UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





**FORM
      10-QSB**





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





For
      the
      quarterly period ended: **August 31, 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
              
              84-1408762(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 September 28, 2007: 25,629,891





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 August 31, 2007
              F-1Condensed
                  Consolidated Statements of Operations and Comprehensive Loss for
                  the three
                  and six months ended August 31, 2007 and 2006
              F-2Condensed
                  Consolidated Statements of Cash Flows for the six months ended
                  August 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
              12Item
                2
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              12Item
                6
              Exhibits
              12


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 August 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****August
                  31, 2007**
 
 ***ASSETS*****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              932,437Trade
                  and other receivables, net
              
              
              2,516,229Inventories
              
              
              201,438Other
                  assets
              
              
              342,079Discontinued
                  operations - current assets
              
              
              95,023Total
                  current assets
              
              
              4,087,206Property
                  and equipment, net
              
              
              689,618Certificate
                  of deposit-restricted
              
              
              412,987Goodwill
              
              
              300,000Discontinued
                  operations - other assets
              
              
              69,666**Total
                  assets**
              
              $
              5,559,477***LIABILITIES
                  AND STOCKHOLDERS' DEFICIT*****Current
                  liabilities**Accounts
                  payable
              
              $
              5,748,586Salaries
                  and benefits payable to officers and directors
              
              
              2,075,394Registration
                  rights penalties
              
              
              560,711Interest
                  payable
              
              
              849,894Income
                  taxes and related penalties payable
              
              
              508,306Notes
                  payable to stockholders
              
              
              1,884,000Advances
                  from stockholders
              
              
              57,184Discontinued
                  operations - current liabilities
              
              
              244,831Current
                  portion of long-term liabilities
              
              
              1,386,533Billings
                  in excess of costs and estimated earnings on uncompleted
                  contract
              
              
              2,513,240Other
                  current liabilities
              
              
              384,604Total
                  current liabilities
              
              
              16,213,283Long-term
                  liabilities
              
              
              12,583**Total
                  liabilities**
              
              
              16,225,866Minority
                  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
              
              
              280Common
                  stock, $0.0001 par value, 100,000,000 sharesauthorized,
                  28,901,315 shares issuedand
                  25,629,891 shares outstanding
              
              
              2,564Additional
                  paid-in-capital, net
              
              
              32,514,957Accumulated
                  deficit
              
              
              (42,756,789
              )Accumulated
                  other comprehensive loss
              
              
              (467,515
              )Total
                  stockholders' deficit
              
              
              (10,706,503
              )Total
                  liabilities and stockholders' deficit
              
              $
              5,559,477
 
 See
                  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 AND SIX MONTHS ENDED AUGUST 31, 2007 AND
                  2006****(UNAUDITED)**
 
 THREE
                  MONTHS
              
              
              SIX
                  MONTHS2007
              
              
              2006
              
              
              2007
              
              
              2006Net
                  sales
              
              $
              1,615,133
              
              
              $
              912,868
              
              
              $
              2,620,801
              
              
              $
              1,339,206Cost
                  of goods sold
              
              
              893,382
              
              
              
              670,888
              
              
              
              1,413,485
              
              
              
              975,576Gross
                  profit
              
              
              721,751
              
              
              
              241,980
              
              
              
              1,207,316
              
              
              
              363,630Other
                  selling, general and administrative expenses
              
              
              2,083,044
              
              
              
              1,696,873
              
              
              
              5,707,380
              
              
              
              3,237,889Research
                  and development
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Stock-based
                  compensation
              
              
              205,270
              
              
              
              265,238
              
              
              
              418,199
              
              
              
              728,946Operating
                  loss
              
              
              (1,566,563
              )
              
              
              (1,720,131
              )
              
              
              (4,918,263
              )
              
              
              (3,603,205
              )Other
                  income (expense):Interest
                  expense
              
              
              (121,358
              )
              
              
              (206,699
              )
              
              
              (214,807
              )
              
              
              (435,589
              )Change
                  in fair value of derivative warrant liability
              
              
              -
              
              
              
              22,000
              
              
              
              -
              
              
              
              306,996Loss
                  on sale of assets
              
              
              -
              
              
              
              (2,346
              )
              
              
              -
              
              
              
              (2,346
              )Other
                  income
              
              
              55
              
              
              
              32,789
              
              
              
              1,637
              
              
              
