and also elected to sell the remaining assets of ASA as
        discussed in Notes 10 and 11 of the condensed consolidated financial statements
        included herein. As of August 31, 2006, we have approximately $0.2 million
        in
        assets being held for sale, and approximately $0.7 million of liabilities
        being
        held for sale, which should be completing in the near future.
  For
        purposes of the matters discussed in the following two paragraphs, management
        has recast the Company’s February 28, 2006 consolidated balance sheet (included
        in the February 28, 2006 Form 10-KSB filed with the SEC on July 18, 2006)
        to
        retroactively reflect the estimated effect of assets classified as “held for
        sale” at August 31, 2006 and the related liabilities. These pro forma
        adjustments, which are for discussion purposes only, have been developed
        by
        management based on the transactions and events relating to the Company’s
        discontinued operations reported in the condensed consolidated financial
        statements (and discussed in the related notes) included elsewhere herein.
  Total
        assets decreased by approximately $4.2 million from $6.9 million as of February
        28, 2006 to $2.7 million as of August 31, 2006. The decrease is primarily
        due to
        the sale in accounts receivable of approximately $1 million, the sale of
        inventory of approximately $1.8 million, the sale of property and equipment
        of
        approximately $0.3 million, the impairment of goodwill and intangible assets
        of
        approximately $1 million, and a decrease in cash of approximately $0.4 million;
        offset by an increase in other assets of approximately $0.1
        million.
  Total
        liabilities decreased by approximately $2.6 million from approximately $16.5
        million as of February 28, 2006 to approximately $13.9 million as of August
        31,
        2006. This is primarily due to a decrease in trade accounts payable and accrued
        liabilities of approximately $2.6 million from a forgiveness of debt related
        to
        the sale of our geomatics business within South Africa.
 
 *Statement
        of Cash flow Changes*
 
 Our
        operating activities provided approximately $0.3 million in cash ending August
        31, 2006. The sale of our geomatics business with a forgiveness of debt of
        approximately $0.3 million and a gain on disposal of discontinued operations
        were the primary component of our positive operating cash flow. The net loss
        was
        offset by a number of non-cash items totaling approximately $0.9 million.
        These
        include forgiveness of debt, depreciation, amortization, impairment of assets
        and issuance of stock for services and compensation. Decreases in receivables,
        payables and inventories of approximately $4.4 million yielded a net increase
        in
        working capital of approximately $0.3 million.
  Cash
        flows from investing activities used approximately $0.1 million primarily
        to
        support investment in affiliates. Cash flows used in financing activities
        were
        increases in and advances from stockholders of approximately $0.7 million;
        offset by repayments against long-term liabilities of approximately $0.3
        million, and the net repayment in full of approximately $1.2 million on a
        line
        of credit.
  At
        August
        31, 2006, the Company had negative working capital of approximately $11.6
        million. In
        order
        for us to fund our operations and continue this growth plan, substantial
        additional funding will be required from external sources. Management currently
        intends to fund operations through a combination of equity financing and
        lines
        of credit. The Company has recently concluded a convertible preference share
        offering that has yielded $4 million in equity disclosed elsewhere herein
        the
        condensed consolidated financial statement Note 11.




-5-
 **Table
          of Contents**




***Liquidity
      and Going Concern Considerations***





The
      condensed consolidated financial statements included elsewhere herein have
      been
      prepared assuming we will continue in our present form, which contemplates,
      among other things, the realization of assets and satisfaction of liabilities
      in
      the ordinary course of business. For the six months ended August 31, 2006,
      we
      had a net loss of approximately $2.7 million and positive cash flow from
      operating activities of approximately $0.8 million. In addition, we had a
      working capital deficit of approximately $11.8 million as of August 31,
      2006.




Because
      of the Company’s financial condition, our independent public accountants
      included a going concern paragraph in their audit report on our February 28,
      2006 consolidated financial statements. The going concern paragraph states
      that
      there is substantial doubt about the Company’s ability to continue as a going
      concern. Such financial statements and the condensed consolidated financial
      statements included elsewhere herein have been prepared assuming that the
      Company will continue as a going concern (based upon management’s plans
      discussed herein) which contemplates, among other things, the realization of
      assets and satisfaction of liabilities in the ordinary course of business.
      Accordingly, the aforementioned financial statements do not include any
      adjustments related to the recoverability and classification of asset carrying
      amounts or the amount and classification of liabilities that might result,
      should the Company be unable to continue as a going concern.




