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: **May
      31, 2007**








[
 ]
      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
              
              84-148762(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)950
                  South Coast Dr., Suite 265, Costa Mesa, California
              
              92626(Address
                  of principal executive offices)
              
              (Zip
                  Code)


Issuer’s
      telephone number (714) 641-1512





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 [ 
]





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





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of July 11, 2007: 24,434,485





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













**TABLE
      OF CONTENTS**





PagePart
                I - Financial InformationItem
                1
            Financial
                Statements (Unaudited)Condensed
                Consolidated Balance Sheet as of May 31, 2007
            F-1Condensed
                Consolidated Statements of Operations and Comprehensive Loss for
                the three
                months ended May 31, 2007 and 2006
            F-2Condensed
                Consolidated Statements of Cash Flows for the three months ended
                May 31,
                2007 and 2006
            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
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            11Item
                6
            Exhibits
            11




i


**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 May 31,
      2007
      are not necessarily indicative of the results anticipated for the entire fiscal
      year ending February 28, 2008. This report should be read in conjunction with
      the Company’s February 28, 2007 annual report on Form 10-KSB filed with the SEC
      on May 30, 2007.




ii





**ASTRATA
                GROUP INCORPORATED AND SUBSIDIARIES****CONDENSED
                CONSOLIDATED BALANCE SHEET****UNAUDITED****May
                31, 2007**







***ASSETS*****Current
                Assets:**Cash
                and cash equivalents
            
            $
            1,010,277Trade
                and other receivables, net
            
            
            3,933,687Inventories
            
            
            246,143Other
                assets
            
            
            321,433Discontinued
                operations - current assets
            
            
            95,121Total
                current assets
            
            
            5,606,661Property
                and equipment, net
            
            
            531,256Certificate
              of
              deposit-restricted
            
            
            412,987Goodwill
            
            
            300,000Investment
                in and advances to affiliate
            
            
            18,560Discontinued
                operations - other assets
            
            
            69,738**Total
                assets**
            
            $
            6,939,202***LIABILITIES
                AND STOCKHOLDERS' DEFICIT*****Current
                liabilities**Accounts
                payable and accrued liabilities
            
            $
            5,594,248Salaries
                and benefits payable to officers and directors
            
            
            2,070,828Registration
                rights penalties
            
            
            560,711Interest
                payable
            
            
            938,083Income
                taxes and related penalties payable
            
            
            508,254Notes
                payable to stockholders
            
            
            1,884,000Advances
                from stockholders
            
            
            57,184Discontinued
                operations - current liabilities
            
            
            245,083Current
                portion of long-term liabilities
            
            
            1,253,346Billings
                in excess of costs and estimated earnings on uncompleted
                contract
            
            
            3,138,361Other
                current liabilities
            
            
            576,601Total
                current liabilities
            
            
            16,826,699Long-term
                liabilities
            
            
            14,295**Total
                liabilities**
            
            
            16,840,994Minority
                interest
            
            
            40,114Commitments
                and contingencies**Stockholders'
                deficit**Preferred
                stock, Series A convertible, $0.0001 par value, 10,000,000
                sharesauthorized,
                2,800,000 shares issued and outstanding with a liquidationpreference
                of $2,800,000.00
            
            
            280Common
                stock, $0.0001 par value, 100,000,000 sharesauthorized,
                27,705,909 shares issuedand
                24,434,485 shares outstanding
            
            
            2,444Additional
                paid-in-capital, net
            
            
            31,449,896Accumulated
                deficit
            
            
            (41,068,845
            )Accumulated
                other comprehensive loss
            
            
            (325,681
            )Total
                stockholders' deficit
            
            
            (9,941,906
            )Total
                liabilities and stockholders' deficit
            
            $
            6,939,202See
                accompanying notes to these condensed consolidated financial
                statements.


F-1





**ASTRATA
                GROUP INCORPORATED AND SUBSIDIARIES****CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                (LOSS)****FOR
                THE THREE MONTHS ENDED MAY 31, 2007 AND 2006****(UNAUDITED)**




THREE
                MONTHS2007
            
            2006Net
                sales
            
            $
            1,005,668
            
            $
            426,338Cost
                of goods sold
            
            
            520,103
            
            
            304,688Gross
                profit
            
            
            485,565
            
            
            121,650Other
                selling, general and administrative expenses
            
            
            3,482,134
            
            
            1,541,016Research
                and development
            
            
            142,202
            
            
            -Stock-based
                compensation
            
            
            212,929
            
            
            463,707Operating loss
            
            
            (3,351,700
            )
            
            (1,883,073
            )Other
                income (expense):Interest
                expense
            
            
            (93,449
            )
            
            (228,890
            )Change
                in fair value of derivative warrant liability
            
            
            -
            
            
            284,996Other
                income
            
            
            1,582
            
            
            316Total
                other income (expense)
            
            
            (91,867
            )
            
            56,422Loss
                before minority interest and provision for income taxes
            
            
            (3,443,567
            )
            
            (1,826,651
            )Income
                tax provision
            
            
            500,000
            
            
            -Loss
                before minority interest
            
            
            (3,943,567
            )
            
            (1,826,651
            )Minority
                interest
            
            
            -
            
            
            (335
            )Equity
                in net loss of affiliate
            
            
            -
            
            
            (11,761
            )Loss
                from continuing operations
            
            
            (3,943,567
            )
            
            (1,838,747
            )Loss
                on discontinued operations, net of tax
            
            
            (170,007
            )
            
            (931,174
            )Net loss
            
            $
            (4,113,574
            )
            $
            (2,769,921
            )Net loss
                from continuing operations applicableto
                common stockholders consists of the following:Net loss
                from continuing operations
            
            $
            (3,943,567
            )
            $
            (1,838,747
            )Cumulative
                undeclared dividends on preferred stock
            
            
            (56,000
            )Net
                loss from continuing operations applicable to common stockholders
            
            $
            (3,999,567
            )
            $
            (1,838,747
            )Comprehensive loss
                and its components consist of the following:Net loss
            
            $
            (4,113,574
            )
            $
            (2,769,921
            )Foreign
                currency translation adjustment, net of tax
            
            
            (358,195
            )
            
            (83,520
            )Comprehensive loss
            
            $
            (4,471,769
            )
            $
            (2,853,441
            )Basic
                and diluted loss per common share:Continuing
                operations applicable to common stockholders
            
            $
            (0.18
            )
            $
            (0.15
            )Discontinued
                operations
            
            
            (0.01
            )
            
            (0.07
            )$
            (0.19
            )
            $
            (0.22
            )Weighted
                average common shares outstanding:Basic
                and diluted
            
            
            21,426,745
            
            
            12,676,878See
                accompanying notes to these condensed consolidated financial
                statements.