              33,105Total
                  other income (expense)
              
              
              (121,303
              )
              
              
              (154,256
              )
              
              
              (213,170
              )
              
              
              (97,834
              )Loss
                  before minority interest and provision for income taxes
              
              
              (1,687,866
              )
              
              
              (1,874,387
              )
              
              
              (5,131,433
              )
              
              
              (3,701,039
              )Income
                  tax provision
              
              
              -
              
              
              
              -
              
              
              
              500,000
              
              
              
              -Loss
                  before minority interest
              
              
              (1,687,866
              )
              
              
              (1,874,387
              )
              
              
              (5,631,433
              )
              
              
              (3,701,039
              )Minority
                  interest
              
              
              -
              
              
              
              335
              
              
              
              -
              
              
              
              -Equity
                  in net loss of affiliate
              
              
              -
              
              
              
              (7,067
              )
              
              
              -
              
              
              
              (18,828
              )Loss
                  from continuing operations
              
              
              (1,687,866
              )
              
              
              (1,881,119
              )
              
              
              (5,631,433
              )
              
              
              (3,719,867
              )Gain
                  (Loss) on discontinued operations, net of tax
              
              
              (78
              )
              
              
              1,420,370
              
              
              
              (170,085
              )
              
              
              489,196Net
                  loss
              
              $
              (1,687,944
              )
              
              $
              (460,749
              )
              
              $
              (5,801,518
              )
              
              $
              (3,230,671
              )Net
                  loss from continuing operations applicableto
                  common stockholders consists of the following:Net
                  loss from continuing operations
              
              $
              (1,687,866
              )
              
              $
              (1,881,119
              )
              
              $
              (5,631,433
              )
              
              $
              (3,719,867
              )Cumulative
                  undeclared dividends on preferred stock
              
              
              (56,000
              )
              
              
              -
              
              
              
              (112,000
              )
              
              
              -Net
                  loss from continuing operations applicableto
                  common stockholders
              
              $
              (1,743,866
              )
              
              $
              (1,881,119
              )
              
              $
              (5,743,433
              )
              
              $
              (3,719,867
              )Comprehensive
                  loss andits
                  components consist of the following:Net
                  loss
              
              $
              (1,687,944
              )
              
              $
              (460,749
              )
              
              $
              (5,801,518
              )
              
              $
              (3,230,671
              )Foreign
                  currency translation adjustment, net of tax
              
              
              (141,834
              )
              
              
              50,843
              
              
              
              (467,515
              )
              
              
              (32,677
              )Comprehensive
                  loss
              
              $
              (1,829,778
              )
              
              $
              (409,906
              )
              
              $
              (6,269,033
              )
              
              $
              (3,263,348
              )Basic
                  and diluted earnings (loss) per common share:Continuing
                  operations applicable to common stockholders
              
              $
              (0.07
              )
              
              $
              (0.14
              )
              
              $
              (0.24
              )
              
              $
              (0.29
              )Discontinued
                  operations
              
              
              -
              
              
              
              0.11
              
              
              
              (0.01
              )
              
              
              0.04$
              (0.07
              )
              
              $
              (0.03
              )
              
              $
              (0.25
              )
              
              $
              (0.25
              )Weighted
                  average common shares outstanding:Basic
                  and diluted
              
              
              23,406,905
              
              
              
              13,080,970
              
              
              
              23,168,760
              
              
              
              12,920,103See
                  accompanying notes to these condensed consolidated financial
                  statements.
 F-2


**ASTRATA
                  GROUP INCORPORATED AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR
                  THE SIX MONTHS ENDED AUGUST 31, 2007 AND 2006****(UNAUDITED)**
 
 2007
              
              
              2006(As
                  Restated)**CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (5,801,518
              )
              
              $
              (3,230,671
              )Adjustments
                  to reconcile net loss to netcash
                  used in operating activitiesGain
                  on sale of property and equipment
              
              
              -
              
              
              
              (7,394
              )Gain
                  on forgiveness of debt
              
              
              -
              
              
              
              (332,691
              )Depreciation
                  and amortization
              
              
              193,138
              
              
              
              266,270Gain
                  on disposal transactions relating to discontinued
                  operations
              
              
              (59,386
              )
              
              
              (1,810,098
              )Loss
                  on early termination of lease
              
              
              -
              
              
              
              101,886Amortization
                  of deferred compensation cost
              
              
              -
              
              
              