In
      the
      first quarter of fiscal 2007, management revised our business plan to focus
      on
      the more developed markets in Europe, South East Asia and North America. As
      our
      core strategic direction is now to focus on the telematics market rather than
      the geomatics market, the Company entered into discussions regarding the sale
      of
      the geomatics business. The sale of this business, which was disclosed as a
      subsequent event in the February 28, 2006 Form10-KSB filed July 18, 2006, and
      the winding down of our remaining South African operations will yield annual
      savings of approximately $5.8 million, or 41% of the Company’s annual selling,
      general and administrative expenses with an associated headcount reduction
      of
      over 120 members of staff, a Company-wide reduction of about 60%.  The
      Company has recently concluded a convertible preference share offering that
      has
      yielded $4 million in equity disclosed elsewhere herein the condensed
      consolidated financial statement Note 11.




The
      Company’s capital requirements depend on numerous factors, including the rate of
      market acceptance of the Company’s products and services, the Company’s ability
      to service its customers, the ability to maintain and expand our customer base,
      the level of resources required to expand the Company’s marketing and sales
      organization, finance research and development activities and other factors.
      As
      more fully explained elsewhere herein, management presently believes that cash
      generated from operations, combined with the Company’s current credit facilities
      and the debt and/or equity financing proposals now under consideration, will
      be
      sufficient to meet the Company’s anticipated liquidity requirements through
      August 2007.




Management
      is projecting growth in telematics sales during fiscal 2007, and has already
      announced a single order in this sector valued at approximately $17
      million.




Effective
      October 16, 2006, the Company entered into an exclusive letter of intent (“LOI”)
      valued at approximately $85 million with a Singapore-based entity for the supply
      of Astrata’s intelligent tracking systems and the associated command and control
      centers. This equipment is intended to satisfy a homeland security requirement;
      as a result, the identity of the ultimate end-user will remain confidential.




Additional
      major contracts are under negotiation, but at this time there can be no
      assurances regarding the ultimate success of these negotiations. In order for
      us
      to fund our operations and continue this growth plan, substantial additional
      funding will be required from external sources.


-6-
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          of Contents**




**Subsequent
      Events**





***Common
      Stock Issuances***




During
      June and July of 2006, the Company issued 256,717 shares of its common stock
      to
      satisfy a liability for services provided by consultants. Such shares were
      valued at approximately $416,000 (estimated to be the fair value based on the
      trading price on the issuance date). The transaction described in this paragraph
      constituted an exempt offering under Section 4(2) of the Securities
      Act.




During
      June and July of 2006, the Company also issued 178,210 shares of its common
      stock in exchange for services provided by consultants. Such shares were valued
      at approximately $149,000 (estimated to be the fair value based on the trading
      price on the issuance date, with a 15% discount from the market price). The
      transactions described in this paragraph constituted exempt offerings under
      Section 4(2) of the Securities Act.





***Related
      Party Loans***





During
      the period from June 1, 2006 to July 21, 2006, Astrata Group received loans
      of
      approximately $401,000 from existing shareholders. The loans are repayable
      on
      demand and carry an annual interest rate of 15%.





***Sale
      of Geomatics Business in South Africa***





In
      a Form
      8-K filed with the SEC on June 23, 2006, the Company announced the
      following:





Astrata
      South Africa (Pty) Ltd (the "Subsidiary") is a wholly owned subsidiary of the
      Company. The Subsidiary's primary activity was the marketing, sale, and service
      of products for the Geomatics industry, which the Company did not sell or
      support outside of Africa. As an extension to the strategic growth plan
      announced earlier this year, the Company has elected to divest the Subsidiary's
      Geomatics business and re-allocate its resources to the Telematics business
      only. This decision is supported by the Company's announcement on June 14,
      2006
      of a sales order for $17 million of Telematics products to a single European
      customer (see "Major Sales Order" below). The transaction described immediately
      above was consummated on June 19, 2006.