F-2


**ASTRATA
                GROUP INCORPORATED AND SUBSIDIARIES****CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR
                THE THREE MONTHS ENDED MAY 31, 2007 AND 2006****(UNAUDITED)**




2007
            
            2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net loss
            
            $
            (4,113,574
            )
            $
            (2,769,921
            )Adjustments
                to reconcile net loss to net cash provided by (used) in operating
                activities:Gain
                on sale of property and equipment
            
            
            -
            
            
            2,405Depreciation
                and amortization
            
            
            86,236
            
            
            182,413Gain
                on disposal transactions relating to discontinued
                operations
            
            
            (59,304
            )
            
            -Loss
                on early termination of lease
            
            
            -
            
            
            101,886Amortization
                of deferred compensation cost
            
            
            -
            
            
            100,125Change
                in fair value of derivative warrant liability
            
            
            -
            
            
            (160,568
            )Issuance
                of common stock for services
            
            
            -
            
            
            38,251Stock-based
                compensation
            
            
            2,057,629
            
            
            463,707Equity
                in net loss of affiliate
            
            
            11,741
            
            
            11,761Minority
                interest
            
            
            -
            
            
            335Unrealized
                foreign currency exchange gain
            
            
            -
            
            
            (16,922
            )Changes
                in operating assets and liabilities:Trade
                and other receivable
            
            
            (3,068,385
            )
            
            (1,639,608
            )Inventories
            
            
            (126,987
            )
            
            156,423Assets
                and liabilities held for sale, net
            
            
            (4,974
            )
            
            -Other
                assets
            
            
            451,320
            
            
            (25,109
            )Billings
                in excess of costs and estimated earnings on uncompleted
                contract
            
            
            3,169,506
            
            
            -Accounts
                payable and accrued liabilities
            
            
            1,692,115
            
            
            2,407,137Taxes
                and related penalties payable
            
            
            493,368
            
            
            18,904Deferred
                tax liability
            
            
            -
            
            
            (21,097
            )Net
                cash provided by (used) in operating activities
            
            $
            588,691
            
            $
            (1,149,878
            )**CASH
                FLOW FROM INVESTING ACTIVITIES:**Purchase
                of property and equipment
            
            
            (43,171
            )
            
            (52,372
            )Proceeds
                from sale of assets
            
            
            -
            
            
            36,978Investment
                in affiliates
            
            
            -
            
            
            (23,993
            )Certificate
                of deposit-restricted
            
            
            (416,477
            )
            
            (1,499
            )Net
                cash used in investing activities
            
            
            (459,648
            )
            
            (40,886
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Repayment
                of long term liabilities
            
            
            (1,775
            )
            
            (14,968
            )Proceeds
                from notes payable
            
            
            46,183
            
            
            -Lines
                of credit, net
            
            
            -
            
            
            629,095Proceeds
                from note payable to stockholders
            
            
            -
            
            
            330,340Proceeds
                from warrants exercised for common stock
            
            
            1,000,000
            
            
            -Net
                cash provided by financing activities
            
            
            1,044,408
            
            
            944,467**Effect
                of foreign currency exchange rate changes****on
                cash and cash equivalents**
            
            
            (342,545
            )
            
            61,026**Net
                increase (decrease) in cash and cash
                equivalents**
            
            
            830,906
            
            
            (185,271
            )**Cash
                and cash equivalents at beginning of period**
            
            
            179,371
            
            
            436,532**Cash
                and cash equivalents at end of period**
            
            $
            1,010,277
            
            $
            251,261Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            2,339Income
                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


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**1.
      ORGANIZATION, NATURE OF OPERATIONS, AND LIQUIDITY/GOING CONCERN
      CONSIDERATIONS**





***Organization***





Astrata
      Group Incorporated (“Astrata,” or “Astrata Group”) and subsidiaries (sometimes
      hereafter collectively referred to as the “Company,” “we,” and “our”) currently
      operate exclusively in the Telematics sector of the Global Positioning System
      (“GPS”) industry. Telematics comprises the remote monitoring of assets in
      real-time (including tracking and tracing) whereby location, time and sensor
      status are communicated. Our products are deployed into diverse markets,
      including those described in “Nature of Operations” below.





***Nature
      of Operations***





As
      noted
      above, we operate in the Telematics sector of the GPS industry. Our expertise
      is
      focused on advanced location-based IT products and services that combine
      positioning, wireless communications, and information technologies, which add
      measurable value to location-based information. 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, surveying, utility, construction, mining, and
      agriculture.





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 locations to the
      customer’s data centre 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.





Examples
      of our products and services include surveying instrumentation using GPS and
      other augmenting technologies, such as wireless communication and lasers; fleet
      management for specialized machines, such as guidance for earth-moving
      equipment; 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
      Systems for Mobile Telecommunications”), cellular and satellite
      communications.





***Operational
      Considerations***





Astrata’s
      operations were strengthened during fiscal 2006 by the addition of certain
      key
      distribution partners in Western Europe and an increased presence in South
      East
      Asia based primarily on the successful delivery of the Hazmat (Hazardous
      Materials) Tracking Project to the Singapore Civil Defense Force.





***Recent
      Trends***





Our
      business strategy is to focus on the homeland security, hazardous materials,
      civil defense and business-to-business markets by providing our customers with
      comprehensive solutions to their needs. Frequently this involves additional
      integration such as sensors ranging from Radio Frequency Identification to
      biometrics, remote displays or augmenting technologies to allow tracking in
      tunnels.


F-4


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**1.
      ORGANIZATION, NATURE OF OPERATIONS, AND LIQUIDITY/GOING CONCERN
      CONSIDERATIONS** (continued)





***Liquidity
      and Going Concern Considerations***





For
      the
      quarter ended May 31, 2007, we had a net loss of approximately $4.1 million
      (of
      which $2.8 million was the estimated value of bonuses paid to certain employees
      for securing $93.5 million in new business under a contract - (see Note 4).
      We
      had positive cash flow from operating activities of approximately $0.6 million,
      and although we have begun to receive progress payments under the contract,
      such
      amount has not been recognized as revenue at May 31, 2007. In addition, we
      had a
      working capital deficit of approximately $11.2 million and a stockholders’
deficit of approximately $9.9 million as of May 31, 2007.





Because
      of certain matters discussed in the preceding paragraph, the Company’s
      independent public accountants have included a going concern paragraph in their
      audit report on our February 28, 2007 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 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.





The
      Company’s capital requirements depend on numerous factors, including the
      Company’s ability to fill its current backlog 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, research and
      development activities and other factors. 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 May 2008. Management currently intends to fund
      operations through a combination of borrowings under line(s) of credit, debt,
      and if necessary, equity-based transitions. Management is in discussion with
      lending facilities and certain investors, who have expressed an interest in
      providing the Company with such investments. These discussions are ongoing;
      however, there can be no assurance of the outcome of these negotiations.





Management
      is projecting growth in Telematics sales during fiscal 2008, and has announced
      two sales orders in this sector valued at a total of approximately $110 million.
      Other sales contracts are under negotiation, but at this time there can be
      no
      assurance regarding the ultimate success of these negotiations.





**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, 2007 annual report on Form 10-KSB
      (filed with the SEC on May 30, 2007), which includes all of the Company’s
      significant accounting policies.


F-5


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








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





***Principles
      of Consolidation***





The
      condensed consolidated financial statements included 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 Note 11
      (“Discontinued Operations”) to the Company’s February 28, 2007 consolidated
      financial statements, 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 receivable, and realization of inventories
      and
      long-lived assets. Actual results could differ from these
      estimates.





***Risks
      and Uncertainties Related to International Operations***





Since
      inception in August 2004, the Company’s revenue-producing activities have been
      conducted exclusively outside the United States of America. The Company’s
      customers, other end users of our products and services, and third-party
      manufacturers and other suppliers (collectively, “vendors”) engaged by the
      Company are located throughout the world. As a result, our operations are
      subject to foreign political and economic uncertainties which are beyond our
      control. The specific risks of operating in the international marketplace
      include abrupt changes in a foreign government’s policies/regulations, local or
      regional hostilities (such as war, terrorism and civil unrest) in foreign
      countries, and United States government policies restricting certain business
      transactions with a given foreign country.