              200,250Deferred
                  financing costs and debt discount
              
              
              -
              
              
              
              (58,383
              )Issuance
                  of common stock for services
              
              
              -
              
              
              
              38,252Stock-based
                  compensation
              
              
              2,303,359
              
              
              
              728,945Equity
                  in net loss (earnings) of affiliate
              
              
              -
              
              
              
              18,828Minority
                  interest
              
              
              -
              
              
              
              (6,535
              )Unrealized
                  foreign currency exchange gain
              
              
              -
              
              
              
              (16,922
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,619,774
              )
              
              
              2,635,709Inventories
              
              
              (83,269
              )
              
              
              2,857,494Billings
                  in excess of costs and estimated earnings on uncompleted
                  contract
              
              
              2,513,240
              
              
              
              -Other
                  assets
              
              
              449,021
              
              
              
              139,222Accounts
                  payable and accrued liabilities
              
              
              2,365,640
              
              
              
              (1,265,163
              )Taxes
                  and related penalties payable
              
              
              493,420
              
              
              
              6,401Deferred
                  tax liability
              
              
              -
              
              
              
              (14,893
              )Net
                  cash provided by operating activities
              
              $
              753,871
              
              
              $
              250,507**CASH
                  FLOW FROM INVESTING ACTIVITIES:**Purchase
                  of property and equipment
              
              
              (308,435
              )
              
              
              50,501Proceeds
                  from sale of assets
              
              
              -
              
              
              
              36,978Investment
                  in affiliates
              
              
              11,741
              
              
              
              (135,491
              )Certificate
                  of deposit-restricted
              
              
              (412,987
              )
              
              
              (47,592
              )Net
                  cash used in investing activities
              
              
              (709,681
              )
              
              
              (95,604
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Repayment
                  of long term liabilities
              
              
              (12,158
              )
              
              
              (279,298
              )Proceeds
                  from notes payable
              
              
              179,323
              
              
              
              -Lines
                  of credit, net
              
              
              -
              
              
              
              (1,149,790
              )Proceeds
                  from advances to stockholders
              
              
              -
              
              
              
              731,017Proceeds
                  from warrants exercised for common stock
              
              
              1,000,000
              
              
              
              -Net
                  cash provided by financing activities
              
              
              1,167,165
              
              
              
              (698,071
              )**Effect
                  of foreign currency exchange rate changes****on
                  cash and cash equivalents**
              
              
              (458,289
              )
              
              
              178,116**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              753,066
              
              
              
              (365,052
              )**Cash
                  and cash equivalents at beginning of period**
              
              
              179,371
              
              
              
              436,532**Cash
                  and cash equivalents at end of period**
              
              $
              932,437
              
              
              $
              71,480See
                  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 AND SIX MONTHS ENDED AUGUST 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 AND SIX MONTHS ENDED AUGUST 31, 2007 AND 2006
 (UNAUDITED)





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





***Liquidity
      and Going Concern Considerations***





For
      the
      six months ended August 31, 2007, we had a net loss of approximately $5.8
      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 $0.8 million, and although we have begun to receive progress
      payments under the contract, such amount has not been recognized as revenue
      at
      August 31, 2007. In addition, we had a working capital deficit of approximately
      $12.1 million and a stockholders’ deficit of approximately $10.7 million as of
      August 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 February 2008. 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 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 AND SIX MONTHS ENDED AUGUST 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 August
      31, 2007, the Company’s cash balances in U.S. bank accounts totaled
      approximately $14,000, which is within the Federal Deposit Insurance Corporation
      limit of $100,000.





The
      certificate of deposit described below (approximately $413,000 at August 31,
      2007) is with a Singapore bank. Because the funds deposited were in US. 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 August 31, 2007 of approximately $22,000 to be
      adequate.