***Closure
      of South African Operations and Related Events***




Effective
      August 31, 2006, all of the remaining employees of Astrata Systems and Astrata
      SA who did not become employees of Astrata Geomatics (Pty) Limited were
      terminated. Astrata Geomatics (Pty) Limited, a newly established entity that
      is
      not affiliated with the Company, acquired the business and certain moveable
      assets of the Subsidiary named in the preceding paragraph. On June 27, 2006,
      management commenced the formal process of liquidating Astrata Systems. The
      assets of Astrata Group and its other subsidiaries are not available to satisfy
      the liabilities of Astrata Systems, whose tangible assets were not significant
      as of June 27, 2006.




Subsequent
      to August 31, 2006, the Company's then existing Telematics business operated
      by
      Astrata SA was sold (subject to certain closing conditions) to two unrelated
      entities. Subsequent to August 31, 2006, the Company also sold the subcontract
      manufacturing business operated by Astrata Systems to an unrelated
      party.





***Major
      Sales Order***





In
      a Form
      8-K filed with the SEC on June 23, 2006, the Company announced:





On
      June
      14, 2006, the Company issued a press release to report that it received a
      purchase order from AST Europe Group AB for 50,000 Fleet Management/AVL devices
      plus associated software. The order is expected to produce revenues of
      approximately $17 million, making it the largest sales order Astrata Group
      has
      received to date. It is anticipated that delivery for all the units will be
      completed during fiscal 2007.




**Off
      Balance Sheet Arrangements**





As
      of
      August 31, 2006, there were no off balance sheet arrangements. Please refer
      to
      Note 7 (“Other Commitments and Contingencies”) to the Company’s condensed
      consolidated financial statements included elsewhere herein for additional
      information.


-7-
 **Table
          of Contents**




**Inflation**





We
      do not
      believe that inflation has had a material effect on our business, financial
      condition, or results of operations. If our costs were to become subject to
      significant inflationary pressures, we may not be able to offset fully such
      higher costs through price increases. Our inability or failure to do so could
      adversely affect our business, financial condition, and results of
      operations.




**Foreign
      Currency Exchange Rate Risk**





The
      operation of our subsidiaries in international markets results in exposure
      to
      fluctuations in foreign currency exchange rates. The potential of volatile
      foreign currency exchange rate fluctuations in the future could have a
      significant effect on our results of operations. Prior to June 2006, we
      purchased forward foreign exchange contracts to cover certain product purchase
      transactions denominated in U.S. dollars.





Our
      principal foreign currency has been the South African Rand. We translate all
      assets and liabilities at period-end exchange rates and income and expense
      accounts at average rates during the period. The Rand weakened against the
      U.S.
      Dollar by approximately 6.0% for the six months ended August 31, 2006. This
      increases both our revenue and costs as compared to previous periods. During
      the
      three months ended August 31, 2006, we also had transactions denominated in
      the
      British Pound, the Singapore Dollar, the Malaysian Ringgit, and the Brunei
      Dollar.





**Interest
      Rate Risk**





Since
      many of our credit facilities are directly based on various prime rates of
      interest, we are exposed to interest rate risk.





**Critical
      Accounting Policies**





In
      December 2001, the SEC requested that all registrants list their most "critical
      accounting policies" in the Management Discussion and Analysis. The SEC
      indicated that a "critical accounting policy" is one which is both important
      to
      the portrayal of our financial condition and results, and requires management's
      most difficult, subjective or complex judgments, often as a result of the need
      to make estimates about the effect of matters that are inherently uncertain.
      We
      believe that the following accounting policies fit this definition:





*Inventories*




Inventories
      are stated at the lower of cost (first-in, first-out) or estimated market,
      and
      consist of raw materials, work in process and finished goods. Market is
      determined by comparison with recent sales or estimated net realizable
      value.