As
      a
      result of the matters discussed in the preceding paragraph, some of the
      Company’s sales and supplier contracts with its customers and vendors are
      subject to unilateral cancellation (regardless of whether such action is
      permitted by the terms of the agreement), and certain accounts receivable may
      suddenly become doubtful of collection. In addition, the lack of a
      well-developed legal system in some foreign countries may make it difficult
      to
      enforce all of the Company’s contractual rights.





***Other
      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. The
      countries do not have any institutional depository insurance comparable to
      the
      United States, which insures bank balances up to $100,000 per bank. At May
      31,
      2007, the Company’s cash balances in U.S. bank accounts totaled approximately
      $238,000, which is approximately $138,000 in excess of the Federal Deposit
      Insurance Corporation limit of $100,000.





The
      certificate of deposit described below (approximately $413,000 at May 31, 2007)
      is with a Singapore bank. Because the funds deposited were in U.S. dollars,
      such
      account is not eligible for coverage under Singapore’s Deposit Insurance
      Act.





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 May 31, 2007 of approximately
      $17,000 to be adequate.


F-6


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








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





***Certificate
      of Deposit***





Under
      the
      terms of the contract described in Note 4, the Company was required to provide
      a
      performance bond for the benefit of the customer. In lieu of such bond, a
      certificate of deposit was initiated. The certificate of deposit (the “CD”)
      bears interest at 5.1% per annum and matures in August 2009. Under the terms
      of
      the Company’s arrangement with the bank that issued the CD, the funds will not
      be available for withdrawal until August 2009. Thus, the CD is a restricted
      account which has been reported as a non-current asset in the accompanying
      condensed consolidated balance sheet.





***Inventories***





Inventories
      are stated at the lower of cost (first-in, first-out) or estimated market,
      and
      consist of only finished goods at May 31, 2007. 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 ensuring years and/or consideration and analysis of any change
      in the customer base, products 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.





***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 asset. 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 assets, and 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 May
      31, 2007, 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.


F-7


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








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





***Long-Lived
      Assets*** (continued)





Long-lived
      assets (including goodwill) that have not been reported as “held for sale” at
      May 31, 2007 are being held and used as of that date.





***Convertible
      Preferred Stock***





If
      the
      conversion feature of cumulative preferred stock is beneficial (i.e., the market
      price of the Company’s common stock exceeds the per-share conversion price when
      the preferred stock is issued), management accounts for the beneficial
      conversion feature (“BCF”) based on SFAS No. 133 (as amended) and an analysis of
      the rights of the preferred stock owners. When management concludes that the
      economic risks and characteristics of the BCF are clearly and closely related
      to
      those of the “host contract “ (the preferred stock), the BCF (1) is not
      separated from the host contract or accounted for as a derivative financial
      instrument and (2) is measured using intrinsic value accounting.





***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 12).





***Revenue
      Recognition***





*General*





Except
      as
      described in “Contract Accounting” below, the Company’s revenues are recorded in
      accordance with the SEC 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 is accounting for the contract described in Note 4 under American
        Institute of Certified Public Accountants (“AICPA”) Statement of Position 81-1
“Accounting for Performance of Construction-Type and Certain Production-Type
        Contracts” using the percentage-of-completion method; progress toward completion
        will be measured on a units-delivered basis. Under this method, revenue and
        the
        costs of earned revenue will be recorded as delivered units are deemed to
        be
        accepted by the customer, assuming that all other revenue recognition criteria
        have been met. The costs of earned revenue will be recognized on an average
        -
        per - unit basis, using the most recent estimate of total contract costs.
        Customer acquisition and similar costs are expensed as
        incurred.


F-8


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








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





***Revenue
      Recognition (continued)***





*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.





*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
      to be sold or otherwise marketed that are incurred before technological
      feasibility of the products 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.





***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 $213,000 for
      the
      three months ended May 31, 2007 and $464,000 for the three months ended May
      31,
      2006. These expenses have been reported in the accompanying condensed
      consolidated statements of operations.


F-9


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








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





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





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
      first quarter of fiscal 2008 was insignificant.





Options
      outstanding that have vested and are expected to vest as of May 31, 2007 are
      as
      follows:





WeightedAverageWeighted
            
            RemainingAverage
            
            Contractual
            
            AggregateNumber
                of
            
            Exercise
            
            Term
                in
            
            IntrinsicShares
            
            Price
            
            Years
            
            Value
                (a)Vested
            
            
            483,166
            
            $
            4.49
            
            
            -
            
            $
            -Expected
                to vest
            
            
            447,064
            
            $
            3.78
            
            
            2.8
            
            
            -Total
            
            
            930,230
            
            
            
            
            
            
            
            $
            -








*(a)*
            *These
                amounts represent the difference between the exercise price and $1.23,
                the
                closing market price of the Company’s common stock on May 31, 2007 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
                OptionsWeightedShares
            
            
            
            Average
            
            AggregateAvailable
                for
            
            Number
                of
            
            Exercise
            
            IntrinsicGrant
            
            Shares
            
            Price
            
            Value
                (b)February
                28, 2007
            
            
            1,291,925
            
            
            1,024,750
            
            $
            3.56
            
            $
            -Grants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercises
            
            
            -
            
            
            (94,520
            )
            
            1.30
            
            
            -Cancellations
            
            
            -
            
            
            -
            
            
            -
            
            
            -May
                31, 2007
            
            
            1,291,925
            
            
            930,230
            
            $
            3.78
            
            $
            -Options
                exercisable at:February
                28, 2007
            
            
            
            
            
            549,833
            *
            $
            4.10May
                31, 2007
            
            
            
            
            
            483,166
            
            $
            4.49





*(b)*
            *Represents
                the excess (if any) of the February 28, 2007 or May 31, 2007 market
                price
                of the Company’s common stock over the exercise
                price.*




*
              This
                  amount has been revised from that which was replaced in the Company's
                  February 28, 2007 Form 10-KSB





F-10


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








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


***Uncertain
        Income Tax Positions***
 
 Effective
        March 1, 2007, the Company accounts for uncertain income tax positions in
        accordance with Financial Accounting Standards Board Interpretation (“FIN”) No.
        48 (“FIN 48”). This pronouncement, which is an interpretation of SFAS No. 109, *Accounting
        for Income Taxes* ,
        seeks
        to reduce the diversity in practice associated with certain aspects of
        measurement and recognition in accounting for income taxes. FIN 48 clarifies
        when tax benefits should be recorded in financial statements, and indicates
        how
        any tax reserves should be classified in the balance sheet. In addition,
        FIN 48
        requires expanded disclosure with respect to the uncertainty in income taxes.
        The Company accounts for interest and penalties related to uncertain tax
        positions as income tax expense. See Note 5 for additional information.




***Recently
      Issued Accounting Pronouncements***





In
      the
      opinion of management, neither the Financial Accounting Standards Board
      (“FASB”), its Emerging Issues Task Force, the AICPA, or the SEC have issued any
      accounting pronouncements since the Company filed its February 28, 2007 Form
      10-KSB that are expected to have a material impact on the Company’s future
      consolidated financial statements.