F-6
 
 ASTRATA
          GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 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 August 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
      August 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 AND SIX MONTHS ENDED AUGUST 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
      Augusts 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 AND SIX MONTHS ENDED AUGUST 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 $418,000 for
      the
      six months ended August 31, 2007 and $729,000 for the six months ended August
      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 AND SIX MONTHS ENDED AUGUST 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 August 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
              
              
              
              2.6
              
              
              
              -Total
              
              
              930,230
              
              
              
              
              
              
              
              
              
              
              $
              -




*(a)*
            *These
                amounts represent the difference between the exercise price and $0.90,
                the
                closing market price of the Company’s common stock on August 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
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -August
                  31, 2007
              
              
              1,291,925
              
              
              
              930,230
              
              
              $
              3.78
              
              
              $
              -Options
                  exercisable at:February
                  28, 2007
              
              
              
              
              
              
              549,833
              *
              
              $
              4.10August
                  31, 2007
              
              
              
              
              
              
              483,166
              
              
              $
              4.49





*(b)*
            *Represents
                the excess (if any) of the February 28, 2007 or August 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 AND SIX MONTHS ENDED AUGUST 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. 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 August 31, 2007:




Europe
              
              
              Asia
              
              
              TotalFinished
                  goods
              
              $
              9,319
              
              
              $
              192,119
              
              
              $
              201,438








**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 is
      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 they will
      initially recognize revenue under the Contract by the fourth quarter of fiscal
      2008.





During
      the six months ended August 31, 2007, the Company received progress payments
      of
      approximately $3 million toward approximately $4.5 million invoiced and recorded
      capitalized Contract costs of approximately $2.0 million.  Such
      amounts are reported net in the accompanying condensed consolidated balance
      sheet as “Billings in excess of costs and estimated earnings on uncompleted
      contract.”  The Company also received progress payments of
      approximately $0.6 million during September 2007.





F-11
 
 ASTRATA
          GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 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 August 31, 2007.  Accordingly, the Company’s
      condensed consolidated statement of operations for the six months 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
      August 2007, the Company received an
      unsecured note payable which is due on February 11, 2008 and carries no interest
      and the imputed interest is insignificant.  This note replaces
      approximately $130,000 of accrued payable. The balance of the note is
      approximately $133,000 at August 31, 2007 and is included in current portion
      of
      long term liabilities in the accompanying condensed consolidated balance
      sheet.





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 August 31, 2007 and is included in current portion of long term
      liabilities in the accompanying condensed consolidated balance
      sheet.





An
      unsecured note payable by the
      Company with a principal balance of $1.2 million at August 31, 2007 (the “Note
      Payable”) was due in three equal instalments of $400,000; the first two
      instalments were due prior to June 1, 2007.  In addition, as of the
      date that this Form 10-QSB was filed with the SEC, the third instalment 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 August 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 August 31, 2007.




F-12
 
 ASTRATA
          GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 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
              
              
              $
              2.221,043,106
                  warrants issued in April/May 2005
              
              
              3.50
              
              
              
              1.68Other
                  warrants issued after February 28, 2005:108,196
                  warrants
              
              
              5.00
              
              
              
              2.224,955
                  warrants
              
              
              3.50
              
              
              
              1.68$1,884,000
                  of convertible debt
              
              
              5.00
              
              
              
              2.22







**8.  EQUITY
      TRANSACTIONS**





During
      the quarter ended August 31,
      2007, the Company issued 62,235 shares of its unrestricted common stock in
      exchange for services provided by consultants.  Such shares were
      valued at approximately $61,000 (estimated to be the fair value based on the
      trading price on the issuance date).





During
      the quarter ended August 31,
      2007, the Company issued 245,531 shares of its restricted common stock in
      exchange for services provided by consultants. Such shares were valued at
      approximately $166,000 (estimated to be the fair value based on the trading
      price on the issuance date).




During
        the quarter ended August 31,
        2007, the Company issued 887,642 shares of its restricted common stock in
        exchange for services provided by consultants. Such shares were valued at
        approximately $689,000 (estimated to be the fair value based on the trading
        price on the issuance date).




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).





F-13
 
 ASTRATA
          GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2007 AND 2006
 (UNAUDITED)





**8.  EQUITY
      TRANSACTIONS** (continued)





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 upon the delivery of all remaining proprietary
      Telematics systems to the customer.  The individuals entitled to such
      award 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.








**9.  OTHER
      COMMITMENTS AND CONTINGENCIES**





***Legal
      Matters***





From
      time to time, the Company may be
      involved in various claims, lawsuits, and 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 August 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 $31,000 and
      $33,000 for the three months ended August 31, 2007 and 2006,
      respectively.  Rent expense approximated $51,000 and $59,000 for the six
      months ended August 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 August 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.