Net
      realizable value is based on management's forecasts for sales of our products
      and services in the ensuing years and/or considerations and analysis of changes
      in the customer base, product mix, or other issues that may impact the estimated
      net realizable value. Should the demand for our products or services prove
      to be
      significantly less than anticipated, the ultimate realizable value of our
      inventories could be substantially less than reflected in the accompanying
      condensed consolidated balance sheet.





*Long-Lived
      Assets*





In
      July
      2001, the Financial Accounting Standards Board (the "FASB") issued Statement
      of
      Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
      of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No.
      144
      addresses financial accounting and reporting for the impairment or disposal
      of
      long-lived assets. SFAS 144 requires that long-lived assets be reviewed for
      impairment whenever events or changes in circumstances indicate that their
      carrying amount may not be recoverable. If the cost basis of a long-lived asset
      is greater than the projected future undiscounted net cash flows from such
      asset, an impairment loss is recognized. Impairment losses are calculated as
      the
      difference between the cost basis of an asset and its estimated fair
      value.




As
      of
      February 28, 2006, management determined that as a result of the decision to
      exit the South African market certain long-lived assets were impaired.
      Accordingly the carrying values of the related long-lived assets were reduced
      as
      of that date. As of August 31, 2006, we determined that no additional impairment
      indicators existed; thus, no adjustments have been made to the carrying values
      of long-lived assets (that are either held for sale or held and used) as of
      August 31, 206. There can be no assurance that market conditions will not change
      or demand for our services and products will continue which could result in
      further impairment of long-lived assets in the future.


-8-
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          of Contents**




*Intangible
      Assets*





SFAS
      No.
      142, "Goodwill and Other Intangible Assets" addresses how intangible assets
      that
      are acquired individually or with a group of other assets should be accounted
      for upon their acquisition and after they have been initially recognized in
      the
      consolidated financial statements. SFAS No. 142 requires that goodwill and
      identifiable intangible assets that have indefinite lives not be amortized
      but
      rather be tested at least annually for impairment, and intangible assets that
      have finite useful lives be amortized over their estimated useful lives. SFAS
      No. 142 provides specific guidance for testing goodwill and intangible assets
      that will not be amortized for impairment. In addition, SFAS No. 142 expands
      the
      disclosure requirements about intangible assets in the years subsequent to
      their
      acquisition.





*Revenue
      Recognition*





General





Except
      as
      described in "Contract Accounting" below, the Company's revenues are recorded
      in
      accordance with the SEC’s Staff Accounting Bulletin No. 104, "Revenue
      Recognition." The Company recognizes revenue when persuasive evidence of an
      arrangement exists, delivery has occurred, the fee is fixed or determinable,
      and
      collectibility is reasonably assured. In instances where final acceptance of
      the
      product is specified by the customer or is uncertain, revenue is deferred until
      all acceptance criteria have been met.





Sales
      as
      a Distributor





Contracts
      and customer purchase orders are generally used to determine the existence
      of an
      arrangement. Shipping documents (and customer acceptance criteria, when
      applicable) are used to verify delivery. The Company assesses whether the fee
      is
      fixed or determinable based on the payment terms associated with the
      transaction, and whether the sales price is subject to refund or adjustment.
      The
      Company assesses collectibility based primarily on the credit worthiness of
      the
      customer as determined by credit checks and analysis, as well as the customer's
      payment history.




In
      the
      Company’s Telematics operations, orders are generally shipped free-on-board
      shipping point, which means that such orders are recognized as revenue when
      the
      product is delivered to the carrier (shipped). Free-on-board shipping point
      also
      means that the customer bears all costs and risks of loss or damage to the
      goods
      prior to their delivery.





Contract
      Accounting





The
      Company accounted for the government contract described in Note 7 to the
      condensed consolidated financial statements included elsewhere herein under
      AICPA Statement of Position ("SOP") 81-1 using the percentage-of-completion
      method. Product delivery and installation were separate deliverables under
      the
      terms of the contract, and the related revenue was not recognized until the
      necessary activities have been completed. Under SOP 81-1 accounting, the stage
      of completion is estimated by whichever of the following methods is considered
      most indicative of the physical completion under the circumstances of the
      specific transaction: a survey of the work performed, services completed as
      a
      percentage of total services required by the agreement, or costs incurred to
      date as a percentage of management's most recent estimate of total costs to
      be
      incurred under the related contract or other agreement.