**3.
      INVENTORY**




Inventories
      consisted of the following as of May 31, 2007




Europe
            
            Asia
            
            TotalFinished
                goods
            
            $
            61,119
            
            $
            185,024
            
            $
            246,143







**4.
      CONTRACT IN PROGRESS**


As
        disclosed in the Form 10-KSB for the year ended February 28, 2007, the Company’s
        Singapore subsidiary entered into a fixed-price contract with a Singapore
        entity
        on April 10, 2007 to manufacture, ship and service approximately $93.5 million
        of its Telematics products (the “Contract”). Deliveries will take place overseas
        during a two-year period. The Contract includes a provision for substantial
        liquidated damages for unexcused delays in product deliveries and/or failure
        to
        satisfy certain customer-specified acceptance criteria. In addition, in the
        event of non-performance by the Company that remains uncorrected after notice
        from the customer and the expiration of a contractual grace period, the customer
        has the right to cancel the Contract. The Company’s proprietary Telematics
        system are undergoing significant customization/modification in order to
        achieve the functionality required by the customer. As a result, the Contract
        is
        being accounted for as described in the “Revenue Recognition” section of Note
        2.
 
 Subject
        to satisfactory completion of certain customer-specified acceptance criteria
        relating to the applicable deliverables (proprietary Telematics system) and
        assuming that all other revenue recognition criteria have been met, the Company
        presently expects to recognize revenue under the Contract by the fourth
        quarter of fiscal 2008.
 During
          the quarter ended May 31, 2007, the Company received the first progress
          payment
          of $750,000  and
          recorded capitalized Contract costs of approximately $612,000. The
          Company also received progress payments of $750,000 each in June and July
          2007.
          The initial progress payments required by the Contract include an additional
          $1.5 million scheduled to be received by the Company during the August-September
          2007 period.
  The
          caption "Trade and other receivables, net" in the
          accompanying condensed consolidated balance sheet includes receivables
          of $3
          million which represent invoices that were issued or issuable under the
          terms of the Contract as of May 31, 2007. The excess of contract billing
          over the costs referenced in the preceding paragraph has been
          reported in the aforementioned balance sheet as "Billings in excess of
          costs and estimated earnings on uncompleted contract." The Company has
          not
          recognized any revenue on the Contract as of May 31,
          2007.
 F-11


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**5.
      INCOME TAXES**


The
          Company adopted FIN 48 effective March 1, 2007. The Company had approximately
          $12 million of total gross unrecognized tax benefits as of the date of
          adopting
          FIN 48.
 
 Management
          has determined that the failure to file certain information returns (for
          the
          period from inception to and including the year ended February 28, 2006)
          may
          result in the assessment of income tax penalties. As a result, management
          has
          accrued an estimate of such penalties at May 31, 2007. Accordingly, the
          Company’s condensed consolidated statement of operations for the quarter then
          ended includes an estimated expense of $500,000 relating to potential income
          tax
          penalties.
 
 All
          open
          tax years of the Company remain subject to examination by tax
          authorities  and,
          as
          applicable, certain foreign tax authorities .





**6.
      NOTES PAYABLE**


In
        April
        2007, the Company received an unsecured note payable which is due on February
        4,
        2008 and carries an annual interest rate of 16.5%. The balance of the note
        is
        approximately $46,000 at May 31, 2007 and is included in current portion
        of
        notes payable in the accompanying condensed consolidated balance
        sheet.
 An
          unsecured note payable by the Company with a May 31, 2007 principal balance
          of
          $1.2 million (the “Note Payable”) was due in three equal installments of
          $400,000; the first two installments were due prior to June 1, 2007. As
          of May
          31, 2007, the Company had not made any payments to the creditor. As a result,
          the Note Payable has been in default since January 16, 2007. In addition,
          as of
          the date that this Form 10-QSB was filed with the SEC, the third installment
          payment (which was due on July 15, 2007) had not been paid. Accordingly,
          the
          entire principal balance of the Note Payable has been classified as a current
          liability in the accompanying condensed consolidated balance sheet. Management
          is currently in discussions with the creditor, seeking to restructure the
          terms
          of the Note.





**7.
      OTHER MATTERS RELATING TO CERTAIN DEBT AND EQUITY
      INSTRUMENTS**





Because
      of certain convertible debt financing and the transactions described in the
      “10/13/06 Equity Financing Transactions” section of Note 8 to the Company’s
      February 28, 2007 consolidated financial statements included in of our Form
      10-KSB for the year then ended, the exercise prices of certain warrants
      outstanding at May 31, 2007 have been reduced pursuant to anti-dilution
      contractual requirements. As a result of the same transactions, 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. These debt instruments
      are
      outstanding at May 31, 2007.


F-12


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**7.
      OTHER MATTERS RELATING TO CERTAIN DEBT AND EQUITY
      INSTRUMENTS** (continued)





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 ShareOriginal
            
            AdjustedAmount
            
            Amount379,720
                warrants outstanding at February 28, 2005
            
            $
            5.00
            
            $
            2.361,043,106
                warrants issued in April/May 2005
            
            
            3.50
            
            
            1.81Other
                warrants issued after February 28, 2005:108,196
                warrants
            
            
            5.00
            
            
            2.364,955
                warrants
            
            
            3.50
            
            
            1.81$1,884,000
                of convertible debt
            
            
            5.00
            
            
            2.36











**8.
      EQUITY TRANSACTIONS**





During
      the quarter ended May 31, 2007, an investor who previously purchased 2.75
      million shares of the Company’s Preferred Stock and received warrants to
      purchase common stock in October and November 2006, exercised certain J warrants
      and received 2 million shares of the Company’s restricted common stock in
      exchange for a cash payment of $1 million and issuance by the Company of a
      V
      warrant with the following terms: exercisable into 1.2 million shares of
      restricted common stock at $1.35 per share, with a contractual life of five
      years. The common stock underlying the V warrant has the same registration
      rights as described in “The 10/13/06 Equity Financing Transactions” section of
      Note 8 to the consolidated financial statements included in the Company’s
      February 28, 2007 Form 10-KSB filed with the SEC on May 30, 2007.





During
      the quarter ended May 31, 2007, the Company issued 1,340,000 shares of its
      restricted common stock for the conversion of 670,000 shares of preferred stock.




During
      the quarter ended May 31, 2007, the Company issued 94,520 shares of common
      stock
      for the exercise of employee stock options.





During
      the quarter ended May 31, 2007, the Company also issued 2,145,000 shares of
      its
      restricted common stock in exchange for services provided by employees. Such
      shares were valued at approximately $1,844,700 (estimated to be the fair value
      based on the trading price on the issuance date, with a 15% discount from the
      market price).


In
        April
        2007, in connection with the contract discussed in Note 4, the Company’s board
        of directors approved the issuance of 3,271,424 shares of restricted common
        stock to certain employees, officers and directors which will vest as follows:
        1,635,712 shares upon the completion and delivery of certain proprietary
        Telematics systems; and 1,635,712 shares upon the delivery of all remaining
        proprietary Telematics systems to the customer. The individuals entitled
        to such
        awards must be employed by the Company on the vesting dates. Based on a
        discounted market price (to account for the fact that the common stock would
        be
        restricted), the total grant-date estimated fair value of the stock awards
        described in this paragraph approximated $2.8 million. Because vesting is
        conditioned upon both (i) continued employment (or continued membership on
        the
        Company’s board of directors) of the grantee and (ii) contract performance,
        compensation cost will not be recognized until management determines that
        it is
        probable that both conditions will be satisfied. The nature of these conditions
        is such that they may not be susceptible of reasonable estimation until the
        contract milestones are achieved. The Company will recognize an expense not
        exceeding approximately $ 1.4 million on the earlier of (a) when and if each
        of
        the aforementioned contract milestones is achieved or (b) when it becomes
        probable that each such condition will be met.
  F-13


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**9.
      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 March 2011.
      Certain leases include future rental escalations and renewal options. As of
      May
      31, 2007, future minimum payments under operating leases approximated the
      following for the fiscal years ending February 28/29 listed below:





2008
            
            $
            48,0002009
            
            
            46,0002010
            
            
            44,0002011
            
            
            44,0002012
            
            
            4,000$
            186,000








Rent
      expense approximated $20,000 and $140,000 for the three months ended May 31,
      2007 and 2006, respectively.