F-14
 
 ASTRATA
          GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND SIX MONTHS ENDED AUGUST 31, 2007 AND 2006
 (UNAUDITED)





**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.





***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 August 31, 2007:Property
                  andEquipment,
              
              
              
              
              
              Gross
              
              
              Operating
              
              
              Operatingnet
              
              
              Revenue
              
              
              Profit
              
              
              Expenses
              
              
              (Loss)Asia
              
              $
              582,672
              
              
              $
              1,448,215
              
              
              $
              594,373
              
              
              $
              863,134
              
              
              $
              (268,761
              )United
                  states
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,012,924
              
              
              $
              (1,012,924
              )Western
                  Europe
              
              
              106,946
              
              
              
              166,918
              
              
              
              127,378
              
              
              
              412,256
              
              
              $
              (284,878
              )Total
              
              $
              689,618
              
              
              $
              1,615,133
              
              
              $
              721,751
              
              
              $
              2,288,314
              
              
              $
              (1,566,563
              )
 
 For
                  the three months ended August 31, 2006:Property
                  andEquipment,
              
              
              
              
              
              Gross
              
              
              Operating
              
              
              Operatingnet
              
              
              Revenue
              
              
              Profit
                  (Loss)
              
              
              Expenses
              
              
              (Loss)Asia
              
              $
              530,302
              
              
              $
              742,983
              
              
              $
              254,318
              
              
              $
              267,594
              
              
              $
              (13,276
              )United
                  states
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              912,480
              
              
              $
              (912,480
              )Western
                  Europe
              
              
              140,306
              
              
              
              169,885
              
              
              
              (12,338
              )
              
              
              782,037
              
              
              $
              (794,375
              )Total
              
              $
              670,608
              
              
              $
              912,868
              
              
              $
              241,980
              
              
              $
              1,962,111
              
              
              $
              (1,720,131
              )




See
      Note 3 for geographic information
      on inventory.


F-15


ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND SIX MONTHS ENDED AUGUST 31, 2007 AND 2006
 (UNAUDITED)





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





***Geographic
      Information***(continued)




For
                  the six months ended August 31, 2007:Property
                  andEquipment,
              
              
              
              
              
              Gross
              
              
              Operating
              
              
              Operatingnet
              
              
              Revenue
              
              
              Profit
              
              
              Expenses
              
              
              (Loss)Asia
              
              $
              582,672
              
              
              $
              2,333,589
              
              
              $
              976,864
              
              
              $
              3,798,453
              
              
              $
              (2,821,589
              )United
                  states
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,621,286
              
              
              $
              (1,621,286
              )Western
                  Europe
              
              
              106,946
              
              
              
              287,212
              
              
              
              230,452
              
              
              
              705,840
              
              
              $
              (475,388
              )Total
              
              $
              689,618
              
              
              $
              2,620,801
              
              
              $
              1,207,316
              
              
              $
              6,125,579
              
              
              $
              (4,918,263
              )
 
 For
                  the six months ended August 31, 2006:Property
                  andEquipment,
              
              
              
              
              
              Gross
              
              
              Operating
              
              
              Operatingnet
              
              
              Revenue
              
              
              Profit
                  (Loss)
              
              
              Expenses
              
              
              (Loss)Asia
              
              $
              530,302
              
              
              $
              1,107,871
              
              
              $
              426,325
              
              
              $
              693,252
              
              
              $
              (266,927
              )United
                  states
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,050,067
              
              
              $
              (2,050,067
              )Western
                  Europe
              
              
              140,306
              
              
              
              231,335
              
              
              
              (62,695
              )
              
              
              1,223,516
              
              
              $
              (1,286,211
              )Total
              
              $
              670,608
              
              
              $
              1,339,206
              
              
              $
              363,630
              
              
              $
              3,966,835
              
              
              $
              (3,603,205
              )




See
      Note 3 for geographic information
      on inventory.