Amounts
      which are billable under the terms of a contract may not reflect earned revenue
      under this accounting policy. Thus, invoiced amounts that have not been earned
      are reported as a liability in the Company's consolidated balance
      sheet.





Services
      Revenue





Our
      Telematics segment has a technical team responsible for effecting installations
      and upgrades, and training clients on installation and supporting them on an
      ongoing basis. We do not earn revenue for training or software/firmware
      upgrades, but we do charge for non-warranty repairs and installation; however,
      this revenue is not material.





Other
      Matters





Revenue
      from distributors and resellers is recognized upon delivery, assuming that
      all
      other criteria for revenue recognition have been met. Distributors and resellers
      do not have the right of return.




Customer
      incentive bonuses and other consideration received or receivable directly from
      a
      vendor for which the Company acts as a reseller are accounted for as a reduction
      in the price of the vendor's products or services. When such incentive is
      pursuant to a binding arrangement, the amount received or receivable is deferred
      and amortized on a systematic basis over the life of the
      arrangement.


-9-
 **Table
          of Contents**




**Research
      and Development Costs**





Research
      and development costs relating to computer software products to be sold or
      otherwise marketed that are incurred before technological feasibility of the
      product has been established and after general release of the product to
      customers are expensed as incurred.




Management
      believes that technological feasibility is not established until a beta version
      of the product exists. Historically, costs incurred during the period from
      when
      a beta version is available until general release to the public have not been
      material. Thus, we have not capitalized any software development
      costs.





**Recently
      Issued Accounting Pronouncements**





In
      the
      opinion of management, there were not any accounting pronouncements issued
      by
      the FASB (including its Emerging Issues Task Force), the SEC, or the American
      Institute of Certified Public Accountants since the July 18, 2006 filing of
      the
      Company's February 28, 2006 annual report on Form 10-KSB that are expected
      to
      have a material effect on the Company's future consolidated financial
      statements.





**Item
      3: Controls and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of August 31, 2006. This evaluation was carried
      out
      under the supervision and with the participation of our Chief Executive Officer
      and Chief Financial Officer. Based upon that evaluation, our Chief Executive
      Officer and Chief Financial Officer concluded that, as of August 31, 2006 our
      disclosure controls and procedures are effective. There have been no significant
      changes in our internal controls over financial reporting during the quarter
      ended August 31, 2006 that have materially affected or are reasonably likely
      to
      materially affect such controls.




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are 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
      our
      reports filed under the Exchange Act is accumulated and communicated to
      management, including our Chief Executive Officer and Chief Financial Officer,
      to allow timely decisions regarding required disclosure.





***Limitations
      on the Effectiveness of Internal Controls***





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. An internal control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are 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 the 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. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can e no assurance that any design will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may
      deteriorate.


-10-
 **Table
          of Contents**




**PART
      II - OTHER INFORMATION**






**Item
      1: Legal Proceedings**




From
      time
      to time, the Company may be involved in various claims, lawsuits, disputes
      with
      third parties, actions involving allegations of discrimination or breach of
      contract incidental to the ordinary operations of the business. The Company
      is
      not currently involved in any litigation which management believes could have
      a
      material adverse effect on the Company's financial position or results of
      operations.





**Item
      1A: Risk Factors**





The
      material changes from the risk factors disclosed in the Company’s February 28,
      2006 Form 10-KSB (based, in part, on the discontinued operations reported in
      our
      condensed consolidated statements of operations included elsewhere herein)
      are
      summarized below.