***Registration
      Rights Penalties***





The
      Company is contractually liable for certain penalties because its registration
      statement was not filed (or expected to be declared effective by the SEC) by
      the
      deadline dates. Based on the current estimate of the filing and effective dates
      of such registration statement and the contractual deadlines, as of May 31,
      2007, the Company has accrued estimated penalties and related interest of
      approximately $561,000 relating to the preferred stock and the April/May 2005
      sale of equity units.








**10. 
      SEGMENT REPORTING AND GEOGRAPHIC INFORMATION**





Because
      of the discontinued operations described in Note 12 referenced in “Geomatics”
immediately below, 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, “Disclosure about
      Segments of an Enterprise and Related 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.


F-14


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**10. 
      SEGMENT REPORTING AND GEOGRAPHIC INFORMATION** (continued)





***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.





***Geographic
      Information***





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




For
                the three months ended May 31, 2007:Property
                and
            
            
            
            Gross
            
            Operating
            
            OperatingEquipment,
                net
            
            Revenue
            
            Profit
            
            Expenses
            
            (Loss)Asia
            
            $
            424,055
            
            $
            885,374
            
            $
            382,491
            
            $
            2,935,319
            
            $
            (2,552,828
            )United
                states
            
            
            -
            
            
            -
            
            
            -
            
            
            608,362
            
            $
            (608,362
            )Western
                Europe
            
            
            107,201
            
            
            120,294
            
            
            103,074
            
            
            293,584
            
            $
            (190,510
            )Total
            
            $
            531,256
            
            $
            1,005,668
            
            $
            485,565
            
            $
            3,837,265
            
            $
            (3,351,700
            )For
                the three months ended May 31, 2006:Property
                and
            
            
            
            
            
            Gross
            
            
            Operating
            
            
            OperatingEquipment,
                net
            
            
            Revenue
            
            
            Profit
                (Loss)
            
            
            Expenses
            
            
            (Loss)Asia
            
            $
            391,235
            
            $
            364,888
            
            $
            172,007
            
            $
            425,658
            
            $
            (253,651
            )United
                states
            
            
            2,346
            
            
            -
            
            
            -
            
            
            1,137,586
            
            $
            (1,137,586
            )Western
                Europe
            
            
            222,675
            
            
            61,450
            
            
            (50,357
            )
            
            441,479
            
            $
            (491,836
            )Total
            
            $
            616,256
            
            $
            426,338
            
            $
            121,650
            
            $
            2,004,723
            
            $
            (1,883,073
            )





See
      Note
      3 for geographic information on inventory.


F-15


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**11. 
      LOSS PER COMMON SHARE**





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted loss per common share from continuing operations computations for
      the three months ended May 31, 2007 and 2006.





Three
                Months
            
            Three
                MonthsMay
                31, 2007
            
            May
                31, 2006Numerator
                for basic and diluted loss per common share:Net loss
                from continuing operations
            
            $
            (3,943,567
            )
            $
            (1,838,747
            )Cumulative
                undeclared dividends on preferred stock
            
            
            (56,000
            )
            
            -Total
                net loss from continuing operationscharged
                to common shareholders
            
            $
            (3,999,567
            )
            $
            (1,838,747
            )Denominator
                for basic and diluted loss per common share:Weighted
                average number of common shares outstanding
            
            
            21,426,745
            
            
            12,676,878Basic
                and diluted loss per common share:from
                continuing operations
            
            $
            (0.18
            )
            $
            (0.15
            )







**12. 
      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. In addition, management placed Astrata Systems (a
        wholly-owned subsidiary in South Africa) 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. 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 three months ended May 31, 2007. As described in the following
      paragraph, operations reported as discontinued in the accompanying condensed
      consolidated statements of operations are not generating any significant cash
      flows.





The
      Company had total receivables relating to discontinued Telematics operations
      (in
      South Africa) of approximately $95,000 at May 31, 2007. While management expects
      to collect such receivables, 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 reported as related to assets held for sale at May 31, 2007. Thus,
      management has concluded that the Company does 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


ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE MONTHS ENDED MAY 31, 2007 AND 2006


(UNAUDITED)








**12. 
      DISCONTINUED OPERATIONS** (continued)





***Other
      Matters***





The
      major
      classes of assets and liabilities related to discontinued operations as of
      May
      31, 2007 are as follows:





AssetsTrade
                and other receivables
            
            $
            95,121Other
                non-current assets
            
            
            69,738Total
            
            $
            164,859LiabilitiesTrade
                and accrued payables
            
            $
            245,083








**13. 
      SUBSEQUENT EVENTS**





In
      June
      2007, the Singapore Civil Defense Force (SCDF) awarded a $2.2 million contract
      for the Company's new Intelligent Immobilization System technology (the
“Immobilizer”). The immobilizer is an add-on module to the Company’s Telematics
      System, which SCDF has been using since 2005 to track, monitor and now
      immobilize vehicles transporting hazardous materials, as well as to alert SCDF
      if these vehicles deviate from their prescribed routes.


F-17


**Item
      2: Management’s Discussion and Analysis or Plan of
      Operation**





***Overview***





The
      following discussion should be read in conjunction with the unaudited condensed
      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 May 31, 2007, together with the
      results of operations for the three months ended May 31, 2007 and 2006, and
      cash
      flows for the three months ended May 31, 2007 and 2006.





***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 of 1933, as amended (the “Securities Act”), and Section 21E of
      the Securities Exchange Act of 1934, as amended of 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
      the purposes of complying with those provisions. Forward-looking statements,
      which are based on certain assumptions and describe our future plans, strategies
      and expectations, are generally indentified by use if the word “believe,”
“expect,” “anticipate,” “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
      Securities and Exchange Commission (the “SEC’).





**Company
      Overview**





***Overview***





Astrata
      Group Inc. is a U.S. publicly-held company, headquartered in Costa Mesa,
      California. Astrata is focused on advanced location-based IT services and
      solutions (Telematics) that combine the Global Positioning System (“GPS”)
      positioning, wireless communications (satellite or terrestrial) and geographical
      information technology, which together enable businesses and institutions to
      monitor, trace, or control the movement and status of machinery, vehicles,
      personnel or other assets. The Company's intelligent vehicle tracking system
      currently in use in Singapore enables the Singapore Civil Defense Force to
      track
      trucks carrying hazardous materials and to halt the trucks in case they veer
      off
      course. Astrata has designed, developed, manufactured and currently supports
      seven generations of Telematics systems with units deployed worldwide. Astrata
      has offices throughout the world including the United States, Europe and
      Asia.





***Nature
      of Operations***





We operate
      in the Telematics sector of the
      GPS
      industry. Our expertise is focused on advanced location-based IT products and services that
      combine positioning, wireless communications, and information technologies. 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, surveying, utility, construction, mining, and
      agriculture.





Examples
      of our products and services include surveying instrumentation using GPS and
      other augmenting technologies, such as wireless communication and lasers; fleet
      management for specialized machines, such as guidance for earth-moving
      equipment; 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, laser, optical and inertial navigation
      systems. Communication techniques employed by us include GSM cellular and
      satellite communications.