**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 and six months ended
      August 31, 2007 and 2006.




Three
                  Months
              
              
              Three
                  Months
              
              
              Six
                  Months
              
              
              Six
                  MonthsAugust
                  31, 2007
              
              
              August
                  31, 2006
              
              
              August
                  31, 2007
              
              
              August
                  31, 2006Numerator
                  for basic and diluted loss percommon
                  share:Net
                  loss from continuing operations
              
              $
              (1,687,866
              )
              
              $
              (1,881,119
              )
              
              $
              (5,631,433
              )
              
              $
              (3,719,867
              )Cumulative
                  undeclared dividends on preferred stock
              
              
              (56,000
              )
              
              
              -
              
              
              
              (112,000
              )
              
              
              -Total
                  net loss from continuing operationscharged
                  to common shareholders
              
              $
              (1,743,866
              )
              
              $
              (1,881,119
              )
              
              $
              (5,743,433
              )
              
              $
              (3,719,867
              )Denominator
                  for basic and diluted loss per common share:Weighted
                  average number of common shares outstanding
              
              
              23,406,905
              
              
              
              13,080,970
              
              
              
              23,168,760
              
              
              
              12,920,103Basic
                  and diluted loss per common share:from
                  continuing operations
              
              $
              (0.07
              )
              
              $
              (0.14
              )
              
              $
              (0.24
              )
              
              $
              (0.29
              )






F-16


ASTRATA
        GROUP INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND SIX MONTHS ENDED AUGUST 31, 2007 AND 2006
 (UNAUDITED)
  **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 six months ended August 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 August 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 August
      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.





***Other
      Matters***





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




AssetsTrade
                  and other receivables
              
              $
              95,023Other
                  current assets
              
              
              69,666Total
              
              $
              164,689LiabilitiesTrade
                  and accrued payables
              
              $
              244,831






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 August 31, 2007, together with the results of operations for
      the
      three and six months ended August 31, 2007 and 2006, and cash flows for the
      six
      months ended August 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.




Page
          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 August 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 $1.6 million for the three months
      ended August 31, 2007, an increase of approximately $0.7 million compared to
      the
      three months ended August 31, 2006 of approximately $0.9 million, Our normal
      revenue of approximately $1.6 million for the three months represents
      approximately a 77% increase quarter over quarter. During the quarter ending
      May
      31, 2007, 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.





Page
          2




Included
      in the table below are deliveries against deferred revenues until all acceptance
      criteria have been met for revenue recognition..


Current
                    Quarter
                
                
                Prior
                    Quarter
                
                
                Remaining
                    ContractDeliveries
                    Against
                
                
                Deliveries
                    Against
                
                
                Deliveries
                    AgainstUnearned
                    Revenue
                
                
                Unearned
                    Revenue
                
                
                Unearned
                    Revenue
                
                
                TotalPhase
                    I
                
                
                
                
                $
                3,750,000
                
                
                $
                -
                
                
                $
                3,750,000Phase
                    II
                
                $
                729,000
                
                
                
                
                
                
                
                1,763,000
                
                
                
                2,492,000Phase
                    III
                
                
                
                
                
                
                
                
                
                
                2,000,000
                
                
                
                2,000,000Phase
                    IV
                
                
                
                
                
                
                
                
                
                
                85,258,000
                
                
                
                85,258,000Totals
                
                $
                729,000
                
                
                $
                3,750,000
                
                
                $
                89,021,000
                
                
                $
                93,500,000




***Gross
      Profit***





Gross
      profit increased approximately $0.5 million to approximately $0.7 million for
      the three months ended August 31, 2007 compared to the three months ended August
      31, 2006 of approximately $0.2 million. Our normal gross margin (defined as
      gross profit divided by revenue) increased from 27% to 45%.





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





Selling
      general and administrative expenses for the three months ended August 31, 2007
      were approximately $2.1 million, an increase of approximately $0.4 million
      compared to the three months ended August 31, 2006 of approximately $1.7
      million.





In
      Asia,
      operating expenses for the three months ending August 31, 2007 were
      approximately $0.9 million, compared to the three months ended August 31, 2006
      of approximately $0.3 million. In Europe, operating expenses for the three
      months ending August 31, 2007 were approximately $0.4 million with Corporate
      at
      approximately $1.0 million, compared Europe operating expenses for the three
      months ended August 31, 2006 of approximately $0.8 million with Corporate at
      approximately $0.9 million.  These expenses are primarily related to
      staffing, third party consultants, facilities and travel costs.





***Net
      Results of Operations***





Our
      operating loss was approximately $1.6 million for the three months ended August
      31, 2007 and operating loss of approximately $1.7 million for the three months
      ended August 31, 2006.





***Other
      income (expense)***





Interest
      expense was approximately $0.1 million for the three months ended August 31,
      2007 and $0.2 million in 2006.