Acquisitions
      of companies, divisions of companies, or products entail numerous risks and
      uncertainties, which in our past experience include, and which we anticipate
      will include:





o
            the
                difficulty of assimilating geographically dispersed operations and
                personnel of the acquired
                companies;





o
            potential
                inability to successfully integrate acquired operations and/or products
                or
                to realize cost savings or other anticipated benefits from
                integration;





o
            loss
                of key employees of acquired
                operations;





o
            the
                potential disruption of our ongoing
                business;





o
            unanticipated
                expenses related to such
                integration;





o
            unanticipated
                expenses related to discontinuance of
                operations;





o
            the
                impairment of relationships with employees and customers of either
                an
                acquired company and/or our own
                business;





o
            the
                potential unknown liabilities associated with acquired
                business;





o
            inability
                to recover strategic investments in development stage
                entities;





o
            amortization
                and/or impairment of large amounts of intangible
                assets;





o
            the
                diversion of management's attention from ongoing development of our
                business and/or other business concerns;
                and





o
            the
                use of substantial amounts of our available cash or financial resources
                to
                consummate the acquisition.





We
      have
      limited marketing experience outside of South Africa and have conducted only
      limited marketing activities in the international market.




We
      are in
      the early stages of development of our marketing, distribution and sales
      structure, organization, alliances, contracts and partnerships. Our expertise
      does not guarantee success or sales and there is a risk that we could be less
      capable in these areas of business development than in the area of product
      development. Further, we may experience delays in market acceptance of new
      products or product enhancements as we engage in marketing and education of
      our
      user base regarding the advantages and system requirements for the new products
      and services and as customers evaluate the advantages and disadvantages of
      upgrading to our new products or services.


-11-
 **Table
          of Contents**




We
      are
      subject to significant risks associated with international operations. We have
      been subject to specific risks associated with doing business internationally
      and we anticipate that our future results will continue to be affected by a
      variety of international factors, which principally include:





o
            changes
                in foreign currency exchange rates;





o
            changes
                in a specific country's or region's political or economic conditions,
                particularly in emerging markets;





o
            trade
                protection measures and import or export licensing
                requirements;





o
            potentially
                negative consequences from changes in tax
                laws;





o
            difficulty
                in managing widespread sales and manufacturing
                operations;





o
            less
                effective protection of intellectual
                property;





o
            longer
                sales cycles in international
                markets;





o
            tariffs,
                export controls and other trade
                barriers;





o
            difficulties
                in collecting accounts receivable in foreign
                countries;





o
            the
                burdens of complying with a wide variety of foreign laws;
                and





o
            the
                need to develop internationalized versions of our products and foreign
                language marketing and sales
                materials.





Our
      success is dependent on our ability to manage our growth and expansion
      effectively.





Our
      ability to successfully offer products and implement our business plan in a
      rapidly evolving market requires, among other items, an effective planning
      and
      management process. Growth in sales or continued expansion in the scope of
      operations could strain our current management, financial, manufacturing and
      other resources, and may require us to implement and improve a variety of
      operating, financial and other systems, procedures, and controls.





Our
      products are dependent on the continued availability of the Global Positioning
      System.





GPS
      products depend upon satellites maintained by the United States Department
      of
      Defense. If a significant number of these satellites become inoperable,
      unavailable, not replaced, if the policies of the United States government
      for
      the free use of the GPS are changed, or if there is interference with GPS
      signals, our business will suffer.





The
      GPS
      is a satellite-based navigation and positioning system consisting of a
      constellation of orbiting satellites. The satellites and their ground control
      and monitoring stations are maintained and operated by the United States
      Department of Defense. The Department of Defense does not currently charge
      users
      for access to the satellite signals. These satellites and their ground support
      systems are complex electronic systems subject to electronic and mechanical
      failures and possible sabotage. The satellites were originally designed to
      have
      lives of 7.5 years and are subject to damage by the hostile space environment
      in
      which they operate. However, some of the current satellites have been operating
      for more than thirteen years.





If
      a
      significant number of satellites were to become inoperable, unavailable, or
      are
      not replaced, it would impair the current utility of our GPS products and the
      growth of current and additional market opportunities. In addition, there can
      be
      no assurance that the U.S. government will remain committed to the operation
      and
      maintenance of GPS satellites over a long period, or that the policies of the
      U.S. government that provide for the use of the GPS without charge and without
      accuracy degradation will remain unchanged.