1


***Telematics***





Telematics
      comprises the remote monitoring of assets in real-time (including tracking
      and
      tracing) whereby location, time and sensor status are communicated. These
      products are deployed into diverse markets including homeland
      security, public safety, transportation services and construction.





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 segment 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. Our
      products combine positioning, wireless, and information technology and add
      measurable value to location-based information. 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.





***Recent
      Trends***





Astrata’s
      Telematics operations were strengthened during fiscal 2007 by the addition
      of
      certain key distribution partners in Western Europe and an increased presence
      in
      South East Asia based primarily on the successful delivery of the previously
      announced Hazmat (Hazardous Materials) Tracking Project to the Singapore Civil
      Defense Force.





Our
      Telematics strategy is to focus on the homeland security, hazardous materials,
      civil defense and business to business markets by providing our customers with
      comprehensive solutions to their needs. Frequently this involves the additional
      integration such as sensors ranging from Radio Frequency Identification (RFID)
      to biometrics, remote displays or augmenting technologies to allow tracking
      in
      tunnels.





In
      the
      first quarter of fiscal 2007, management reached a decision to divest the
      Geomatics business as part of a broader strategy to focus on the more developed
      Telematics markets in Europe, South East Asia and North America.





**Results
      of operations for the three months ended May 31, 2007 and
      2006**





As
      discussed above (see Note 12 to the condensed consolidated financial statements
      included elsewhere herein), the Company is discontinuing its operations and
      exiting South Africa. Accordingly, all South Africa operations are being
      reported as discontinued operations effective with the May 31, 2006
      quarter.





***Revenues***





Net
      sales
      from continuing operations were approximately $1 million for the three months
      ended May 31, 2007, an increase of approximately $0.6 million compared to the
      three months ended May 31, 2006 of approximately $0.4 million, Our normal
      revenue of approximately $1 million for the three months represents
      approximately a 236% increase quarter over quarter. During this quarter, we
      have
      begun deliveries under a contract pursuant to which will provide $93.5 million
      of our products and services as discussed in Note 4 to the condensed
      consolidated financial statements included elsewhere herein. The accounting
      for
      contract revenue and expenses under Statement of Position (“SOP”) No. 81-1,
“Accounting for Performance of Construction-Type and Certain Production-Type
      Contracts,” using the percentage-of-completion method; progress toward
      completion will be measured on a units-delivered basis. Under this method,
      revenue and the costs of earned revenue will be recorded as delivered units
      are
      deemed to be accepted by the customer.


2


Included
      in the table below are revenues deferred until all acceptance criteria have
      been
      met for the current three months and the total contract revenues. We have
      delivered to Phase I and are working in Phase II.





Current
            
            TotalQuarter
            
            ContractUnearned
            
            UnearnedRevenue
            
            RevenuePhase
                I
            
            $
            3,750,000
            
            $
            -Phase
                II
            
            
            
            
            
            2,492,000Phase
                III
            
            
            
            
            
            2,000,000Phase
                IV
            
            
            
            
            
            85,258,000Totals
            
            $
            3,750,000
            
            $
            89,750,000







***Gross
      Profit***





Gross
      profit increased approximately $0.4 million to approximately $0.5 million for
      the three months ended May 31, 2007 compared to the three months ended May
      31,
      2006 of approximately $0.1 million. Our normal gross margin (defined as gross
      profit divided by revenue) increased from 29% to 48%.





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





Selling
      general and administrative expenses for the three months ended May 31, 2007
      were
      approximately $3.4 million, an increase of approximately $1.9 million compared
      to the three months ended May 31, 2006 of approximately $1.5
      million.





In
      Asia,
      operating expenses for the three months ending May 31, 2007 were approximately
      2.9 million, compared to the three months ended May 31, 2006 of approximately
      $0.4 million. These expenses are primarily related to staffing, third party
      consultants, facilities and travel costs. The increase in these expenses was
      primarily due to the recognition of $2.8 million in bonuses paid to certain
      employees for securing $93.5 million in new business under a contract, (see
      note
      4 in the condensed consolidated financial statements included elsewhere
      herein).





***Net
      Results of Operations***





Our
      operating loss was approximately $3.4 million for the three months ended May
      31,
      2007 and operating loss of approximately $1.9 million for the three months
      ended
      May 31, 2006. The increase in these expenses was primarily due to the
      recognition of $2.8 million in bonuses paid to certain employees for securing
      $93.5 million in new business under a contract, (see note 4 in the condensed
      consolidated financial statements included elsewhere herein).





***Other
      income (expense)***





Interest
      expense for the three months ended May 31, 2007 was approximately $0.1 million
      as compared to $0.2 million for the quarter ended May 31, 2006. The fair value
      adjustment for a warrant liability was a benefit of approximately $0.3
      million for the quarter ended May 31, 2006.


3


***Net
      Results***





We
      are
      reporting a net loss of approximately $4.1 million or $0.19 per common share
      for
      the three months ended May 31, 2007 compared to a net loss of approximately
      $2.8
      million or $0.22 per common share for the three months ended May 31, 2006.
      Our
      continuing operations resulted in a net loss of approximately $3.9
      million for the three months ended May 31, 2007. The increase in net loss
      was primarily due to the recognition of $2.8 million in bonuses paid to certain
      employees for securing $93.5 million in new business under a contract, (see
      note
      4 in the condensed consolidated financial statements included elsewhere herein).
      After factoring in the deemed dividend to the preferred stockholders of
      approximately $0.1 million, our net loss from continuing
      operations applicable to common stockholders is approximately $4 million or
      $0.18 per common share; and approximately $1.8 million or $0.15 per common
      share
      for the three months ended May 31, 2006. Our discontinued operations resulted
      in
      loss of approximately $0.2 million or $0.01 per common share for the three
      months ended May 31, 2007 and a loss of approximately $0.9 million or $0.07
      per
      common share for the three months ended May 31, 2006. ******





***Liquidity
      and Capital Resources***





*Balance
      Sheet Comparison of May 31, 2007 to February 28, 2007*





Total
      assets increased by approximately $3.8 million from approximately $3.1 million
      as of February 28, 2007 to approximately $3.9 million as of May 31, 2007. The
      increase is due to the increase in cash of approximately $0.8 million and
      accounts receivable of approximately $3 million related to our $93.5 million
      contract.





Total
      liabilities increased by approximately $5.2 million from approximately $11.6
      million as of February 28, 2007 to approximately $13.3 million as of May 31,
      2007. The increase is due to an increase in trade and accrued payables of
      approximately $1.2 million ;
      billings in excess of costs and estimated earnings on uncompleted contract
      of
      approximately $3.1 million and an increase in other current liabilities of
      approximately $0.4 million.




*Statement
      of Cash Flow Changes*





Our
      operating activities provided approximately $0.6 million in cash during the
      three months ended May 31, 2007. Our net loss of approximately $4.1 million
      along with an increase in accounts receivable and inventories of approximately
      $3.2 million; offset by non-cash items of approximately $2.1 million which
      include depreciation and amortization, equity instruments used for compensation, billings
      in excess of costs and estimated earnings on uncompleted contract of
      approximately $3.1 million and an increase in accounts payable and accrued
      liabilities of approximately $1.6 million.





At
      May 31, 2007, the Company had negative working capital of approximately $11.2
      million. The primary reason for the working capital deficit is the level of
      accounts payable and accrued salaries and benefits of approximately $7.7 million
      and the deferred revenues and expenses under
      a
      contract pursuant to which will provide $93.5 million of our products and
      service recorded as billings in excess of costs and estimated earnings on
      uncompleted contract of approximately $3.1 million.