***Net
      Results***





We
      are
      reporting a net loss of approximately $1.7 million or $(0.07) per common share
      for the three months ended August 31, 2007 compared to a net loss of
      approximately $0.5 million or $(0.03) per common share for the three months
      ended August 31, 2006.   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
      $1.8 million or $(0.07) per common share for the three months ended August
      31,
      2007; and approximately $1.9 million or $(0.14) per common share for the three
      months ended August 31, 2006. Our discontinued operations resulted in a profit
      of approximately $1.4 million or $0.11 per common share for the three months
      ended August 31, 2006.   ******





Page
          3


**Results
      of operations for the six months ended August 31, 2007 and
      2006**





***Revenues***





Net
      sales
      from continuing operations were approximately $2.6 million for the six months
      ended August 31, 2007, an increase of approximately $1.3 million compared to
      the
      six months ended August 31, 2006 of approximately $1.3 million, Our normal
      revenue of approximately $2.6 million for the six months represents
      approximately a 96% increase quarter over quarter. During this six months,
      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.





Included
      in the table below are
      deliveries against deferred revenues until all acceptance criteria have been
      met
      for revenue recognition.


YTD
                
                
                Remaining
                    ContractDeliveries
                    Against
                
                
                Deliveries
                    AgainstUnearned
                    Revenue
                
                
                Unearned
                    Revenue
                
                
                TotalPhase
                    I
                
                $
                3,750,000
                
                
                $
                -
                
                
                $
                3,750,000Phase
                    II
                
                
                729,000
                
                
                
                1,763,000
                
                
                
                2,492,000Phase
                    III
                
                
                
                
                
                
                2,000,000
                
                
                
                2,000,000Phase
                    IV
                
                
                
                
                
                
                85,258,000
                
                
                
                85,258,000Totals
                
                $
                4,479,000
                
                
                $
                89,021,000
                
                
                $
                93,500,000




***Gross
      Profit***





Gross
      profit increased approximately $0.8 million to approximately $1.2 million for
      the six months ended August 31, 2007 compared to the six months ended August
      31,
      2006 of approximately $0.4 million. Our normal gross margin (defined as gross
      profit divided by revenue) increased from 27% to 46%.





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





Selling
      general and administrative expenses for the six months ended August 31, 2007
      were approximately $5.7 million, an increase of approximately $2.5 million
      compared to the six months ended August 31, 2006 of approximately $3.2
      million.





In
      Asia,
      operating expenses for the six months ending August 31, 2007 were approximately
      $3.8 million, compared to the six months ended August 31, 2006 of approximately
      $0.7 million. In Europe, operating expenses for the six months ending August
      31,
      2007 were approximately $0.7 million with Corporate at approximately $1.6
      million, compared with the Europe operating expenses for the six months ended
      August 31, 2006 of approximately $1.2 million with Corporate at approximately
      $2.1 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 $28 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 $4.9 million for the six months ended August
      31, 2007 and operating loss of approximately $3.6 million for the six months
      ended August 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).





Page
          4


***Other
      income (expense)***





Interest
      expense for the six months ended August 31, 2007 was approximately $02 million
      as compared to $0.4 million for the six months ended August 31, 2006. The fair
      value adjustment for a warrant liability was a benefit of approximately $0.3
      million for the six months ended August 31, 2006.





***Net
      Results***





We
      are
      reporting a net loss of approximately $5.8 million or $(0.25) per common share
      for the six months ended August 31, 2007 compared to a net loss of approximately
      $3.2 million or $(0.25) per common share for the six months ended August 31,
      2006. 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
      $5.7 million or $(0.24) per common share; and approximately $3.7 million or
      $(0.29) per common share for the six months ended August 31, 2006. Our
      discontinued operations resulted in loss of approximately $0.2 million or
      $(0.01) per common share for the six months ended August 31, 2007 and a profit
      of approximately $0.5 million or $0.04 per common share for the six months
      ended
      August 31, 2006.   ******





***Liquidity
      and Capital Resources***





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





Total
      assets increased by approximately $2.5 million from approximately $3.1 million
      as of February 28, 2007 to approximately $5.6 million as of August 31, 2007.
      The
      increase is due to the increase in cash of approximately $0.7 million, an
      increase in trade accounts receivable of approximately $1.6 million, an increase
      in inventory of approximately $0.1 and an increase in fixed assets of
      approximately $0.1.