Because
      of the increasing commercial applications of the GPS, other U.S. government
      agencies may become involved in the administration or the regulation of the
      use
      of GPS signals. European governments have expressed interest in building an
      independent satellite navigation system known as Galileo. Depending on the
      as
      yet undetermined design and operation of this system, it is possible that it
      could cause interference with GPS signals. Any of the foregoing factors could
      affect the willingness of buyers of our products to select GPS-based products
      instead of products that use competing technologies.


-12-
 **Table
          of Contents**




Our
      success depends on our ability to protect the proprietary and confidential
      aspects of our technology and methodology.





Our
      success will be dependent to a significant extent on our ability to protect
      the
      proprietary and confidential aspects of our products' technology and its method
      of utilization. We have no patents or patent applications pending for our
      products. We have used non-disclosure agreements and other contractual
      provisions and technical measures to establish and protect our proprietary
      rights in our products. It is our belief that the pace of product development
      is
      so fast that long-term patent protection would be of little benefit to us.
      Furthermore, there is no guarantee that a patent, if granted, will protect
      our
      products against infringement, or that we will have the financial resources
      to
      prosecute an infringement claim.





We
      are
      subject to foreign currency exchange rate fluctuations





We
      have
      customers, suppliers and manufacturers that are located outside the United
      States. Some transactions relating to supply and development agreements may
      be
      conducted in currencies other than the U.S. Dollar, and fluctuations in the
      value of foreign currencies relative to the U.S. Dollar could cause us to incur
      currency exchange costs. We cannot predict the effect of exchange rate
      fluctuations on our future operating results. Should there be a sustained
      increase in average exchange rates for the local currencies in these countries,
      our suppliers and manufacturers may request a price increase at the end of
      the
      contract period.





We
      operate in a single market segment





During
      the quarter ended August 31, 2006 the Company elected to exit the Geomatics
      segment which was limited by distribution agreements to distribution in
      Sub-Saharan Africa. The Company now focuses exclusively on the Telematics
      segment which affords global opportunities. As noted elsewhere this segment
      is
      dependent on access to Global Positioning System signals and cellular wireless
      providers.





The
      following risk factor has been removed as we have discontinued our operations
      in
      South Africa:





As
      some
      of our sales and purchase transactions are denominated in currencies other
      than
      the South African Rand, Astrata SA is exposed to foreign currency risk.





**Item
      2: Unregistered Sales of Equity Securities and Use of
      Proceeds**




During
      the quarter ended August 31, 2006, the Company issued 273,902 shares of its
      common stock to satisfy a liability for services provided by consultants. Such
      shares were valued at approximately $437,000 (estimated to be the fair value
      based on the trading price on the issuance date). The transaction described
      in
      this paragraph constituted an exempt offering under Section 4(2) of the
      Securities Act.





During
      the quarter ended August 31 2006, the Company also issued 198,210 shares of
      its
      common stock in exchange for services provided by consultants. Such shares
      were
      valued at approximately $165,000 (estimated to be the fair value based on the
      trading price on the issuance date, with a 15% discount from the market price).
      The transactions described in this paragraph constituted exempt offerings under
      Section 4(2) of the Securities Act.




**Item
      3: Defaults upon Senior Securities**





None




**Item
      4: Submission of Matters to a Vote of Security
      Holders**





None




**Item
      5: Other Information**





None


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          of Contents**




**Item
      6:****Exhibits**




***ExhibitNo.***
            ***Description***  Exhibit 31.1*
            Certification
              of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
              Act of 2002.  Exhibit 31.2*
            Certification
              of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
              Act of 2002.  Exhibit 32.1*
            Certification of Chief Executive Officer
              and
              Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
              Act
              of 2002.





*
            Filed
                herewith




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 **Table
          of Contents**




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**ASTRATA
      GROUP INCORPORATED**


Date:
      October 23,
      2006




By: /S/
      MARTIN EULER


Martin
      Euler


Chief
      Executive Officer, Chief
      Financial Officer,


Principal
      Accounting Officer and Secretary


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 **Table
          of Contents**




**EXHIBIT
      INDEX**




Exhibit
      31.1  Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002.




Exhibit
      31.2  Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002.




Exhibit
      32.1  Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906
      of the Sarbanes-Oxley Act of 2002.




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