During
      the quarter, we used funds for investing of approximately $0.4 million into
      a
      restricted certificate of deposit which matures in August 2009.





Our
      cash flows provided by financing activities were approximately $1 million for
      the three months ended May 31, 2007. The Company received US$1 million of cash
      from the exercise of warrants to acquire two million shares of common stock.
      In
      order for the Company to finance operations and continue its growth plan,
      additional funding will be required from external sources. Management plans
      on
      funding operations through a combination of equity capital, lines of credit.
      Management is currently in negotiations with banks following the award of a
      $
      93.5 million dollar contract deliverable over two years to provide lines of
      credit based on this contract.





***Liquidity
      and Going Concern Considerations***





The
      accompanying consolidated financial statements 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 three months ended May 31, 2007, we had a net loss of
      approximately $4.1 million and positive cash flow from operating activities
      of
      approximately $0.6 million. In addition, we had a working capital deficit of
      approximately $11.2 million as of May 31, 2007.






4


Because
      of the matters discussed in the immediately preceding paragraph, the Company’s
      independent public accountants have added a going concern paragraph to their
      audit report on our February 28, 2007 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 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
      February 2006, management revised our business plan to focus on the more
      developed markets in Europe, South East Asia and North America.





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, 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
      February 2008.





Management
      is projecting growth in Telematics sales during fiscal 2008 and has announced
      a
      recent contract in this sector valued at $93.5 million for delivery over the
      next two financial years with further extensions to this order now under
      negotiation. Order books for delivery over the next two years now exceeds $110
      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 and lines of credit.
      Management is in discussion with banks for lines of credit and certain
      investors, who had expressed an interest in making investments in the Company.
      These discussions are ongoing; however, there can be no assurance of the outcome
      of these negotiations.





***Common
      Stock***





During
      the quarter ended May 31, 2007, an Investor who purchased 2.75 million shares
      of
      the Company’s Preferred Stock and received warrants to purchase common stock in
      October and November 2006, exercised certain J warrants and received 2 million
      shares of the Company’s restricted common stock in exchange for a cash payment
      of $1 million and issuance by the Company of a V warrant with the following
      terms: exercisable into 1.2 million shares of restricted common stock at $1.35
      per share, with a contractual life of five years. The common stock underlying
      the V warrant has the same registration rights as described in “The 10/13/06
      Equity Financing Transactions” section of Note 8 to the consolidated financial
      statements included in the Company’s February 28, 2007 Form 10-KSB filed with
      the SEC on May 30, 2007.





During
      the quarter ended May 31, 2007, the Company issued 1,340,000 shares of its
      restricted common stock for the conversion of 670,000 shares of preferred stock.




During
      the quarter ended May 31, 2007, the Company issued 94,520 shares of common
      stock
      for the exercise of employee stock options.





During
      the quarter ended May 31, 2007, the Company also issued 2,145,000 shares of
      its
      restricted common stock in exchange for services provided by employees. Such
      shares were valued at approximately $1,844,700 (estimated to be the fair value
      based on the trading price on the issuance date, with a 15% discount from the
      market price).





In
      April
      2007, in connection with the contract discussed in Note 4, the Company’s board
      of directors approved the issuance of 3,271,424 shares of restricted common
      stock to certain employees, officers and directors which will vest as follows:
      i) 1,635,712 shares upon the completion and delivery of 3,500 prototype units;
      ii) 1,635,712 upon the delivery of all remaining units to the customer. The
      individuals entitled to such award must be employed by the Company on the
      vesting dates.


5


***Off
      Balance Sheet Arrangements***





As
      of May
      31, 2007, there were no off balance sheet arrangements. Please refer to Note
      9
      (“Other Commitments and Contingencies’) to the Company’s condensed consolidated
      financial statements included elsewhere herein for additional
      information.





**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 subsidiary in international market results in exposure to
      fluctuations in foreign currency exchange rates. The potential of volatile
      foreign currency exchange rate fluctuation in the future could have a
      significant effect on our results of operations. During the three months ended
      May 31, 2007, we 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 explain their most
“critical accounting policies” in the Management Discussion and Analysis. The
      SEC indicated that a “critical accounting policies” 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 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 exclusively of finished goods at May 31, 2007. 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 ensuring 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 Standard 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 May
      31, 2007, 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 May 31, 2007. 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.


6


*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 asset 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





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 exits, 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 customers 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 is accounting for the contract described in Note 4 under American
      Institute of Certified Public Accountants (“AICPA”) Statement of Position 81-1
“Accounting for Performance of Construction-Type and Certain Production-Type
      Contracts” using the percentage-of-completion method; progress toward completion
      will be measured on a units-delivered basis. Under this method, revenue and
      the
      costs of earned revenue will be recorded as delivered units are deemed to be
      accepted by the customer, assuming that all other revenue recognition criteria
      have been met. The costs of earned revenue will be recognized on an average
      -
      per - unit basis, using the most recent estimate of total contract costs.
      Customer acquisition and similar costs are expensed as incurred.





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.





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.


7


*Discontinued
      operations*





The
      Company discontinued its South African operations in fiscal 2007. In accordance
      with SFAS No. 144, *Accounting
      for the Impairment of Long-Lived Assets and for Long-Lived Assets
      to*  *be
      Disposed of* ,
      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 will be) eliminated from the ongoing operations of the entity as a
      result of the disposal transaction, and (b) the Company will 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.





The
      Company’s condensed consolidated statements of operations have been reclassified
      to separately report discontinued operations.




*Derivative
      Financial Instruments*





The
      Company records all derivative financial instruments in its consolidated
      financial statements at estimated fair value, regardless of the purpose or
      intent for issuing or holding the instrument. Changes in the fair value of
      derivative financial instruments are either recognized periodically in the
      results of operations or in stockholders’ equity (deficit) as a component of
      accumulated other comprehensive income (loss), depending on whether the
      derivative instrument qualifies for hedge accounting as defined by SFAS No.
      133,
“Accounting for Derivative Instruments and Hedging Activities” and related
      interpretations. Changes in the fair value of derivatives no qualifying for
      hedge accounting are included in the results of operations as they
      occur.





*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.





*Deferred
      tax asset valuation allowance/Deferred tax benefit*


The
        Company accounts for income taxes
        under the provisions of SFAS No. 109, *Accounting for Income Taxes*. In
        assessing the realizability of deferred tax assets under this pronouncement,
        management considers whether it is more likely than not that any given deferred
        tax asset will be realized. Based on this criterion, the Company had a 100%
        valuation allowance against its net deferred tax assets at February 28,
        2007.
 
 As
        at May 31, 2007, the Company
        had net deferred income tax assets of $160,000. The Company’s management
        assesses realization of its deferred tax assets based on all available evidence
        in order to conclude whether it is more likely than not that the deferred
        tax
        assets will be realized. Available evidence considered by the management
        includes, but is not limited to, the Company’s historic operation results,
        projected future operating earnings results, reversing temporary differences,
        contracted sales backlog at May 31, 2007, changing business circumstances,
        and the ability to realize certain deferred tax assets through loss and tax
        credit carryback strategies. At May 31, 2007, the Company has determined
        that insufficient positive evidence exists to conclude that the deferred
        tax
        assets will be realized within the evaluation period.