Total
      liabilities increased by
      approximately $4.6 million from approximately $11.6 million as of February
      28,
      2007 to approximately $16.2 million as of August 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
      contracts of approximately $2.5 million and an increase in other current
      liabilities of approximately $0.9 million.





*Statement
      of Cash Flow Changes*





Our
      operating activities provided approximately $0.8 million in cash during the
      six
      months ended August 31, 2007.  Our net loss of approximately $5.8
      million along with an increase in accounts receivable and inventories of
      approximately $1.7 million; offset by non-cash items of approximately $2.4
      million which include depreciation and amortization, equity instruments used
      for
      compensation, deferred contracts in progress-net and other assets of
      approximately $3.0 million and an increase in accounts payable and accrued
      liabilities of approximately $2.9 million.





At
      August
      31, 2007, the Company had negative working capital of approximately $12.1
      million.  The primary reason for the working capital deficit is the
      level of accounts payable and accrued salaries and benefits of approximately
      $7.8 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 contractsof approximately $2.5
      million.





During
      the six months, we used funds for investing of approximately $0.3 million in
      testing equipment and approximately $0.4 million was put into a restricted
      certificate of deposit which matures in August 2009.





Our
      cash
      flows provided by financing activities were approximately $1.2
      million for the six months ended August 31, 2007.  The
      Company received $1.0 million of cash from the exercise of warrants to acquire
      two million shares of common stock and approximately $0.2 million in proceeds
      from the issuance of notes payable.  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.





Page
          5


***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 six months ended August 31, 2007, we had a net loss
      of approximately $5.8 million and positive cash flow from operating activities
      of approximately $0.8 million.  In addition, we had a working capital
      deficit of approximately $12.1 million as of August 31, 2007.





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).





Page
          6





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.




During
        the quarter ended August 31,
        2007, the Company issued 245,531 shares of its restricted common stock in
        exchange for services provided by consultants. Such shares were valued at
        approximately $166,000 (estimated to be the fair value based on the trading
        price on the issuance date).
  During
          the quarter ended August 31,
          2007, the Company issued 887,642 shares of its restricted common stock
          in
          exchange for services provided by consultants. Such shares were valued
          at
          approximately $689,000 (estimated to be the fair value based on the trading
          price on the issuance date).





During
      the quarter ended August 31,
      2007, the Company issued 62,235 shares of its common stock in exchange for
      services provided by consultants.  Such shares were valued at
      approximately $61,000 (estimated to be the fair value based on the trading
      price
      on the issuance date).





***Off
      Balance Sheet Arrangements***





As
      of August 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 six months ended August 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 August 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.





Page
          7


*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 August 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 August 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.





*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.





The
      Company is accounting for the
      contract described in Note 4 under 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.





Page
          8


*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.





*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.





Page
          9


*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 August 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 August 31, 2007, changing business
      circumstances, and the ability to realize certain deferred tax assets through
      loss and tax credit carryback strategies. At August 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."





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.











Page
          10




**Item
        3:  Controls and Procedures**
 
 We
        carried out an evaluation of the
        effectiveness of the design and operation of our disclosure controls and
        procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as
        of
        August 31, 2006.  This evaluation was carried out under the
        supervision and with the participation of our Chief Executive Officer and
        Chief
        Financial Officer.  Based upon that evaluation, our Chief Executive
        Officer and Chief Financial Officer concluded that, as of August 31, 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 August 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.






Page
          11


**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 August 31,
        2007, the Company issued 62,235 shares of its unrestricted common stock in
        exchange for services provided by consultants.  Such shares were
        valued at approximately $61,000 (estimated to be the fair value based on
        the
        trading price on the issuance date).
 
 During
        the quarter ended August 31,
        2007, the Company issued 245,531 shares of its restricted common stock in
        exchange for services provided by consultants. Such shares were valued at
        approximately $166,000 (estimated to be the fair value based on the trading
        price on the issuance date).
  During
          the quarter ended August 31,
          2007, the Company issued 887,642 shares of its restricted common stock
          in
          exchange for services provided by consultants. Such shares were valued
          at
          approximately $689,000 (estimated to be the fair value based on the trading
          price on the issuance date).





**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 pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.





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








Page
          12


**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/
      THOMAS A. WAGNER


Thomas
      A.
      Wagner                                                                                                               Date:  October
      12, 2007


Chief
      Financial Officer
















**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 pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.





Exhibit
                32.2
            Certificate
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.