*Registration
      Payment Arrangements*





On
      December 21, 2006, the Financial Accounting Standards Board (the “FASB”) issued
      FASB Staff Position (FSP) EITF 00-19-2, "Accounting for Registration
      Payment Arrangements" (the "FSP"). Under this pronouncement,
      contingently payable registration payment arrangements are accounted for
      separately from and do not affect the classification of the underlying shares,
      warrants, or other financial instruments subject to the registration payment
      provisions. This was accomplished by amending SFAS No. 133 and No. 150 to
      include scope exceptions for registration payment arrangements. A liability
      for
      a registration payment arrangement should be recognized when payment is probable
      and the amount is reasonably estimable (whether at inception or during the
      life of the arrangement) in accordance with SFAS
      No. 5, "Accounting for Contingencies."


8


The
        FSP
        is effective for registration payment arrangements and the financial instruments
        subject to such arrangements that are entered into or modified after
        December 21, 2006. For registration payment arrangements and financial
        instruments subject to those arrangements that were entered into before
        December 22, 2006, companies are required to account
        for transitioning to the FSP through a cumulative-effect adjustment to
        the opening balance of accumulated deficit or retained earnings in fiscal
        years
        beginning after December 15, 2006. However, early adoption of this
        pronouncement for interim or annual periods for which financial statements
        or interim reports have not been issued is permitted. Accordingly, the Company
        adopted the FSP effective with the quarter ended November 30, 2006.




**Other
      Recently Issued Accounting Pronouncements**





Except
      as
      described in “Registration Payment Arrangements” immediately above and the
      following two paragraphs, in the opinion of management neither the FASB
      (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, 2007 Form 10-KSB that are believed by
      management to have a material impact on the Company’s present or future
      consolidated financial Statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115 *.* ”
This
      standard permits an entity to measure many financial instruments and certain
      other items at estimated fair value. Most of the provisions of SFAS No. 159
      are
      elective; however, the amendment to SFAS No. 115 (“Accounting for Certain
      Investments in Debt and ** Equity
      Securities”) applies to all entities that own trading and available-for-sale
      securities.





The
      fair
      value option created by SFAS No. 159 permits an entity to measure eligible
      items
      at fair value as of specified election dates. Among others, eligible items
      exclude (1) financial instruments classified (partially or in total) as
      permanent or temporary stockholders’ equity (such as a convertible debt security
      with a non-contingent beneficial conversion feature) and (2) investments in
      subsidiaries and interests in variable interest entities that must be
      consolidated. A for-profit business entity will be required to report unrealized
      gains and losses on items for which the fair value option has been elected
      in
      its statements of operations at each subsequent reporting date. The fair value
      option (a) may generally be applied instrument by instrument, (b) is irrevocable
      unless a new election date occurs, and (c) must be applied to the entire
      financial instrument and not to only a portion of the instrument.





SFAS
      No.
      159 is effective as of the beginning of the first fiscal year that begins after
      November 15, 2007. Early adoption is permitted as of the beginning of the
      previous fiscal year provided that the entity (i) makes that choice in the
      first
      120 days of that year, (ii) has not yet issued financial statements for any
      interim period of such year, and (iii) elects to apply the provisions of SFAS
      No. 157 (see the next paragraph) *.*





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* ,
      which
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This pronouncement 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 and related amendments. 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 operation.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108
      entitled *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* .
      SAB 108
      provides interpretive guidance on how to evaluate the materiality of an
      uncorrected misstatement in the current year’s financial statements using both
      an income statement approach (the “rollover approach”) and a balance sheet
      approach (the “iron curtain approach”). The latter method quantifies a
      misstatement based on the effects of correcting the cumulative misstatement
      existing in the balance sheet at the end of the current year, with the objective
      of avoiding a build-up of improper amounts from prior years’ errors in the
      balance sheet. The rollover approach quantifies a misstatement based on the
      amount of the error originating in the current year’s statement of operations.
      When prior periods are not restated, SAB 108 is effective for annual financial
      statements for years ended after November 15, 2006. SAB 108 did not have a
      material effect on the accompanying consolidated financial statements.


9


In
      June
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48, which is an interpretation of SFAS No. 109, *Accounting
      for Income Taxes* ,
      seeks
      to reduce the diversity in practice associated with certain aspects of
      measurement and recognition in accounting for income taxes. FIN 48 clarifies
      when tax benefits should be recorded in financial statements and indicates
      how
      any tax reserves should be classified in the balance sheet. In addition, FIN
      48
      requires expanded disclosure with respect to the uncertainty in income taxes.
      This pronouncement is effective for the Company in the first quarter of fiscal
      2008. Management is currently analyzing the effects of adopting FIN 48, but
      currently does not anticipate that its adoption will have a material impact
      on
      the Company’s financial condition or results of operations.





Other
      recent accounting pronouncements issued by the FASB (including its Emerging
      Issues Task Force, or “EITF”), the AICPA, and the SEC did not or are not
      believed by management to have a material impact on the Company’s present or
      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 May 31, 2007 our
      disclosure controls and procedures are effective. There have been no significant
      changes in our internal controls over financial reporting during the quarter
      ended May 31, 2007 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


**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**




There
      were no material changes from the risk factors
      disclosed in the Company's February 28, 2007 Form 10-KSB filed with the SEC
      on
      May 30, 2007.





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





***Common
      Stock***





During
      the quarter ended May 31, 2007, an Investor who purchased 2.75 million shares
      of
      the Company’s Preferred Stock and received warrants to purchase common stock in
      October and November 2006, exercised certain J warrants and received 2 million
      shares of the Company’s restricted common stock in exchange for a cash payment
      of $1 million and issuance by the Company of a V warrant with the following
      terms: exercisable into 1.2 million shares of restricted common stock at $1.35
      per share, with a contractual life of five years. The common stock underlying
      the V warrant has the same registration rights as described in “The 10/13/06
      Equity Financing Transactions” section of Note 8 to the consolidated financial
      statements included in the Company’s February 28, 2007 Form 10-KSB filed with
      the SEC on May 30, 2007. The transactions described in this paragraph
      constituted exempt offerings under Section 4(2) of the Securities
      Act.





During
      the quarter ended May 31, 2007, the Company issued 1,340,000 shares of its
      restricted common stock for the conversion of 670,000 shares of preferred stock.
      The transactions described in this paragraph constituted exempt offerings under
      Section 4(2) of the Securities Act.




During
      the quarter ended May 31, 2007, the Company issued 1,340,000 shares of its
      restricted common stock for the conversion of 670,000 shares of preferred stock.
      The transactions described in this paragraph constituted exempt offerings under
      Section 4(2) of the Securities Act.




During
      the quarter ended May 31, 2007, the Company issued 94,520 shares of common
      stock
      for the exercise of employee stock options.





During
      the quarter ended May 31, 2007, the Company also issued 2,145,000 shares of
      its
      restricted common stock in exchange for services provided by employees. Such
      shares were valued at approximately $1,844,700 (estimated to be the fair value
      based on the trading price on the issuance date, with a 15% discount from the
      market price).





In
      April
      2007, in connection with the contract discussed in Note 4, the Company’s board
      of directors approved the issuance of 3,271,424 shares of restricted common
      stock to certain employees, officers and directors which will vest as follows:
      i) 1,635,712 shares upon the completion and delivery of 3,500 prototype units;
      ii) 1,635,712 upon the delivery of all remaining units to the customer. The
      individuals entitled to such award must be employed by the Company on the
      vesting dates.








**Item
      6: Exhibits**





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




11


**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**








By: /s/
      MARTIN
      EULER


Martin
      Euler       Date:  
      July 23, 2007


Chief
      Executive Officer,


Chief
      Financial Officer,


Principal
      Accounting Officer and Secretary


12


**EXHIBIT
      INDEX**





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






13